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Finance director: guide to fleet management

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In most businesses there is a powerful trinity made up of the fleet department, finance and HR that defines the strategic approach to transport.
Each department tends to have its own key area of responsibility, with fleet more vehicle orientated and HR more driver focused while finance keeps a direct eye on costs, but co-operation between the three is key to achieving the overall aim of a safe, efficient, effective fleet.
This is particularly true when it comes to the relationship between the fleet department and the finance team, especially on larger fleets where vehicles represent a multi-million pound investment that is only just overshadowed by salaries and building costs.
And as the fleet could prove to be a rich source of savings with the right policies in place, vehicles have come under intense scrutiny as companies continue to search for new cost efficiencies in the face of another year of economic hardship.
However, the difficulty facing many finance directors is how to identify the savings potential without being swamped with data. After all, it is pointless having a monthly report which can serve only as a doorstop when there are so many other pressing issues for the finance team to handle during the working day.
The answer lies in key performance indicators, which can create a virtual fleet dashboard to highlight where action is needed. But which ones should a financial director choose?
Nigel Trotman, a Fleet News Award-winning fleet manager who is now head of strategic consultancy for leasing firm Alphabet, believes a key step is to identify trends and changes.
He says: “It is important to provide financial directors with useful
information on cost trends as well as regular budget snapshots.
“In my experience, the first thing an FD usually asks in a discussion about their company’s fleet costs is ‘how have they changed?’ Are they trending up or down? How do they compare with similar fleets?
“They also want to know what costs the fleet manager can influence and which potential changes will have the biggest impact on the bottom line.”

Effectively, the key is to target the biggest risks and rewards as quickly as possible.

As a foundation for a ‘fleet dashboard’ for FDs, key figures would include total fleet cost, leasing costs (where appropriate), fuel costs and other ‘controllable or avoidable’ costs.

Leasing costs would be replaced by funding and depreciation costs for an outright purchase fleet.

However, while this provides a benchmark for costs, it can only go so far in providing insight.

Trotman says: “Leasing or depreciation is the largest cost, but the fact is that once you’ve done your leasing deal you can’t do much about it apart from monitor the leasing company’s cost of money.

"The FD should be on top of that anyway and will know whether it’s good, bad or indifferent.

“Fuel costs are often viewed as hard to manage as variations are driven primarily by pump prices.

But they can be controlled by addressing driving skills, vehicle policy, mileage reimbursement methods and so on.”

Part of the FD’s role is to challenge the fleet manager or controller about new ways to tackle old problems. Fuel is a case in point. Switching mileage reimbursement from the Government’s Advisory Fuel Rate to the actual business fuel used has saved some fleets thousands of pounds a year.

FDs should be asking the person with fleet responsibility to analyse these alternatives and make recommendations.

An FD dashboard identifies where the real value lies. Instead of taking reports on all aspects of the fleet, finance directors should focus on exception reporting and benchmarking to deliver the intelligence they need to make changes.

For example, the fuel section of the dashboard should enable the FD to monitor the top level fuel cost trend, while the fleet manager drills down to the level of individual vehicles and drivers.

This is the same for other costs, such as accidents, daily rental charges and parking penalties.

It allows the finance director to quickly identify an issue from a holistic viewpoint, while the fleet operator can isolate the departments or drivers which are causing a problem, so something can be done about it.

Trotman adds: “If the business is not capturing this data, or if it’s hidden away in different departments’ expenses budgets, then it is a gap that needs to be plugged quickly.

“On their own, one-off and low-level charges don’t necessarily constitute a large amount, but if you put them all together, they start to add up.”

Different areas of cost require different treatment when setting up a ‘fleet dashboard’. For example, while leasing rates would be monitored for a rising trend and any exceptions, issues such as parking fines warrant a regular summary of total cost for a set financial period.

In many companies, a steady stream of parking fines may be hidden behind layers of departmental management, so the true scale of the cost to the business is hidden.

Jason Francis, managing director of fleet software firm Jaama, says: “When finance directors see a figure showing what parking fines and other charges are costing the business, they sit up and take notice.

"In some cases, they have to rethink whether it is cost effective to retain a customer, particularly for delivery companies operating in city centres. Without effective reporting, it can be very difficult to identify savings in this way.”

Francis points out that reporting shouldn’t just identify where cost has been incurred, it should also act as an early warning system of potential financial exposure in the future,

He adds: “For example, if lease costs are as expected, then an FD doesn’t have to deal with that, but if there are exceptions, where costs might spike in future, action needs to be taken. It is that kind of flow of information that is important.”

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