Budgeting

Question 1

Why is it important to understand the organization’s strategy?

Answer 1

Organization’s strategies will impact budget.

Question 2

Why is it important to have a vehicle replacement policy?

Answer 2

Biggest financial impact is acquisition of new vehicles and resale of aged vehicles. Vehicle replacement policy helps budget accurately.

Question 3

How might the budget structure for acquiring new vehicles affect the depreciation of the asset?

Answer 3

Finance department will determine how depreciation is allocated to the monthly operating budget.

Question 4

What are the two biggest fleet expenses?

Answer 4

Depreciation and fuel.

Question 5

What are some recommendations for budgeting for depreciation?

Answer 5

Strive to break even at the end of the lease.

Question 6

What are some factors that might impact fuel budgeting?

Answer 6

• Cost per gallon
• Driving patterns
• Change in average fleet age
• Change in average vehicle fuel economy

Question 7

How can a Fleet Manager budget for maintenance costs?

Answer 7

Group vehicles into mileage-band categories. Project the number of vehicles in each category based on average monthly miles.

Question 8

How can a Fleet Manager budget for crash costs?

Answer 8

Applying a CPI factor to prior year’s loss experience to reasonably budget this expense.

Question 9

How can a Fleet Manager budget for lease finance?

Answer 9

Use lease schedules to predict payments for the year.
Use economic resources for projected interest rates.

Question 10

How can a Fleet Manager budget for used vehicle settlements?

Answer 10

• For open-end leases, the goal should be to break even at the back end of the lease.
• Budgets for closed end leases should include estimates for back-end charges, such as excess mileage and returned vehicle damage.

Question 11

How can a Fleet Manager budget for violations?

Answer 11

Past driver behavior will predict future driver behavior. CPI factor should account for more aggressive violation collections.

Question 12

How can a Fleet Manager budget for licensing?

Answer 12

If fleet doesn’t fluctuate then these expenses stay the same year to year.

Question 13

How can a Fleet Manager budget for administration?

Answer 13

Outsourced management fees are predicted based on prior year charges.
Internal administration resources include salary/benefits of fleet staff.

Question 14

How can a Fleet Manager budget for facilities and equipment?

Answer 14

Replacement for capital tools, (e.g. garage lifts, diagnostic machines, etc.) are included in the capital budget.

Question 15

When should a Fleet Manager establish their budget for the next year?

Answer 15

1-2 months before fiscal year end.

Question 16

What is the 10 step process for creating next year’s budget?

Answer 16

1. Establish the budget 1-2 months before the fiscal year end
2. Put together a schedule of organization’s activities for the following year that impact the fleet budget
3. Determine available funds
4. Identify sources of income ex. Personal use deductions, chargebacks to other departments
5. Identify expenses
6. Get quotes for planned expenses ex. acquisitions
7. Negotiate expenses
8. Submit initial budget recommendations
9. Executive committee reviews submitted budget
10. Review and revise the budget.

Question 17

What are some sources of income that should be identified?

Answer 17

Personal usage deductions, chargebacks to other departments.

Question 18

What are some expenses that should be identified?

Answer 18

Regular and periodic.

Question 19

How can the Fleet Manager control expenses?

Answer 19

Have procedures in place for expense approval and only allow approved spending. Perform periodic audits of records.

Question 20

What are the two most common metrics for measuring performance against the budget?

Answer 20

Cost per mile and cost per vehicle per month.