Lifecycle Cost Analysis Flashcards
What are some considerations to make when acquiring new vehicles?
Lifecycle cost analysis
What can a lifecycle analysis be used for?
- Determine replacement times
- Lease vs buy
- Employer vs employee provided
- Alternate fuels
- In house vs outsourcing maintenance
What is the formula for depreciation?
Net acquisition cost – Net Remarketing revenue = depreciation
List some common mistakes to be avoided when doing a Lifecycle Cost Analysis.
- Omission of data
- Lack of structure or analysis
- Misinterpretation of data
- Failure to check calculations
- Wrong or misused estimating techniques
- Concentration on insignificant facts
- Estimation of wrong items
- Using incorrect/inconsistent escalation data
What are some factors that may affect the credibility of an LCA?
The accuracy of the data (garbage in, garbage out)
What items need to be determined before an analysis can be done?
- Target months in service
- Target replacement mileage
- Expected mileage per month
- Lease annual interest rate
- Lease management fee
- Book depreciation rate
- Cost of fuel per gallon
- Estimated personal use
- Daily bridge rental rate
What does the Fleet Manager need to know in order to determine if company policy must be changed?
If a manager knows the target months in service, target replacement mileage and expected mileage per month
How might the Fleet Manager determine the resale price of a vehicle?
FMV
Look at older models of the same vehicle and find out what they sold for based on age and mileage.
Look at auction figures for older or comparable models.
What methods can the Fleet Manager use to calculate interest?
Monthly interest is calculated by dividing the annual rate by 12
What fixed costs should be considered during the LCA?
Management fee, Depreciation, interest
What are the two sections that operating cost can be split into and how are they calculated?
Fuel and repairs/maintenance
How is personal use factored into the LCA?
Must be factored in because company cannot recoup costs of personal use. Company allows personal usage and taxes them on the value of the use.
How can you determine the lifecycle costs-per-mile?
Total lifecycle cost divided by miles driven
What are the advantages and disadvantages of extending a vehicle’s lifecycle?
- Reduced depreciation costs towards end of life
- Avoid vehicle price increases by delaying acquisitions
- Expect higher maintenance and downtime with older vehicles
- Less access to new technologies and efficiencies
What information must be collected for the analysis to be complete?
- Annual miles driven
- Annual shifts (# of 8 hour shifts)
- Maximum replacement years
- Minimum replacement miles
- Net acquisition cost
- Interest rate/ROI
- Miles per gallon
- Fuel cost per gallon
- Loaner vehicle cost per mile
What should be considered when determining the maintenance cost for a vehicle?
Maintenance and repair costs should be separated.
Consider rental costs when vehicle is under maintenance/repairs.
When do you include the cost of a rental vehicle in maintenance cost?
If the time to complete maintenance requires a rental
What are some factors that would determine whether a vehicle should be kept?
Maximum replacement years and miles
expected resale value
When is the optimal time to replace a vehicle?
Lifecycle costs will decrease after the initial year but then increase as maintenance costs rise. Optimal time to replace when forecasted lifecycle costs begin to increase.
What elements do all LCA calculations have in common?
- Planned vehicle life
- Cost of money
- Management fees
- Book depreciation
- Personal use
- Downtime cost
- Predicted resale values
How do you calculate the future cost of a vehicle and why is it important in the LCA process?
Present cost x ((1+ inflation rate)number of years) = Future cost
Describe the process of strategic planning.
- Top management establishes organization’s objectives
- Department manager shows their support for the strategic plan and helps communicate strategic plan with the team
- Team provides feedback
What is the Fleet Managers role in the strategic planning process?
Fleet manager to receive feedback and provide to upper management when objectives can’t be accomplished due to conflicts with the strategic plan
What are the main sections of a lifecycle model?
- Acquisition section
- Fixed costs section
- Operating costs section
- Personal use section
- Overall totals
What parameters can be changed to affect the outcome of the LC analysis?
Original parameters of the vehicles can be changed to find the best fit for the organization
How is depreciation affected over the lifetime of the vehicle?
Higher depreciation cost at beginning of vehicle life then decreases over time
How is maintenance cost affected over the lifetime of the vehicle?
Lower maintenance costs at beginning of vehicle life then increases over time
What is usually the deciding factor in an optimum replacement analysis?
Downtime expense (repairs and rental costs, lost work hours)
What is the Fleet Manager’s objective and how can they achieve it?
Convey information to achieve approval.
Determine objectives then build a case around it.
Using the strategic plan and linking it to fleet recommendations.
