Lifecycle Cost Analysis

Question 1

What are some considerations to make when acquiring new vehicles?

Answer 1

Lifecycle cost analysis

Question 2

What can a lifecycle analysis be used for?

Answer 2

• Determine replacement times
• Lease vs buy
• Employer vs employee provided
• Alternate fuels
• In house vs outsourcing maintenance

Question 3

What is the formula for depreciation?

Answer 3

Net acquisition cost – Net Remarketing revenue = depreciation

Question 4

List some common mistakes to be avoided when doing a Lifecycle Cost Analysis.

Answer 4

• Omission of necessary data
• Lack of structure or analysis
• Misinterpretation of data
• Wrong or misused estimating techniques
• Concentration on insignificant facts
• Failure to check calculations
• Estimation of wrong items
• Using incorrect/inconsistent escalation data

Question 5

What are some factors that may affect the credibility of an LCA?

Answer 5

The accuracy of the data (garbage in, garbage out)

Question 6

What items need to be determined before an analysis can be done?

Answer 6

• 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

Question 7

What does the Fleet Manager need to know in order to determine if company policy must be changed?

Answer 7

If a manager knows the target months in service, target replacement mileage and expected mileage per month

Question 8

How might the Fleet Manager determine the resale price of a vehicle?

Answer 8

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.

Question 9

What methods can the Fleet Manager use to calculate interest?

Answer 9

Monthly interest is calculated by dividing the annual rate by 12

Question 10

What fixed costs should be considered during the LCA?

Answer 10

Management fee, Depreciation, interest

Question 11

What are the two sections that operating cost can be split into and how are they calculated?

Answer 11

Fuel and repairs/maintenance

Question 12

How is personal use factored into the LCA?

Answer 12

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.

Question 13

How can you determine the lifecycle costs-per-mile?

Answer 13

Total lifecycle cost divided by miles driven

Question 14

What are the advantages and disadvantages of extending a vehicle’s lifecycle?

Answer 14

• 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

Question 15

What information must be collected for the analysis to be complete?

Answer 15

• 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

Question 16

What should be considered when determining the maintenance cost for a vehicle?

Answer 16

Maintenance and repair costs should be separated. Consider rental costs when vehicle is under maintenance/repairs.

Question 17

When do you include the cost of a rental vehicle in maintenance cost?

Answer 17

If the time to complete maintenance requires a rental

Question 18

What are some factors that would determine whether a vehicle should be kept?

Answer 18

Maximum replacement years and miles, expected resale value year to year in service

Question 19

When is the optimal time to replace a vehicle?

Answer 19

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.

Question 20

What elements do all LCA calculations have in common?

Answer 20

• Planned vehicle life
• Cost of money
• Management fees
• Book depreciation
• Build time delay
• Personal use
• Downtime cost
• Predicted resale values

Question 21

How do you calculate the future cost of a vehicle and why is it important in the LCA process?

Answer 21

Calculate the cost of the same vehicle in the future. Present cost x ((1+ inflation rate)number of years) = Future cost

Question 22

Describe the process of strategic planning.

Answer 22

• 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

Question 23

What is the Fleet Managers role in the strategic planning process?

Answer 23

Fleet manager to receive feedback and provide to upper management when objectives can’t be accomplished due to conflicts with the strategic plan

Question 24

What are the main sections of a lifecycle model?

Answer 24

• Acquisition section
• Fixed costs section
• Operating costs section
• Personal use section
• Overall totals

Question 25

What parameters can be changed to affect the outcome of the analysis?

Answer 25

Original parameters of the vehicles can be changed to find the best fit for the organization

Question 26

How is depreciation affected over the lifetime of the vehicle?

Answer 26

Higher depreciation cost at beginning of vehicle life then decreases over time

Question 27

How is maintenance cost affected over the lifetime of the vehicle?

Answer 27

Lower maintenance costs at beginning of vehicle life then increases over time

Question 28

What is usually the deciding factor in an optimum replacement analysis?

Answer 28

Downtime expense (repairs and rental costs, lost work hours)

Question 29

What is the Fleet Manager’s objective and how can they achieve it?

Answer 29

Convey information to achieve approval. Determine objectives then build a case around it. Using the strategic plan and linking it to fleet recommendations.