Understanding the true cost of Driver Behaviour
It won’t be news to businesses or fleet managers that running a fleet of vehicles revolves around costs and the ongoing challenge of cost containment. Effectively managing a fleet of company vehicles can be a significant drain on a company's financial and operational resources.
The requirement to cut fleet costs is a constant and many commercial fleets are expected to decrease costs while maintaining existing levels of service and customer satisfaction. Clearly it’s a complex area and fleet managers need to take into consideration an ever increasing number of variables.
Often managers are given a specific percentage-reduction goal and it is then their responsibility to establish how to achieve it. As a result, companies are adopting a multi-faceted approach to cost containment. To have the maximum effect, it is vital to approach each element in a structured manner and identify where there are opportunities to do things differently, without negatively impacting on longer term strategic goals.
What does Total Cost of Ownership cover?
Total Cost of Ownership (TCO) or Wholelife Cost is a generic term for the overall cost of a fleet vehicle for the entire term of leasing or ownership and takes into account all relating factors. This approach is accepted widely as the only way to establish the true cost of running a vehicle. Access to accurate information at this level enables fleet managers to make informed decisions when researching and buying vehicles and developing fleet management strategies. In addition, well-informed businesses are able to make significant savings by managing the TCO of their fleet.
There are varying views on the specific measurements for TCO, but can be divided into eight direct factors: depreciation, fuel, interest, maintenance and repair, accident/insurance, management fees, taxes and tyres. However these costs are just the tip of the iceberg and don’t take into account other hidden costs, such as vehicle downtime or under-utilisation.
LeasePlan International’s illustration below highlights similar elements (for European car fleets) as a proportion of the whole. In contrast an emerging market, such as the Middle East, this view is only just being developed. Traditionally the region has been predominantly interested in cost at point of sale; whereas now fleet managers’ mindsets are beginning to change and areas such as fuel efficiency are now being taken into consideration.
Given that TCO means different things in different regions/countries, how do global organisations obtain meaningful and comparable TCO figures in different markets? Also these standardised measures are outside of the initial investment and vehicle’s residual values. Again these will vary widely from country to country for reasons such as popularity, taxation schemes and fluctuations in fuel prices.
Measuring and monitoring
Insight is key to accurate TCO figures and businesses need to take a structured approach to calculate them. Once calculated, a baseline can be identified and used to compare costs within the fleet, identify trends and make strategic choices.
In order to measure and monitor TCO figures there are a range of tools available to the fleet manager all of which will enable the evaluation of driving habits and identification of areas for improvement; with the aim of making a significant difference to driving behaviours which have a direct impact on TCO.
Telematics devices are a great start-point for the collection of certain TCO data. They are great to identify habits such as hard braking, tyre wear and tear, driver fatigue, efficient routing. Licence checks and fuel card data will also provide a source of information on costs. However there is another significant contributing factor which requires ongoing investment and focus from fleet managers and that is the role of the individual driver.
Driver profiling is an ideal way to build a picture of driver behaviour. Risk assessments, which create a profile for a driver, will quickly identify areas which require intervention.
The impact of driver behaviour
According to a top 10 leasing company: “…know the driver, or more precisely driver behaviour, accounts for 35% to 45% of the Fleet TCO”. This fact will be true no matter the type of fleet. Much research has shown that at least half of the elements within TCO are impacted by driver behaviour, indicating that training and awareness is essential and effective fleet risk management in these key areas will have a direct impact on controlling costs.
Much of a fleet risk management programme will focus heavily on safety, however they are also intrinsically linked to greener driving strategies. A workforce well versed in both of these aspects will help in reducing TCO costs, not only from the perspective of fuel reduction, safer driving, insurance claims and vehicle repairs, but also help with the more hidden TCO areas such as vehicle downtime.
The next step for businesses is to understand the impact of their drivers’ behaviour and move towards a best practice approach, through driver training and continuous improvement programmes, as part of a broader fleet risk management programme.