The Cost of Downtime: Keeping Drivers On the Road
Whether it’s a mechanical problem or an accident, a fleet will inevitably incur downtime. Even when using strong management programs, there is a cost when drivers aren’t driving.
The most common causes of downtime are related to either mechanical problems, such as engine or transmission problems, or accidents. In other words, specific events. Mechanical breakdowns are far less common today than they were 20 years ago, but, unfortunately, still occur and result in downtime. Accidents create an entirely different set of costs, which can possibly be far greater than just the repairs to the vehicle.
At a Glance
Downtime costs are important factors in running a fleet. Determining how much they are begins with knowing what the component costs are, and developing a formula by which they can be applied to events.
- Know your drivers’ employment costs, including salaries, benefits, even bonuses and commissions.
- Know the productivity costs.
- Track downtime in detail.
There are costs incurred when providing company vehicles. Some of them are variable — such as fuel, maintenance and repair, and tires — and change as use changes. Some are fixed costs — such as depreciation and insurance — related to simply having those vehicles.
The standard categories of fleet cost are “hard” costs, expending company funds when incurred. And, “soft” costs, those that don’t necessarily result in a direct expenditure, but are every bit as real as hard costs. When drivers aren’t driving, when they aren’t out doing the job because of a mechanical problem or an accident, they incur downtime costs, which can be both hard and soft, and add thousands of dollars to a fleet’s budget.
Defining the Problem
Much of the business literature and research about downtime surrounds systems; e.g., technology-related downtime due to breakdowns, backups, and other issues that company IT departments both suffer as well as cause. Most of the remaining information is dedicated to manufacturing — when the line is down, it costs the company money.
There is little formal research surrounding fleet drivers’ downtime; however, it isn’t difficult to define it, determine causes, quantify costs, and manage it.
Fleet drivers depend on vehicles to do their jobs. Some use them simply for transportation, for themselves and their customers, covering a geographic territory to which they’re assigned. Others use vehicles to provide service to customers, carrying tools, parts, and products.
Still other drivers are hired to deliver products or parts to customers. Whatever the mission, it cannot be accomplished without the use of a vehicle.
When vehicles are down — need mechanical repairs, are involved in an accident, or stolen — there is a period of time when drivers are also down, unable to perform their jobs.
Until a driver is back on the road, downtime causes the company to incur expense, both hard and soft, that otherwise would not occur:
● Hard costs involve actual expenditures related to the downtime.
● Soft costs are not the actual use of funds directly related to the problem, but costs incurred during the time the driver is lacking transportation.
Figuring Out the Cost
Before any expense can be managed, it must be identified. Identifying downtime costs is not quite as simple as it sounds, however, smart fleet managers know how to go about it.
To illustrate how downtime costs are incurred, we can use a hypothetical series of assumptions, first about the driver.
The total compensation portion of driver cost is $65,000 per year in salary and benefits. The driver produces $2 million per year in revenue for the company (sales, product, and service revenue), from which the company enjoys a 5-percent net profit margin, or $100,000. This can be illustrated as follows:
✔ Salary: $50,000 per year
✔ Benefits: $15,000 per year
✔ Production: $2 million per year
✔ Net-profit margin: 5 percent.
The next step in quantifying downtime is to reduce the above annual costs to hourly and/or daily costs. Assuming 260 working days per year and an eight-hour working day, the calculations are as follows:
✔ Daily cost: $65,000/260 = $250 per day
✔ Hourly cost: $250/8 = $31.25 per hour
Further, any time the driver is unable to perform the job due to fleet downtime costs the company money as well:
✔ $100,000/260 = $384.61 per day
✔ $384.61/8 = $48.07 per hour
These are the employment costs (salary and benefits) the company incurs to employ the driver, and the productivity the company loses when the driver is down, unable to work. The former are direct, hard costs; the latter are opportunity, or soft, costs.
A loss of productivity doesn’t cause the company to actually expend funds; however, it does cause the company to forego the revenue that the driver produces when working. Combining these costs shows that each hour the driver is down, the cost of that time is $79.32.