The fleet management industry does well at defining and measuring hard costs and developing action plans to address them. However, “we are much less effective addressing the “soft costs” of fleet,” says Jim Frank, president of Wheels Inc., a fleet management company based in Des Plaines, ILL.
“But soft costs are actually more significant than hard costs and addressing them can have a greater impact on the success of our fleet program, both directly and indirectly. Moreover, I am confident there are ways to measure them that provide a degree of accuracy sufficient to drive thoughtful and effective decision making,” Frank contends.
Downtime a Critical Soft Cost
Fleet management has traditionally encountered problems in measuring the soft costs of downtime, accident prevention, and staff hiring and retention. “Downtime, or productivity, is obviously critical,” Frank explains. “What we’re all about in this industry, as fleet managers or fleet management companies, is providing reliable, good transportation to get sales and service people to their business destinations so that they can effectively make the sale or service the client. All other decisions can be great, but if we’re not consistently accomplishing this goal, we are not fulfilling our primary responsibility.”
Accident prevention is a worthy goal for many reasons, but productivity is a significant reason, says Frank. “Many managers have a difficult time implementing effective safe driving programs because the benefits are considered soft and unquantifiable.”
Hiring and retention is also “absolutely addressable,” says Frank. The quantifiable savings of reducing turnover, by as little as a few percentage points through providing a program attractive to the employee and effective in meeting the job requirements is a valuable contribution fleet can make to the company’s bottom line.
Quantify and Use Ballpark Figures
"Soft costs can appear difficult to put on a spreadsheet for two reasons,” says Frank. “First, we need ways to measure them, and then there is a question regarding the degrees of accuracy.” But he would suggest that both obstacles can be overcome with creativity. Downtime can be quantified through repair incidents, accident occurrences, towing reports, and rental charges. “You can put some numbers in hours and days against those incidents and determine ballpark estimates,” Frank explains.
And informed decisions can be made with ballpark figures, Frank believes. To illustrate, he uses the issue of safety. Some very thoughtful estimates put the total cost of an accident between $6,000 and $12,000, he says. But what appears to be a very wide spread shrinks in significant in the big picture. A mere 5% reduction in accidents for a 1,000-unit fleet amounts to 50 fewer accidents per year. The total savings available is between $300,000 and $600,000 annually.
“Fleet managers can then go to management with that range of savings, and intelligent decisions can be made,” says Frank. The VP of sales can decide if an investment in a safety program is warranted by approximately a half-million dollar savings. “Very rational decisions can be made based upon getting close enough.”