Managing Direct and Indirect Fleet Costs. GSA Bulletin FMR B-38: Indirect Costs of Motor Vehicle Operations & Activity-Based Costing

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2 Managing Direct and Indirect Fleet Costs GSA Bulletin FMR B-38: Indirect Costs of Motor Vehicle Operations & Activity-Based Costing

3 What This Session Covers GSA Bulletin FMR B-38: Motor Vehicle Management - Indirect Costs of Motor Vehicle Fleet Operations Activity-Based Cost (ABC) Analysis ABC analysis is used to determine and improve the management of fleet operating costs 3

4 Indirect Costs of Motor Vehicle Fleet Operations GSA BULLETIN FMR B-38: MOTOR VEHICLE MANAGEMENT 4

5 Background Indirect costs are to be reported in the Federal Automotive Statistical Tool (FAST) Costs have been unreported or reported inconsistently A 2013 Government Accountability Office report* recommended that GSA publish additional guidance Published in 2014, FMR B-38 provides guidance on estimation, identification, categorization, and reporting of indirect costs **Federal*Vehicle*Fleets:*AdopCng*Leading*PracCces*Could*Improve*Management,*GAOI13I659* *July*31,*2013* 5

6 Excerpts from the GAO Report None of the agencies GAO reviewed capture in their FMISs* all of the data elements recommended by GSA. The types of data missing most frequently are data on fleet costs, including indirect costs, such as salaries of personnel with fleet-related duties. **FMIS*=*Fleet*Management*InformaCon*System* 6

7 Key Aspects of Indirect Costs GSA defines indirect costs as any cost that cannot be ascribed to a particular vehicle or class of vehicles Examples of indirect costs include: most personnel costs office supplies building rental utility costs computer and networking costs Failure to include them can distort a fleet s actual cost Distorted costs undermine the accuracy of cost-based policy decisions 7

8 Recommended Actions 1. Establish improved means of collecting and reporting indirect costs or 2. Utilize the GSA Standard Indirect Cost Factors of indirect/overhead costs if actual data are unavailable This method is only intended to be an interim solution - the expectation is that agencies will pursue the first course of action 8

9 Identification of Direct Costs Direct costs are those items that are directly affected by operation of vehicles and often vary with utilization These costs are usually recorded against a specific vehicle or class of vehicles Direct costs can be either fixed or variable Fixed monthly lease rate, insurance Variable fuel, maintenance 9

10 Examples of Direct Costs Capitalized value, depreciation, amortization, and disposal proceeds Vehicle modifications and accessory equipment Fuel Repair/unscheduled maintenance Preventive maintenance Commercial leasing GSA Fleet leasing rates 10

11 Identification of Indirect Costs Indirect costs are related to the fleet operation but cannot be attributed to specific vehicles or to a specific class of vehicles Unlike direct costs, which can be either variable or fixed, indirect costs are almost always considered fixed or "sunk" 11

12 Examples of Indirect Costs Facilities Amortized facility costs, lease costs, utilities Equipment Amortized shop equipment, technician tools/allowances Miscellaneous expenses Shop supplies Cleaning supplies Small parts (nuts, bolts, bulbs) Office supplies Staffing Local, regional, headquarters and staff support office personnel Administrative overhead The cost of support offices that are attributable to fleet Training 12

13 Challenges in Indirect Cost Identification and Reporting Costs may be diffused across several programs, projects, or accounts Indirect cost accounting requires additional effort above and beyond basic accounting The agency s FMIS may not be configured to support indirect cost accounting 13

14 GSA: Standard Indirect Cost Factors Derived from a five-year average ( ) of the indirect costs of those agencies that reported indirect costs in FAST Agencies that cannot report their own costs should use $468 per vehicle per year, or 7.5 percent of total cost (excluding indirect) Only updated as needed For questions: vehicle-policy@gsa.gov 14

15 Indirect Cost by Vehicle under FAST VLD Element Element Name OC-10 Indirect Cost ID Business Rule Class OC OC OC OC OC Type: integer Block Minimum value: 10 Block Maximum value: 2,000 Block < 47 (10% of GSA guideline for lower level) Flag > 936 (2x GSA guideline for upper) Flag 15

16 Determining Fleet Maintenance and Repair Costs and Cost Competitiveness ACTIVITY-BASED COST (ABC) ANALYSIS 16

17 B-38 versus ABC B-38 Provides guidance so that indirect costs aren t ignored Treats all indirect costs as fixed costs Costs of managing older vehicles are underrepresented in costcompetitiveness and lifecycle cost analyses ABC Places indirect markups on labor, parts, and fuel where appropriate Treats most indirect costs as variable, direct costs Costs of managing older vehicles are accurately represented in costcompetitiveness and lifecycle cost analyses 17

18 Benefits of Conducting an ABC Analysis Determine the reasonableness (i.e., competitiveness) of fleet management costs Determine whether or not (and how) costs can be reduced if they are not reasonable By changing fleet management practices By changing fleet resource consumption practices Provide the foundation for establishing internal cost charge-back rates for working capital funds Assess the benefits of outsourcing or insourcing certain fleet asset management activities 18

19 Key Steps in the ABC Analysis Process Assumes that you have already identified direct and indirect annual costs associated with managing / operating the fleet Define fleet management activities for which costs will be calculated Allocate costs to cost pools associated with each activity Estimate annual consumption of resources Convert annual costs to unit costs of performing each activity Assess reasonableness of costs 19

20 Define Fleet Management Activities Manage asset lifecycle acquisition, operation, utilization, and disposal Furnish in-house maintenance and repair labor Furnish in-house maintenance and repair parts Procure (outsourced) maintenance and/or repair services Procure (and supply) fuel 20

21 Allocate Costs to Activities Establish cost pools or buckets for each fleet-related product or service for which an annual cost will be calculated Develop allocation methods and statistics for allocating costs to pools For example a fleet manager spends only a percentage of time on each cost pool, and would split time (cost) accordingly 21

22 Estimate Annual Consumption of Resources Months of asset ownership In-house M&R labor hours Costs of in-house M&R parts Costs of outsourced/ sublet maintenance and repair services Gallons of fuel 22

23 Convert Annual Costs to Unit Costs TC i / C i = UC i Where: TC i Is the projected annual cost of providing all units of goods or services of Type i (fuel, parts, labor) C i Is the projected total annual consumption (by fleet users) of goods or services of Type i (gallons, dollars, hours) UC i Is the cost of one unit of a good or service of Type i ($/gallon, %, $/hour) 23

24 Calculating Unit Costs An Example $1.9M / 21K = $94 Where: $1.9M Is the total annual cost in Year X of employing and supporting a mechanic workforce of 15 21K Is the total number of hours of in-house mechanic labor projected to be charged to work orders in Year X $90.47 Is the fully loaded cost in Year X per mechanic labor hour 24

25 How Can ABC Analysis Improve Fleet M&R Practices? Consider an organization that thinks its cost of in-house technician labor is $65 per hour, but ABC analysis reveals that it really is $115 per hour How would you and other stakeholders in your organization react to such a finding? Would it make more sense to outsource? Would it make more sense to lease? 25

26 Activity-Based Cost Analysis Recap Understanding the unit costs of your fleet M&R activities is essential for managing and ensuring their reasonableness; no organization can effectively manage fleet costs that it cannot see Any organization can manage fleet-related expenditures but this is not the same thing as managing fleet costs Many fleet costs do not generate regular invoices or receipts that can be retrieved from the finance department/system for compilation and analysis Determining fleet operating costs begins with the development of an annual fleet operating budget; if you don t currently have one, consider creating one either within or outside your organization s financial management system 26

27 Questions? Mercury Associates, Inc. William Gookin Senior Manager Director Federal Fleet Consulting (cell) Scott Conlon Manager Federal Fleet Consulting (cell) 27