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

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

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Copyright*©*2016*Mercury*Associates,*Inc.*All*Rights*Reserved*

GSA BULLETIN FMR B-38: MOTOR VEHICLE MANAGEMENT

Indirect Costs of Motor Vehicle Fleet Operations

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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

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**Federal*Vehicle*Fleets:*AdopCng*Leading*PracCces*Could*Improve*Management,*GAOI13I659*–*July*31,*2013*Copyright*©*2016*Mercury*Associates,*Inc.*All*Rights*Reserved*

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.”

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**FMIS*=*Fleet*Management*InformaCon*System*Copyright*©*2016*Mercury*Associates,*Inc.*All*Rights*Reserved*

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

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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

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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

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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

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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"

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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

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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

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GSA: Standard Indirect Cost Factors •  Derived from a five-year average

(2009-2013) 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: [email protected]

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Indirect Cost by Vehicle under FAST VLD

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Element Element Name ID Business Rule Class

OC-10 Indirect Cost

OC-10.1 Type: integer Block

OC-10.2 Minimum value: 10 Block

OC-10.3 Maximum value: 2,000 Block

OC-10.4

Flag @ < 47 (10% of GSA guideline for lower level) Flag

OC-10.5 Flag @ > 936 (2x GSA guideline for upper) Flag


ACTIVITY-BASED COST (ABC) ANALYSIS

Determining Fleet Maintenance and Repair Costs and Cost Competitiveness

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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 under-represented in cost-competitiveness and life-cycle 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 cost-competitiveness and life-cycle cost analyses

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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

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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

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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

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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

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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

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Convert Annual Costs to Unit Costs

TCi / Ci = UCi

Where: TCi Is the projected annual cost of providing all units

of goods or services of Type i (fuel, parts, labor) Ci Is the projected total annual consumption (by

fleet users) of goods or services of Type i (gallons, dollars, hours)

UCi Is the cost of one unit of a good or service of Type i ($/gallon, %, $/hour)

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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

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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?

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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

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Questions? Mercury Associates, Inc. www.mercury-assoc.com

William Gookin Senior Manager Director Federal Fleet Consulting [email protected] 540-809-3792 (cell)

Scott Conlon Manager Federal Fleet Consulting [email protected] 301-275-4799 (cell)

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