Should accident damage be included in your ‘TCO’ calculation?
I was reading some literature out of Europe this week, where accident/collision damage was included in their Total Cost of Ownership (TCO) calculation.
I found this rather interesting, as historically my opinion has been “No you should NOT include it” because I considered it to be more ‘Driver’ orientated, rather hit and miss (pardon the pun) and could be easily distorted by large repair figures.
As such, I’ve always isolated it as a ‘Cost’ and simply reviewed the ‘Average Repair Cost’ across the vehicle types I’m considering, and used it to influence my final decision.
But is this the right approach?
About 6 months ago, I posted about a client telling me how they had reduced their number of accidents/repair incidents by over 70% in 18 months. Interestingly they attributed the result to increased driver accountability, a uniform fleet vehicle, and vehicle selection.
If you don’t include damage/repair costs in the calculation then how will you capture the potential of this sort of change?
This particular client definitely didn’t go with the cheapest vehicle. In fact, they spent more for a vehicle with a higher number of safety features.
Upon reflection, my position still stands. One driver who has multiple scrapes and dents in a single vehicle type can distort your TCO calculation.
As such, I will continue to use and manage against TCO budgets excluding accident damage.
In saying that, accident damage should always be collected and retained.
Total Cost to Mobilise (TCM)
The ability to understand the cents per km real “cost to mobilise” a specific driver based on real TCO (rather than projected) including things such as accident damage (at fault) is becoming essential.
I.e, regardless if it’s a pool car fleet or an allocated vehicle, you should know exactly what it costs to mobilise each of your employees.
We can call this “Total Cost to Mobilise“ (TCM) and you can add in their taxi, uber, ferry costs if you can capture them.
With this information, you can make informed decisions on safety options, travel type, vehicle selection and have a unit of measurement, to understand whether or not you achieved your goals.
Remember when you stopped buying DVDs and started subscribing to Netflix or Stan? Very soon people will be knocking on your door offering the mobility equivalent.
If you don’t know your TCM you’re going to struggle to make sound economic decisions.
Therefore, I recommend best practice is :
- TCO for procurement purposes
- TCM for policy crafting
An Automated Management System can allow you to easily collect the relevant data you need to determine your ‘TCO’ and ’Cost per driver’ as well as your ‘Total Cost to Mobilise’, and then be able to make the right decision for your business.
About the Author:
Ron Sullivan is a Co-Founder of OviDrive & been involved in the Australian arms of 2 ‘start-ups” which have gone on to be 2 of the top 5 business in the fleet sector. He has 20 years fleet leasing and management expertise, including 4½ years running his own fleet consultancy business.