How Business Plans Shape Fleet Budgets

Sept. 4, 2013

Reprinted with the permission of Equipment Manager magazine, the magazine of the Association of Equipment Management Professionals.

A business plan is similar to a NASA launch pad. The plan is a platform from which a three-stage progression is propelled: Stage one, of course, is the business plan itself; stage two, the fleet plan; and stage three, the budget.

Marilyn Rawlings, CEM, and fleet manager for Lee County (Fla.) Fleet Management, says the basic business plan has a historical perspective that tells you where you’ve been, a factual element that tells you where you are, and a forecast element that tells you where you want to be.

Building a business plan for some asset managers, she says, takes “an encyclopedia approach to some degree, but that is just regurgitating facts.

“For me, a business plan is more of a road map that guides me from where I am to where I want to be.”

In Rawlings’ case, the “where you’ve been” part started eight years ago when she began documenting the core functions and responsibilities of her department in an effort to improve.

The factual parts are benchmarks she has established to provide a historical record. “I measure everything,” Rawlings says. “I can tell you what the average cost for a gallon of gas was in 2008 and what it is in 2013. I can tell you how many gallons we have used and how much we have spent over time, or I can tell you how many worker’s comp hours we’ve had.”

Eight years of measuring the same thing—such as increases in battery, tire, and repair costs—makes the job easier. “I have good information on where we have been, where we are now, and what I would like my numbers to be next year,” Rawlings says.

Although she can’t control some of the numbers—fuel costs, for instance—she can gauge how accurate her cost projections are.

If upper management says it doesn’t want to see any fuel cost increases next year, Rawlings can realistically assess the viability of the goal. She may not have control over fuel cost, but she can, and does, make suggestions to the equipment users she serves on how to cut back those costs.

“If they waste fuel, I can’t affect that,” she says. “What I can affect is idling time. Shut-off devices, for example, have been installed on trucks that won’t let them idle more than five minutes. After that—if the PTO is not engaged—the engine shuts down.”

To create a business plan, Rawlings writes a synopsis that summarizes where her fleet has been (the history of the operation), where the fleet is now, and where she wants to go. Begin by collecting all the data you can measure that justifies the changes you’ve made, she says, and that gives you a direction to reach your objective.

“When I do my business plan,” Rawlings says, “I call everybody I know and ask them to send me a copy of their plans. I pick bits and pieces from each and create my own.”

Rawlings writes a business plan every two years, develops an annual budget, and projects vehicle replacement out five years, “with the first three years being my key target,” she says. “This lets the county know what they should budget in capital each year. Then I hope to get it.”

Her business plan is also her fleet plan because what she wants to accomplish has to line up with what the county wants to do.

“If the county has a green initiative, for instance, and I’m not in compliance with that, then something is wrong,” she says. “I still have to be supplemental for the county to achieve its goals and objectives.”

The transition from fleet plan to budget works like this: “My goal might be to reduce cost by replacing a third of the fleet every year for the next three years,” she says. “However, I probably won’t have the capital funds to make that happen. My business/fleet plan may have to be changed in a way that allows me to reach my goal in five or 10 years.”

Another Florida fleet manager, Gregory E. Morris, CEM, and his administration manager, Karen Yeo, at Sarasota Fleet Services, focus on three areas: maintenance, equipment acquisitions, and fuel supply and dispensing at four fuel sites within Sarasota County. The department’s business plan structure is based on a “high overview of what it is we actually do in fleet,” Yeo says. “Then we get into specifics on a high level.”

The plan discusses customer marketing, what services the department provides, what the organization looks like, and who does what. Strengths, weaknesses, and opportunities are analyzed and included in the business plan, as is financial information on how the internally funded department supports itself. The business plan discusses how certain outsourced services—such as transmission repairs, muffler work and upholstery—are coordinated.

In fact, Fleet Services has three facilities throughout the county, and each supports its own parts department. All three have been outsourced to a contracted, operated parts company.

“An audit recommended that we have at least two people in each of our parts rooms, and that would have made us less competitive overall,” Yeo says. “We found the best way to improve services and overcome this challenge was to outsource the parts department at all three of our shop locations. Our main Fleet Services repair shop houses the administrative offices and performs maintenance on all types of vehicles and equipment. A second facility specializes in maintaining emergency equipment, and a third location is responsible for major heavy-equipment repairs. It also maintains a limited number of passenger vehicles.”

Evaluating strengths, weaknesses, and opportunities leads into cost procedures, what technicians do and so forth, Yeo says. “We track everything through our database, which pulls in data from the areas we service.”

A “high overview” is also taken in making the transition from business plan to fleet plan, according to Morris. “We discuss fund balances in acquisitions, maintenance, and fuel, which help us support our financials year to year,” he says.

“Being a fleet, you never know what expenditures you’re going to need,” he says. “Our fleet has aged in the last few years, so our cost may go up or down compared with our rate structure, but we have balances to support that.”

Creating a budget from the fleet plan, Yeo says, “isn’t a lengthy process since we’ve been doing it for so long. We have many process improvements in place, so the largest part of budgeting is reviewing business plans and updating them. We do that every year.”

It takes a couple months to include supporting documentation requested by management. “We prepare an operational budget for ourselves and also prepare rates for our customers,” Yeo says. “Budget-wise, what once took three weeks to prepare now takes about three hours, thanks to help from our IT department.”

During the budget process, Morris says, “Every year we try to make sure our labor rate is lower than our outside competition. So far, we have been able to do that and keep our costs down as much as possible.”

Skanska USA Civil, Inc., also serves internal customers in various markets.

“As the equipment service group within Skanska, our customers are internal,” says Mason Ford, CEM, director of equipment services. “The plans we develop are directly related to the long-term strategy of each business sector, such as power construction, mine reclamation, or transit.”

For that reason, a key element in his business plan development is to focus on the particular industry he services.

“We are in many businesses, and that’s where our business plan comes from,” he says. “We have to know which business sector we are in and know what the volumes are in terms of dollars. Each sector has very different needs for equipment value versus contract value. The ratio of heavy mine reclamation may be 80 percent of cost for equipment. Power construction and transit might be 3 to 7 percent. In foundation work it might be 30 percent.”

Then comes the second element: “You want to go out and find the best values on equipment used in that particular industry.”

Building a fleet plan from the business plan is best explained by example using fictitious numbers, says Ford. In the West Coast region, the annual budget might be $1 billion. Of that total, $250 million is transit work, $250 million is dirt work, $250 million is steel erection and that type of construction, and another $250 million is power.

“Each one of these segments requires a specific type of fleet, both fleet value and number of units,” he says. “I don’t think anyone builds a fleet from scratch these days, so a middle step is required to take a look at what the fleet needs and forecast the number and type of units. We develop a gap analysis between the existing fleet and the future fleet.”

In that timeless gap, you are looking at the existing fleet in terms of today, according to Ford, but that doesn’t get you where you want to go. You have to look at it over a period of time.

“The current fleet continues to wear out on the way to the future,” he says. “You have to look at existing work, new work, business target, and the wear-out of consumption of the existing fleet.”

The first layer of his forecast looks out seven to 10 years. The second layer projects out two years.

Ford budgets by levels. First, an ideal capital budget is created for big items and for replacement equipment. Second, a final capital and operating budget is created.

 “The next three months are crystal clear,” Ford says. “Six months out things begin to get a little murky. A year out and it becomes a little foggy, and forecasting two or three years out is more of a general direction.”

Business plans, fleet plans, and budgets can give asset managers a powerful weapon to use in educating upper management on just how important financial management is within the equipment department.

“You can give a business plan to upper management, but you can’t be sure they read it,” Rawlings says. “That’s why I discuss ideas and concepts with my boss and make sure I am communicating with the people above me. Hopefully, by getting them involved in discussing what I’m doing, they will understand that when I ask for things I’m not asking just to be asking. It is something I really need.”

To make sure upper management “gets it,” Rawlings carries on a tradition started years ago by a county manager: Upper management spends a day or two working in the equipment department.

Rawlings says her boss spent a couple of days on the fleet frontlines in July. Before he arrived, “My staff had a lot of ideas of what they wanted him to do, such as having him work on a Vac-con (vacuum equipment) or putting him in the front office on one of our busiest days, so he could answer the phone and balance fuel.”

By doing this, she says, if she needs another person in the front office, upper management’s reaction will be, “Boy, do you ever!” That person becomes a fleet manager’s advocate, not for things the manager wants, but for the things the manager really needs.

Sarasota’s upper management is fairly new, according to Morris. He has given his business plan to his boss and the director of general services. “At meetings we have discussed how fleet works and how it helps our customers,” he says. “A lot of departments have been broken up during this last year and are still getting reorganized. Things are changing so much, but we have to keep up with it.”

Ford says there are a number of ways to show you are operating efficiently. One is your internal cost versus retail rates, which is a reasonable measure. With fleets that are his peers ($80 million to $3 billion), “You have to look at the return on capital investment. Otherwise you might be better off just putting the money in the bank.”

Ford says equipment ownership is a long-term proposition. “You don’t just flip a switch. There are many factors you have to consider: storage, maintenance, parts, personnel, and processes tied to equipment ownership. Nothing is done quickly,” he says.

For example, Skanska is asking manufacturers to consider safety and environmental concerns. “We are in a stage right now where we’re basing our capital budget on the availability of equipment that meets the safety and environmental needs of our projects,” Ford says.

All considered, business plan to fleet plan to budget are precise stages that help fleet departments operate efficiently and demonstrate to upper management the importance of the equipment division. The fleet manager—in Morris’ words—“stands in front of the boat and points in the right direction.”