When is the last time, the fleet manager of your organization conducted the life-cycle analyses of assets from the acquired data of the telematics solution? An effective life-cycle analysis of an asset determines the remaining life of the asset in the fleet before the cost of ownership and operation are no longer cost-effective. The analysis can be formulated on the annual operating cost vs. the cost of ownership. Operating costs may include the maintenance cost, fuel economy, downtime cost while the cost of ownership can be modeled on the capture purchase and disposal costs. Despite the life-cycle analyses of assets being the critical skill, the process can be made less time consuming and hectic with the proper storage and management of data in the fleet management system.
Categorize your asset for life-cycle analysis
The preliminary step to the life-cycle analysis of an asset demands the categorization of assets based on their configurations, acquisition costs, and operating use cases. The lifecycle and operating cost may vary depending on the usage of the vehicle.
Vehicles can be classified according to the American Public Works Association’s (APWA). According to which a 10 character code can be generated for each vehicle based on its class, unit type, fuel, weight, application, power source, wheel configuration, transmission, and a user-defined field which can be used to classify the fleet asset. Another method that can be used to standardize the asset data and to ensure the correct categorization of assets is by using the VIN decode tool.
Here it is worth mentioning that while setting up the life-cycle categories, few factors need to contemplate. The life-cycle categories should be defined carefully with a balance. As the much precisely defined category will lead to having fewer assets resulting in a sample set statistically too small to analyze. While the broadly defined categories will combine assets that have different capital and operating costs, making the analysis results too general to establish accurate life cycles.
Input Ownership Cost Data
Another important factor used for life-cycle analysis is the cost of ownership. The capital cost of an asset for a period (monthly or annually) can be calculated as a difference in residual value from one period to another in which asset is in service.
It has been observed as a general practice in the fleet, operating assets are not sold in their early life due to which early year residual value cannot be obtained from the data. However, the value can be calculated by constructing a residual cost curve based on the asset’s configuration, mileage, condition, and locations. Another method to find the residual cost is to use depreciation to estimate the period’s residual value. The sum of years or double declining methods is the best for modeling residual values, as they decline in value sharply in the early years and flatten out in later years, which is like actual asset values on the market. Moreover, the functions of Excel can also be used to calculate the period’s depreciation expense.
Add Maintenance Cost Data
While analyzing the life-cycle of an asset, it is worthy to note the month in which maintenance of an asset occurred and what was the utilization of an asset at that current time. Besides this, the cost of maintenance can be calculated from the time the asset is in-service till the time it is taken out of service. The zero cost of an asset while waiting to be disposed of should not be included as recording accurate meter readings on the work order is essential to correlate the repairs to the life-to-date usage of the asset.
When you are dealing with the operating cost of an asset, the major chunk is generally contributed by the maintenance costs. However, not all maintenance data is worth useable. For data to be used in the life-cycle analysis, it should consider predictable, unpredictable, and reoccurring repairs and maintenance that are related to the actual operation of the asset including preventive maintenance, inspections, breakdowns, warranty claims, and recalls also known as target costs.
Random maintenance cost required after crash repairs or user-requested modifications, weather-caused repairs, and vandalism are known as non-target costs and does not defines how well drivers are trained, where assets are stored, or what management decides. Non-target costs are not related to the regular operation of the asset, and does not occur at normal intervals related to age or use of the asset.
Other Operating Costs
With the aging of an asset, a general assumption is made according to which assets become less reliable; demanding more frequent and longer repairs. By using the downtime method, the reliability and maintainability of an asset can be used for life-cycle analysis. Moreover, downtime cost i.e. the cost to provide an alternative asset (spare or rental) when the asset is out of service or repair will also be added in the category to generate more accurate statistics.
Focus on a Few Categories
While running the analysis, it is insignificant to set up the data for categories with fewer assets, as it will be time-consuming with no or limited return. However, it is advisable to plot the operating cost for such assets which can be later used (at the time of major repair) to identify whether it is their point of replacement or maintenance is more suitable for a fleet.
Life-cycle analyses enable you to focus on the majority of the fleet that is expensive to own and maintain providing you an opportunity to identifying an optimal replacement cycle and build back-up to the replacement budget request.