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How To Create a Fleet Management Budget

by EnSight+ on April 18, 2019

The creation and upkeep of a fleet management budget are the first responsibilities given to a new fleet manager.

Fleet Management Budget

It's Easier than You Think

After all, effective fleet budgeting determines the dollar amount that can be reinvested into the business.

This article walks you through a few fleet budget strategies that can be applied to both small and large companies. Fleet managers can minimize fleet budgeting problems by following a basic formula - and sticking to it.

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Determine the Goals

Begin your budget by looking towards the future. Remember to be realistic though. A budget is only useful if you can stick to it.

Having goals for the upcoming period enables the fleet manager to construct a plan with specific objectives in mind. This prepares the company for expected changes within a given timeframe and helps determine which line item costs should be featured prominently in the budget.

Costs will vary from company to company, but some common line items that appear on a fleet budget are:

  • Gas & fuel costs
  • Vehicle maintenance costs
  • Taxes & licensing fees
  • Resale value adjustments
  • Insurance & accidents
  • Vehicle depreciation
  • Interest costs
  • Safety programs

Look at Historical Expenses

Now that the budget is outlined around where the business is going, it’s time to reconcile it with the past.

Costs incurred in the past period are often used to develop a baseline for the current fleet management budget. At this point, the fleet manager just needs to plug historical data into a budgeting spreadsheet template.

This process will likely illuminate some areas where improvement is needed, such as runaway fuel costs or waste associated with vehicle wear & tear.

With the budget in place, fleet managers can use telematics technology to optimize route planning, reduce fuel consumption, and proactively manage vehicle maintenance for even greater cost savings.

Choose a Forecasting Technique

Effective budgeting involves planning for the future, but this is often complicated by things like unexpected costs and inflation.

When it comes to fleet budget planning, there are two techniques commonly used to cope with fluctuating costs:

 

Incremental Budgeting

With this simple method, a flat increase (4% or 5% for example) is added to historical expenses across the board. This method is easy to understand but also has some shortcomings.

For one thing, an ever-expanding budget forecast does not do much to incentivize fleet managers to cut costs and may contribute to overspending.

Furthermore, this approach doesn’t assess whether the previous year’s spending was necessary or appropriate. This budgeting technique may serve small businesses or new ventures just starting out, but it may not be suited for larger growth-driven businesses.

Zero-Based Budgeting

Unlike incremental budgeting, a zero-based fleet budgeting approach includes sophisticated analysis.

A much more involved process, zero-based budgeting takes the fleet manager line by line and requires each expense to be justified from zero. It identifies cost-drivers within departments and demands an understanding of expenditures, sometimes over the course of several periods.

This disciplined approach helps managers come in under budget and internalize a culture of cost-management across departments. Granular insights from high-level fleet telematics tracking really lend themselves to this method of fleet budget planning.

Monitor, Control, & Reassess your Fleet Budget

This should go without saying, but a budget doesn’t accomplish much unless you work with it on a regular basis.

The required level of interaction with the fleet budget may vary, but there should be a schedule in place to examine actual expenses and income as they relate to the projections.

Monthly, weekly, or even daily review may be necessary in periods of transition or times of crisis. It’s also wise to benchmark the budget against previous periods to assess progress on long-term goals and observe trends as they form.

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Topics: Blog, fleet management

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