Estimated Costs and
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Actual Expenditure
Operators Should Periodically Check Budgeted Figures Against Actual Costs and Make Modifications Accordingly
THE question often arises: how and when can estimated figures for expenditure be brought into line with the actual amounts, assuming that the estimates are not sufficiently accurate to continue to serve their purpose year after year? It is recommended that the operator should, from time to time, check his budgeted figure for maintenance by reference to his actual expenditure, and modify it in accordance with his own experience.
The point which I propose to discuss is: at what period should the operator average out his maintenance expenditure so that he may be able to use the figures as a check against the budgeted or estimated total? In other words, how soon can he, with safety, modify those budgeted figures in accordance with his expenditure? In respect of a vehicle which is new to him, the answer is, not until it has finished its useful life. This is because it will not be until he has disposed of it that he will know its maintenance cost per mile foi the whole period of use over which he customarily depreciates his vehicles. It will readily be appreciated that a man who habitually replaces his vehicles after four years of use, is likely to experience lower costs of maintenance per mile than the operator who keeps them in service for five years before disposing of them. It is often suggested that there is a point at which increasing maintenance costs offset the diminishing figure for depreciation which, of course, grows less as the assumed life of the vehicle increases. I must confess that I have never been able to assess, with any accuracy, the point at which the two contrasting costs balance.
As regards tyres, the position is not quite so difficult as it is only necessary for the operator to wait until he has replaced a couple of sets of tyres, lf he has kept records of mileage, he may then justifiably consider if the time has not come when he can revise his estimated figures and correct them in accordance with his actual experience. However, let me get back to maintenance costs and demonstrate the way in which they fluctuate, and then try to arrive at a method of checking actual costs against estimated costs.
As an example, I will take a 7-tonner running
24,000 miles per annum. According to "The•Commercial Motor" Tables of Operating
Costs, maintenance expenditure under those conditions will be, for maintenance (d) 0.40d. per mile, and for maintenance (e) 1.50d. per mile, a total of I.90d. Now, maintenance (d) is, as is properly explained in the introduction to the Tables, expenditure on routine maintenance operations. more specifically defined as those which are carried out periodically on a time basis irrespective of mileage. Maintenance (e) is expenditure on repairs and overhauls. For the following discussion I am concerned only with maintenance (e) which is one which fluctuates so much from year to year during the life of the vehicle.
Reckoning at 1.50d. per mile then, in a year during which the vehicle covers 24,000 miles, the estimated expenditure will be £150. Under ordinary conditions of operation with a reasonably careful driver, it is quite likely that expenditure during the first year might be no more than £60, that is 0.6d„ per mile, as against the 1.50d., which is set down as an average.
In the second year the figure might rise to £90, which is 0.9d. per mile, but the total for the two years is only 1.50d. per mile for 48.000 miles, which is 0.75d. per mile per year, still only half that set down as the average.
It is quite likely that, early in the third year of its life, the vehicle will need a complete engine overhaul plus some other maintenance expenditure, and the total might well be £160, that is 1.6d. per mile, as against the average figure of I.50d. However, taking the figures for the three years of life, the total expenditure is £310.
In the course of incurring that expenditure the vehicle has run 72,000 miles, so that the total per mile throughout the first three years is still only 1.03d. It is, however, not yet time to revise the estimated figures, for the vehicle has still a long way to go. In the fourth year, running another 24,000 miles, it might cost £70 for maintenance and repairs, whieh is 0.7d. per mile. By the end of the fifth year, when it has covered 120,000 miles, it is most probable that a thorough chassis overhaul will be required, as well as a reconditioned engine. That might cost as much as £300, which is 3d. per mile for that year, or double the average.
The actual expenditure up to the end of the fifth year, however, is £680, so that the average in pence-per-mile is still only 1.36d., notwithstanding the heavy expense involved during the fifth year. During the sixth year the expense might be £70, the seventh year £100, and for the eighth year, when another reconditioned engine will be required, the figure might be as much as £200. In the ninth year it would drop back again to £80, and in the 10th comes the time when the operator has to decide as to whether the vehicle is to be disposed of or whether it be again thoroughly reconditioned. If I assume that the latter course be chosen, then it is likely that about £350ewill be necessary in order to bring the vehicle back to as-good-as-new condition.
In that second cycle of five years the total-expenditure is £800, so that the average cost-per-mile for maintenance is 1:60d., which, as might be expected, is slightly above the average. For the 10-years-life of the vehicle to date, however, the total expenditure -has been £1,480, which is equivalent to only 1.48d. per mile, or slightly under is our estimated figure of 1.50d.
Clearly, therefore, in this particular instance at least, the estimated figure is so near the actual one that there never would come a time during the life of that vehicle when the figures would need correction. The mechine has covered 240,000 miles and one would imagine that it would have been better to have disposed of it than to spend £350 on a complete overhaul in the 10th year. Had that been done, then, for the 10th year the expenditure on maintenance might. have been only £50, and the total cost for the second cycle of five years £500 only, which is equivalent to Id. per mile.
The total expenditure on maintenance during the 10 years would have been £1,180, and the average cost per mile only 1.18d,
Now, if the operator be buying a new vehicle of the same type as the first one, and if he proposes to run it under the same conditions, then he might safely cut his figure for estimated expenditure of Maintenance to, say, I.25d., leaving a'small margin of 0.07d. to provide for contingencies, So far as tyres are concerned the matter is, as I have said, much more simple. One thing I do want to draw attention to in connection with tyre costs is that whenever a new vehicle is put into commission, the cost of a new set of tyres should at once be debited against it in the column provided in the cost-records analysis sheet for the actual expenditure on tyres. If there be no provision for that amount, then the actual data relating to tyre costs will be inaccurate to the extent of about 50 per cent, in the course of about 18 months or so.
The reason for this step should be fairly obvious. When the vehicle is first costed, in order to arrive at the basic figure for depreciation, the cost of a set of tyres is deducted: that is done because tyres depreciate at a much quicker rate than does the vehicle. Having deducted the cost in that way it is necessary to take it into account to get a proper balance, end the correct place for the item is obviously under actual tyre costs.
I have often been asked if the figures for cost of maintenance in the Tables include the provision for loss of use while the vehicle is off the road for major maintenance work. The answer is that they do not, and it may be a good idea to show why such provision would be impracticable.
I will again take a 7-tonner running 24,000 miles per annum, or approximately 500 miles per week. According to the Tables, and making some correction for cost increases which have occurred since they were published, such a A36
vehicle should, to-day, earn its owner a minimum of £48 per week. Now, in computing any loss-of-use figures it is necessary to follow precisely the same_ procedure as was set out in the article which appeared on May 25 last referring to a formula when claiming for loss of use following an accident. The operator should take the probable total earnings of the week during the periodand deduct the savings effected as a result of the vehicle not being in service. These savings will include costs offuel, oil, •tyres, and marntenance, or for depreciation as calculated, on a mileage basis.
The second part of the formula could be interpreted as follows: running-costs per mile comprising fuel at 3.48d., oil at 0.20d., tyres at 2.22d., maintenance at I.90d., depreciation 2.40de the total is 10.20d., per mile, and in one week during which the vehicle covers 500 miles that would give us the equivalent of £21 5s.
If the driver can be given other work so that, as regards this vehicle, his wages are saved, then the amount of £6 5s. per week involved must be added to this £2! 5s., giving £27 10s. as the total amount which the operator saves by not running the vehicle. His loss of earnings represents the °difference between £48, which is what he would have earned, and a saving of £27 10s„ a sum of £20 10s., per week.
Now suppose that the operator loses four weeks of the year because his vehicle is out of use on account of repair and maintenance operations, then he loses four times E20 10s., or 4z during the year. That loss has to be spread over a year's mileage (24,000 miles), so that the cost of that loss of use is equivalent to 0.82d. per mile. If, in the Tables, I were to make provision for such a sum, I should, therefore, have to add 0,82d., per mile to the 1,50d., for maintenance (e) making it 2.32d., as the average figure. I am sure that that would not be acceptable.
The point that does arise from these calculations is that it is better to spend a little extra on preventive maintenance because is it extremely unlikely that such extra expenditure would amount to 0.82d., per mile.
This question of loss of use arises also in connection with a matter quite different from the foregoing, that is in respect of the assessment of demurrage. Some authorities are of the opinion that a claim for demurrage should not cost the bare standing charges of the vehicle concerned including establishment costs. I am not of that opinion,
There are two points which arise here: first, the loss to the operator as a result of the vehicle being detained unduly during loading or unloading is more than the bare standing charges. It is capable of being assessed in precisely the same way as loss of use, and in this case the wages of. the driver should definitely not be included in the items of expenditure which are saved when the vehicle is standing, for the driver's wages have to be paid all the time.
In the case of the 7-tonner which I have been considering, assuming that the weekly potential earnings are still at the figure of £48, that the savings on a weekly basis of keeping the vehicle standing amount to £21 5s., per week and the loss as £26 15s., then, on the basis of a standard 44-hour week, that would be 12s. 6d. per hour, whereas, if we take the actual standing charges it is approximately only 4s. 6d.
per hour. S.T.R.