AN EXCURSION IN! Kai COSTING
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The introduction of tax next April might be the opportunity for psv op( lsider serious costing of their ready doing so vehicles if th
By John I forget who it was who said that the price of liberty was eternal vigilance but he might well have said that the price of profitability was also eternal vigilance with just us much Conviction.
In an industry which is notorious for its rule-of-thumb methods, coach operators must take the prize. Yet, despite the excuse of lack of time or lack of knowledge, there can be fewer jobs more rewarding in terms of hard cash than the costing of passenger vehicle operation.
Before turning to what might be considered a more interesting part of CM, perhaps the coach operator who has got this far might like to consider his last balance sheet, How long was it after the event? Was it then too late to do anything about the adverse results which showed up? What about the shock he no doubt got from realizing that perhaps the return for all the hard work that he had put into the business was not much more than he paid his drivers?
Still interested? Then perhaps it might be profitable to consider, in the simplest terms, what might be done to find out what each job is costing, what would be a reasonable charge for it, and how to keep an eye on expenses without sacrificing too much time to the exercise.
The new operator The operator who is new to costing and who has no past records on which to base his data could use the information on that very balance sheet which caused him so much concern. It should not take very long to add up what his total operation has cost him and divide this by the number of miles his vehicles covered during the year. After making allowances for increasing costs, this result in pence per mile could be used as a rough guide to future quotation until a properly constituted costing system has been built up.
For the future, it is worth considering that many of the records which will have to be kept to claim input refunds of value-added tax will be just the thing for costing data. In this way, a chore which has been thrust upon the coach operator can be turned to good advantage.
I am afraid that forms will be necessary for each vehicle. But after time well spent on deciding the simplest possible form to contain the information you will require and the source of that information, only a short time each week will be required to keep the record up to date.
Choose the simplest method of costing which will give you a sound basis to make the decisions necessary to run your business profitably. Your accountant could help in this. Even if he charges a little more to set up a cost system, with your guidance of course, it might be well worth it to set it on a sound basis to begin with.
Now to alternative methods. One of these is contained in CM Tables of Operating Costs which can be obtained price 60p from the Sundry Sales Department, IPC Business Press Ltd, 40 Bowling Green Lane, London EC I.
In these, the method advocated is the conventional one of taking standing costs and running costs separately and working out a total operating cost of pence per mile as a basis for quotation.
Standing costs can be defined as those
costs which an operator must meet N he has jobs for his coaches or not. I words, if the coach is standing in th driver's wages national health and in contributions, uniform costs, insurance, road fund licence and so c still be paid. To decide if a cost is a si cost or not, ask yourself if you havel it whatever the circumstances.
Running costs are those whit incurred when the vehicle is a running. The easiest of these is fuel if the coach is stationary then it doe! fuel. Other running costs are oil, maintenance and perhaps deprecia you feel that the coach loses value th miles there are on the clock. Some op like to consider depreciation as a st cost because they feel that an approf be made each year for its renewal e the mileage the vehicle might run. ,nding cost should be calculated as a per year and then broken down into ly, daily and hourly cost for :nience in quoting. To calculate the y cost, however, it is necessary to bear rid how many actual weeks a year it is ale to operate the coach. For instance, deducting time off the road for maincc, repairs repairs and so on, it might become .ent that rather than 52 weeks a year Lting time only about 45 or 46 are ble. The yearly estimate should then vided by the lower figure.
ce per mile mning costs can be calculated on a per mile basis. For. instance, if fuel
costs 60p a gallon and the vehicle's consumption is 10 miles to the gallon, then fuel cost is 6p per mile. Oil costs can be calculated similarly. Tyre costs are arrived at by dividing the cost of a set of tyres by the mileage you expect to get out of it. Maintenance cost is calculated by adding up last year's bills, adding on a reasonable bercentage for increased cost and dividing by the estimated mileage of the vehicle.
To obtain an operating cost per mile, the annual standing cost is divided by the estimated annual vehicle mileage — alternatively the weekly standing cost can be divided by the estimated weekly mileage — and to this is added the total running cost per mile.
One thing which must be watched most carefully is that the forecast mileage is maintained. The effect of running significantly fewer miles in a year than has been estimated will be that running costs will not be covered and perhaps some of the standing costs will not be recovered either. That is one of the reasons why it is necessary to keep a running record of the vehicle's performance so that swift action can be taken if mileage is decreasing.
Direct costs only This is not the only method of costing which can be effective. I know one operator who disregards standing and running costs. He concerns himself with direct costs only. That is all those costs which can be directly attributed to running the vehicle. He calculates all the costs under the various headings as a percentage of the total cost and from this information builds up a quotation.
However, the method is only important in that it should be one that is easily workable and easily understood. What is critical is that all costs are included and this means all the administration costs including a realistic salary for the owner.
It is recommended that the costs are totalled each week and transferred to a four-weekly summary. Using this, each month's performance can be compared and if a vehicle is showing an adverse return the reason can be pinpointed.
In this way, it can be seen if a vehicle is costing too much in maintenance or if it suddenly begins to use too much fuel or oil. If large performance variations become apparent, the reason can be sought and the matter corrected before too much expenditure has been incurred.
Running records
All the data necessary to keep these running records will already be available in your office; it only needs to be found and brought together in one place. For instance, maintenance costs can be obtained from garage bills, fuel and oil consumption from drivers' records, drivers' wages and subsistence from wages bills and so on.
Finally, the Passenger Vehicle Operator's Association has been holding seminars on costing for psv operators. The principle is the same for private hire or for licensed operations such as excursions and tours. Whatever type of coach business you operate, if you are not involved in costing it already, nothing but good can result from a few hours well spent in first devising a proper costing system and then evaluating the monthly performance of your fleet.