How to use Financial Analysis

Tools for more accurately determining true asset ownership costs and replacement intervals


“Operational and maintenance data, when combined with outside influences such as technology changes, trade values, mpg capabilities, replacement cost and utilization can be the foundation for determining optimal economic replacement times and repair-vs-replace decisions,” he says.

The information is often used as inputs into a spreadsheet process that does the analysis, observes Marc Knight, associate director of business solutions for AssetWorks, a provider of software solutions for infrastructure-intensive organizations in education, government, utilities, communications and transportation.

“Managers would run the reports, in many cases exporting the data into a spreadsheet and then use that in their analysis,” he says. “More recently, you are starting to see fleet applications develop integrated replacement analysis tools that eliminate the need to do the analysis in a spreadsheet.”

AssetWorks FleetFocus products, for example, have a Replacement Candidates process that uses historical detailed data to prioritize vehicles for replacement. Using proprietary algorithms in conjunction with user selected and weighted priority factors, the fleet management software application scores each unit and ranks them to aid managers in determining which units to select for replacement.

Software functionality also exists to help users plan for the replacement of equipment and supports work-flows to track the approval of replacement nominees, the disposal of the old unit and the acquisition of new assets, adds Knight. “This level of functionality has lifted fleet applications from being just maintenance systems into full fleet management systems.”

IMPORTANT ELEMENTS

The primary considerations when looking for software to help with overall vehicle life cycle evaluation is “the ability to efficiently collect data in a format that allows the user to sort and analyze the results,” TMW Systems’ Walters says. “A good software solution should provide the ability to assign unit types and group units in subsets or fleets for tracking purposes.”

“Users should also look for a system that maintains a history by period for each asset which can be then aggregated into age and/or usage cohorts to identify what the costs are in year one, two, etc.,” says Knight. “A system should also have standard reports that can be used to support at least manual life cycle analysis. Better systems will have integrated replacement analysis and planning functions.”

Another key consideration is whether the software program has a “robust” warranty management and tracking system, Walters says. How warranty is tracked and accounted for is important, as is the ability to track major component replacement and having in-trade analysis.

Beyond that, he says a software program should maintain a standard data reporting format, such as ATA’s VMRS (Vehicle Maintenance Reporting Standards), plus have advanced reporting capabilities, along with the ability to set data thresholds and create alerts when data falls outside of established parameters, design key performance indicators and monitor data in real-time.

All this can be done with TMW Systems’ TMT Fleet Maintenance software, notes Walters. It also provides the ability for metrics to be established with a fleet’s specific requirements as they pertain to vehicle trade-in and repair vs replace decisions.

ACTION PLANS

Life cycle costing, cost analysis, benchmarking and other financial management tools help create the context for identifying areas for improvement and establishing performance measures. Just gathering information is not enough, though, it must be used.

The real benefits do not occur until the findings are implemented and improvements are realized, says GenesisSolutions’ Wireman.

“Perhaps the most important thing to remember is to be sure to use the results,” Vercillo adds. “Too many companies go to the trouble of doing all the analyses and then either do not trust the results, or worse, decide not to use them.

“Do your homework and spend the appropriate amount of time ensuring an apples-to-apples comparison. Then, implement initiatives that make a difference.”

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