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75 5. Should a DOT add/reduce the number of mechanics at a repair shop location? Answering this question requires a review of shop operations (to determine workforce productivity) and workload (equipment assigned and associated labor demands). Calculating the applicable maintenance and repair provision (shop rate), as discussed in Section 3.2.2, would assist with this decision. 6. Should old assets be replaced now or later? Again, lifecycle cost analysis is the generally accepted best practice basis for determining when equipment should be replaced. NCHRP Research Report 879: Optimal Replacement Cycles of Highway Operations Equipment provides a methodology and tool for performing such an analysis (Hamilton 2018). Other guidance documents and tools are available from the APWA and the NAFA. 7. Should a new piece of equipment be leased or purchased? In addition to estimating the equipment provision cost as described in Section 3.2.1, this decision involves several factors that vary in importance to the DOT: a. What is the duration of the projected needs for this equipment? b. What is the relative availability of funds to lease or buy the equipment? c. Does the source of funds differ between these lease/buy options? If so, does that change the relative attractiveness of those options? d. What are the assumed purchase price, residual value, and finance cost assumptions embedded in the lease calculation? How do those costs differ from the DOTâs lifecycle cost assumptions for purchased equipment of the type in question? e. Is financing the purchase of new equipment an option to consider as an alternative to leasing to meet long-term needs? f. Which of several available vehicles, equipment, or other assets should be purchased? 8. Should a DOT add a particular item to inventory or continue to purchase it as needed? Again, the first step in answering this question is estimating the equipment provision cost as described in Section 3.2.1. Other important factors in this decision include: a. Frequency of use, b. Availability and time required to receive, c. Criticality of part, and
76 d. Impact on equipment availability. 9. Which indirect cost should be included when comparing internal costs to contracted costs? A theme of this Guide is that cost allocation is as much an âartâ as a âscience,â which means that intuition and expert judgement must be used in making these cost allocation and aggregation decisions. In general, indirect costs should be included if they go away when the activity is outsourced. For example, if a fleet accountant spends 30% of their time supporting the fleet provision and 70% of time on other non-fleet activities, then 30% of their salary should be included as an indirect cost. 10. How should indirect cost rates be accounted for when facilities are shared between different departments or organizations? The most common method is to divide the total facility cost by the fraction of square feet of space occupied by each activity. 11. What level of detail is needed when performing allocation of indirect costs? One of the basic questions in cost accounting is whether the additional cost, effort, and complexity of attempting to perform additional levels of indirect cost allocation will support better, more targeted management decision making. The answers to this question must be made on a case-by-case basis. If a fleet has well-integrated computerized management information systems, the benefits of added detail may outweigh the costs of incomplete information. 12. How often should a DOT recalculate the shop rates and internal rental rates? A fleet manager must closely weigh the benefits and costs of making frequent versus infrequent updates to their rates. The quest for precision is expensive and resources may be better spent elsewhere. There are two key points for understanding when to recalculate shop rates: a. In general, reasonable accurate details that were produced economically are âgood enoughâ to make most cost-related decisions. b. These calculations are the most difficult and time consuming the first time they are done. They can be scaled back or streamlined after the magnitude of expenses and accuracy requirements are understood. Thus, it may be worth calculating the rates one time in a highly-detailed and precision fashion and then updating those calculations in a less detailed and less precision fashion later.