Guide to Calculating Ownership and Operating Costs of Department of Transportation Vehicles and Equipment: An Accounting Perspective (2020)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

59 13. APPENDIX F. ANNOTATED BIBLIOGRAPHY This appendix summarizes literature related to fleet cost accounting. To develop this annotated bibliography, the authors conducted an initial high-level scan of more than 50 resources, then culled this list to 24 resources determined as most applicable for this Guide. Citations and summaries are provided below. Wiegmann, K., A. Sundararajan, and Z. Tao. (2011). “NCHRP Report 692: Decision Making for Outsourcing and Privatization of Vehicle and Equipment Fleet Maintenance.” National Academy of Sciences, Transportation Research Board, Washington, DC. This report is a guide for DOTs on outsourcing or privatizing parts of their fleet or fleet operations. In discussing data or information needed to manage fleet and equipment maintenance performance, this report notes that many DOTs implement systems that track and collect data on all functions associated with fleet and equipment maintenance. There are several types of information collected and accessed in these systems: vehicle inventory management, vehicle condition information, vehicle usage tracking, vehicle repair tracking, maintenance management, cost tracking, fuel usage, vehicle inspection management, warranty tracking, parts inventory management, labor management, work order management, billing and invoicing, and performance management. Additionally, for fleet maintenance outsourcing decisions, the report suggests activity costs, service quality, and shop productivity as broad areas for performance metrics. Benchmarking to gauge performance also is noted as important. One could refer to other maintenance shops in the agency or to similar facilities operated by other organizations with similar physical, geographic, and operational characteristics. Wiegmann’s suggested performance metrics are shown in Table 14. Table 14. Suggested performance metrics by Wiegmann (2011) Category Suggested Performance Metric Comments Cost Maintenance cost per vehicle by maintenance type Total dollars spent on fully burdened labor, parts, materials, and other costs divided by the number of vehicles. Allows for comparisons and benchmarking with market providers. Average repair cost (for certain types of maintenance) Average unit costs for certain types of maintenance activities. Allows for comparison and benchmarking with peers and market providers. Analysis of unit costs for specific repair actions may provide useful sample comparisons. Maintenance cost per mile or per operating hour Total dollars spent on fully burdened labor, parts, and other relevant costs divided by vehicle miles or hours. A lower value implies that the organization is more efficient at using and maintaining the fleet.

60 Category Suggested Performance Metric Comments Parts cost per vehicle, by vehicle type Usually based on parts issue records, which are often a better indicator than unit labor costs. Service Quality Frequency of in- service breakdowns Measured as overall vehicle miles or hours between in-service breakdowns. Repeat repair or rework Percentage of time that a vehicle or piece of equipment returns back to the shop for the same problem within a specified period of time. Vehicle availability Extent that the vehicle fleet is available for service and, in particular, the extent and frequency of any vehicle availability shortfalls. Preventative maintenance schedule adherence rate Number of preventative maintenance repairs completed within the scheduled time period and the extent and growth or decline in preventative maintenance inspection backlogs in shops. Work order backlog Measure of all active work orders; indicates the match between maintenance needs and capability. Work order schedule commitment Number of work orders completed within the scheduled time; indicates the dependability of in-house service. Number of road calls Indicates quality of preventative maintenance inspection program or poor condition of operating vehicles. Parts utilization Measures parts utilization as a portion of maintenance and repair production and can indicate throughput for certain repairs. Parts turnover by part type and vehicle type Computed by dividing average parts inventory in a period by parts issued in that period. Provides the basis for estimating inventory carrying costs. Shaumik, P., P. S. Sriraj, L. Ogard, and S. McNeil. (2003). “Evaluation of Private-Sector Asset Management Practices.” Transportation Research Record 1848, Paper No. 03-3374, p. 29–36. This paper includes private entity case studies that highlight the need for asset management to be practiced effectively. Information was collected through interviews. Notably, all case studies described in this paper tied performance management with asset management. The details below outline four of the case studies included. The Wisconsin Central Transportation Corporation (railroad company) proactively inspects its assets (more so than required by law). Data on the condition and use of infrastructure (track) are tracked in a CAD program, used to determine replacement. Data on vehicles are managed by their dispatch system. No information on cost tracking is provided.

61 Union Pacific (railroad company) uses performance measures that attempt to recognize customer performance and organizational performance in relation to safety, service, value, and leadership. From an operational point of view, individuals focus on six “key questions” related to performance. These questions are used to link individual actions to short- and long-term asset management goals. No information on cost tracking is provided. TTX Company (railcar leasing company) promotes competition among its various divisions, offering innovative rewards to ensure overall safety of the products and safety within the organization. TTX’s asset management process is computer based and supports the philosophy of proactive maintenance. Asset management is an ongoing process. The overall plan is updated annually to reflect strategic issues. Reviews are conducted six times a year to address operational issues, such as equipment flows, network balance, and utilization. At the tactical level, there is a weekly change in the allocation of assets among the railroads and an hourly change in the use of assets. Asset management links the strategic, operational, and tactical management of the resources. Field operations, shops, and the car management systems are viewed as an integral part of the asset management process. TTX does not have a single information system to collect and manage information, but instead developed multiple customized information management programs. Every department manages its own areas of information. Tools used to manage and update information include geographic information systems, trend analysis, custom software, and off-the-shelf products. Short courses, conferences, and seminars are held to provide asset management training for employees. All senior management associates are involved in the asset management process, including about 80% at the managerial level. Xcel Energy (electricity and natural gas provider) uses a work management system called PassPort work management, which is a highly integrated work management, supply chain, and accounts payable software package. The company’s asset management group has regular inventory schedules, which allow maintenance and asset replacement wherever necessary. The inventory is assessed using predetermined condition measures, but the performance requires professional judgment. The condition of assets is monitored through visual inspections and automated technologies. Various trend analysis tools, software packages, and geographic information systems are used to analyze the inventory data from the different sources. Davenport, N., M. D. Anderson, and P. A. Farrington. (2005). “Transportation Research Record: Journal of the Transportation Research Board, No. 1927.” Transportation Research Board of the National Academies, Washington, DC, p. 123–127. This paper discusses a model designed to use vehicle characteristics and socioeconomic data to estimate the yearly replacement needs for rural fleets. A vehicle’s condition rating is

62 used to determine whether that vehicle needs replacement. Condition is determined based on 14 factors: age, total mileage, miles per year on paved roads, miles per year on unpaved roads, wheelchair accessibility, percentage of those with income less than $15,000 in the county of operation, total population in county of operation, percentage of population greater than age 65 in the county of operation, percentage of population less than age 18 in the county of operation, percentage of single-person households in the county of operation, percentage of minority population in the county of operation, percentage of population who work in the county of operation, percentage of commuters on public transportation in the county of operation, and percentage of people in poverty in the county of operation. Cambridge Systematics, Inc. (2012). “NCHRP 20-24, Task 58: The Relationship between Asset Management and Performance Management.” American Association of State Highway and Transportation Officials. This report notes that the relationship between asset management and performance management involves recognizing that a transportation system’s performance—how well the system provides for the safe, efficient, and environmentally responsible movement of people and goods—depends on many factors, including usage and demand, capacity, system operations, user behavior, and many other factors in addition to the physical condition of facilities. Performance management is defined in the report as “a strategic activity that focuses on how policies, resource allocation and other decisions affect all aspects of system performance including safety, operations, environmental stewardship and infrastructure condition.” The basic principles of performance management can then be applied to all aspects of transportation system performance and to the performance of transportation agencies as well. The paper argues that asset management is simply applying performance management principles to the management of transportation physical assets, and it provides a strategic approach for the preservation, rehabilitation, and maintenance of these assets. Asset management is one of the most advanced examples of applying performance management principles in the transportation industry. The analytic tools, data, and experience in applying performance management principles are more advanced in asset management than in many other aspects of transportation. At the broadest level, the paper portrays performance management as linking agency goals and objectives with resources and results. Asset management represents the application of core principles of performance management to the physical condition of transportation infrastructure, facilities, and equipment.

63 CTC & Associates LLC. (2012). “National Survey of Equipment Management Practices.” Caltrans Division of Research and Innovation. To help inform future decisions related to its equipment management program, Caltrans undertook this survey to evaluate best practices, challenges, and alternative approaches among state transportation agencies. Equipment management includes the acquisition, operation, maintenance, repair, and disposal of a transportation agency’s light- and heavy- duty vehicle fleets and related hardware. More broadly, it also includes activities related to fleet management, such as planning and budgeting, human resources and training, and information technology. There were several notable findings: • A large majority of respondents said that their agency’s equipment needs are determined in a consistent manner, based on established work methods or standards, and most said they use a process for identifying the most cost-effective means of meeting the need for an asset. • About two-thirds of respondents indicated that their agency purchases what they consider “off-the-shelf” road maintenance equipment. • By a factor of four to one, respondents reported that outsourced work is more expensive, and, by a factor of three to one, that outsourced work requires more bureaucratic steps. • Agencies tend to use electronic methods to record utilization, and data are much more commonly entered into a statewide database rather than a local one. • On average, 8% of respondents’ fleets are replaced annually, which is significantly exceeded by the percentage overdue for replacement (25%). • Agencies’ equipment needs are funded most commonly through allocation by legislation. Lauria, P., and Donald T. Lauria. (2014). “NCHRP Synthesis 453: State Department of Transportation Fleet Replacement Management Practices.” National Academy of Sciences, Transportation Research Board, Washington, DC. This report acknowledges that fleet replacement management practices that consistently result in the replacement of assets at or near their optimal replacement cycles—the time period over which their combined capital and operating costs are minimized—contribute to the fulfillment of a DOT’s primary mission. The amount of money a DOT spends to replace assets determines the age of its fleet, and the costs and performance of an old fleet are generally inferior to those of a young one. This study gathered information on current fleet replacement management and financing practices and on the perceptions about those practices through a survey of state DOT fleet managers. The survey goal was to identify the

64 methods currently used to manage asset replacement, including the financing of replacement expenditures and their relative advantages and disadvantages. The survey explored six decision support methods DOTs use for planning asset replacements: 1. Replacement cycle policies based on formal analysis of lifecycle costs. 2. Replacement cycle policies based on judgment, experience, and generalities. 3. Multiyear fleet replacement plans showing future replacement dates and costs by asset. 4. Replacement lists that identify assets meeting pre-defined criteria (such as age or mileage). 5. Methods for prioritizing specific assets for replacement when funds are insufficient to replace every asset that should be replaced. 6. Repair versus replace tools or policies that target specific assets needing expensive repairs. Each of these six methods was considered by at least one DOT that responded to the survey as either “the most important” or “second most important” method for guiding replacement decisions. Method 4 (based on age, mileage, cost, and similar criteria) was cited by more DOTs than any other as the most important method; however, fewer than one-half of the respondents reported using this method. There is no consensus among DOTs about which decision support method is the most effective. Two-thirds of the DOTs reported that the agency making final decisions about asset replacement funding is a central fleet management organization or other unit within the DOT, and the other one-third reported that these decisions are made by an executive branch agency (such as a state budget office, governor’s office, or state legislature). More than 80% of DOTs noted that decisions about the amount of funding made available for fleet replacement are entirely or somewhat satisfactory. Most DOTs believe they are better at securing fleet replacement funding than other agencies in their state that also use fleets of assets. Seventy-five percent of DOTs reported that outright purchases, using money obtained through the annual budget process, is the primary method they use to finance asset replacements, while 20% reported making outright purchases using a revolving or similar fund, where funds are accumulated over time to defray such purchase costs. Sixty percent of DOTs use replacement financing programs managed by a central fleet management organization within the DOT, and 20% have programs managed by another organizational unit within the DOT, including individual fleet user organizations. The majority of DOTs in the report survey said that using a revolving fund is a very effective financing approach. Securing replacement funds through the annual budget process was

65 judged by some survey respondents to be ineffective, but no explanations were offered for why. The paper also reported that annual budgets are the most ineffective in promoting an understanding of trade-offs between asset capital and operating costs and opportunities to optimize them. The respondents gave several explanations for this ineffectiveness: 1. The highly defined separation of capital budget funds in the appropriation process makes it easy to target them for cuts; 2. There is mistaken belief that once assets have been purchased, they no longer cost anything to operate and maintain; and 3. With centralized replacement budgeting, management, and purchasing, fleet users have no incentive to minimize overall fleet size. DOTs using revolving funds to finance fleet replacement costs reported that the source of funding is a system of charge-back rates. Half these agencies noted that monies collected through the charge-back system for fleet capital and operating costs are maintained in separate accounts, while half reported that these monies are pooled. Most DOTs using charge-back rates reported that: (1) revenues cover all costs; (2) all rates have been updated within the past two years; (3) specific methods are used for setting charge-back rates; and (4) replacement reserves in the revolving fund are almost never raided to meet other spending needs. Half the DOTs using revolving funds are completely satisfied with them, and the rest are fairly satisfied. No other financing method has such a high level of satisfaction. Only one DOT in five is completely satisfied with using funds secured through annual budgets for financing asset replacements. There are several improvements that DOTs would like to see in this particular financing method: (1) more funding; (2) the return of used asset sale proceeds to the fleet budget; (3) restrictions on funds budgeted for vehicles and equipment being used solely for that purpose and not redirected elsewhere; (4) replacement with a revolving fund; and (5) a more level funding stream that allows for replacement of fleet assets on eight- to 10-year cycles. Half the DOTs do not want to change the method they use for financing the capital cost of assets. All the DOTs that presently use revolving funds prefer to keep them. Fewer than half the DOTs that presently use annual budgeting processes want to keep them. Some want to switch to leasing, borrowing, or a revolving fund. The paper reports that two-thirds of DOTs surveyed said they use additional financing methods to periodically supplement their primary method. The methods used include short-term rentals (most common), leasing, and guaranteed buy-back programs. Thirty percent of DOTs said they occasionally buy used assets instead of new ones. The biggest

66 challenge in making a fleet younger and more economically efficient is securing the funds for replacing obsolete assets that have been backlogged. The literature shows that outright purchase of assets with cash is the least beneficial method for financing assets (despite its widespread use by governments): this has the biggest impact on an organization’s budget in the near term and it frequently incentivizes repair and retention rather than the replacement of obsolete assets. Financing approaches that leverage cash (such as debt financing and leasing) are usually more viable, partly because they do not require fluctuating amounts from year to year. Galenko, A., C. Pilson, and T. Scheinberg. (2013). “Identifying Optimal Highway Asset Maintenance on the Basis of Performance Targets and Budget Constraints.” Transportation Research Record: Journal of the Transportation Research Board, No. 2361, Transportation Research Board of the National Academies, Washington, DC, p. 11–15. This paper acknowledges that the literature does not fully cover the proper procedures for optimizing the full range of typical highway maintenance activities based on measurement and prediction of performance. Recently, practitioners have delved into the area of maintenance optimization, where software tools aid in planning non-pavement-related maintenance. Much of the previous optimization work focused on predicting deterioration explicitly over time, while this paper presents a method of maintenance optimization called maintenance analysis, which assumes that a steady state is reached with regard to maintenance activities. This maintenance analysis method allows maintenance managers to use service levels and utility functions to define maintenance indices. The report notes that this method allows managers to identify and plan for the optimal mix of maintenance activities to: (a) maximize performance with respect to maintenance performance indices, based on user-defined budget constraints and (b) minimize costs, based on service level targets. AssetWorks Inc. (2015). “AssetWorks Quick Guide: An Introduction to GASB 34.” The GASB mandates financial reporting requirements for local governments. This presentation notes that GASB was formed after a number of incidents in corruption and mismanagement of funds. GASB 34 is a list of financial reporting objectives designed to keep state and local institutions accountable for taxpayer funds. GASB 34 has an in-depth focus on fixed assets and reporting their values, depreciation, and disposal. In the 34th Pronouncement, GASB added three new required components to the financial reporting of the fixed asset accounts mandated for state and local governments: 1. Financial statements (government-wide financial statements and fund financial statements) 2. Managers discussion and analysis

67 3. Required supplementary information According to GASB, governments should report on all net assets—include assets, infrastructure assets, their depreciation or cost of upkeep, liabilities, revenues, expenses, gains, and losses—and provide a statement of activities, prepared using accrual accounting. Chaudier, A., and G. Hatfield. (n.d.). “General Services Administration Fleet Metrics.” Mercury Associates. This presentation on the General Services Administration’s fleet metrics guidance reports that one should track performance metrics for several reasons, and that those metrics can help with several achievements: • Make a case for more (or fewer) resources • Identify areas for improvements • Emphasize strengths (prove you are doing a good job) • Track future performance improvement or decline Performance metrics encompass the process of developing objective sets of data to measure how a fleet is doing relative to goals. A metric is a quantifiable and repeatable standard of measurement. Metrics can be used to develop benchmarks, a standard by which progress can be measured against past performance. Example performance metrics include cost, quality of service, timeliness of service, utilization, customer satisfaction, conformance with best practices, compliance with legal requirements, contractor or worker performance, safety, and accidents. Utilization (such as miles driven, hours operated or in use, or number of trips) provides an especially useful tracking metric because it can inform right-sizing and it establishes a standard justification for assignment. American Association of State Highway and Transportation Officials (AASHTO). (2017). “AASHTO Equipment Management Technical Services Program: 2017–2019 Work Plan.” This work plan outlines goals and action items. One notable objective is to “Develop and coordinate presentations around the following key topics: Fleet Management Systems, Fleet Funding Mechanisms, Surplus Equipment Disposal, and Equipment Procurement.” Another notable goal is to “Develop and Promote Common Fleet Performance Measures for DOT Equipment Fleet Management,” with the subobjective to “encourage each State fleet manager to implement their agency’s Performance Measures and share the results for publication on the EMTSP website.”

68 Hildreth, J. C. (2012). “Modeling Equipment Costs.” National Equipment Fleet Management Conference, June 12. This presentation from the National Equipment Fleet Management Conference focuses on modeling equipment costs. It defines two types of equipment costs: owning costs and operating costs. Owning costs are for owning a machine and keeping it in the fleet, where the hourly rate decreases with age as hours are collected to spread the depreciation. Operating costs are those when the machine fires up, and the hourly rate increases with age as increasing costs for repair parts and labor accumulate. Ownership costs must include depreciation, interest, and other costs of keeping the equipment in the fleet, such as licenses and insurance. Operating costs are mostly proportional to hours worked and include fuel, traction system, ground engaging tools (wear parts), preventive maintenance, and repairs. Economic life is the period that ends when the average owning and operating costs to date reach a minimum. Ramani, T., M. Kader, J. Johnson, T. Jacobs, C. Spiegelman, and J. Zietsman. (2015). “Incorporating Onboard Diagnostics into Fleet Preventive Maintenance Practices.” Transportation Research Record: Journal of the Transportation Research Board, No. 2482, Transportation Research Board, Washington, DC, p. 1–7. This paper presents the findings from a proof-of-concept study, conducted to examine whether engines and vehicles equipped with onboard diagnostic systems could provide data for optimizing fleet preventive maintenance practices. The study investigated the development of a statistical approach for recommending oil changes in the Texas DOT’s fleet based on engine data collection and an oil sampling analysis for a sample of heavy- duty dump trucks. The study also investigated whether predicted intervals could improve preventative maintenance practices and save money. Several engine parameters were collected: engine speed, oil temperature, engine load, coolant temperature, and engine oil pressure. The oil parameters tested were viscosity, oxidation, nitration, total acid number, total base number, wear metals, soot, and fuel dilution. The report findings indicated very low levels of oil degradation, attributable to engine operations, which were predominantly low-load operations with a great deal of idling. The findings suggest potentially replacing the 10,000-mile oil change guidance— current Texas DOT practice—with manufacturer recommendations of an oil change every 15,000 miles for annual use of 6,000 to 60,000 miles, and every 10,000 miles for trucks traveling fewer than 6,000 miles and driven under severe service conditions. Cambridge Systematics, Inc. (2002). “NCHRP Web Document 41: Phase I Report, Task 2 of 3: Asset Management Framework, National Cooperative Highway Research Program.” Transportation Research Board, National Research Council.

69 This report presents a framework for asset management, defining the key principles of asset management as a way of doing business that a department can adopt in examining its current procedures and seeing how better decisions on infrastructure management can be made with better information. According to the paper, transportation asset management represents these ideals: • Asset Management is a Philosophy. Asset management is strategic, taking a long view of infrastructure performance and cost and considering options in a holistic, proactive, and informed way. It is driven by policy goals and objectives and relies on systematic assessments of performance and cost in making decisions on future actions. • Asset Management is a Process. In fact, asset management influences a number of business processes related to infrastructure management in DOTs, including those related to planning, program development and recommendation, engineering of projects and services, and program delivery. Decisions on allocating resources—not only financial resources but also labor skills, real estate, equipment and materials, and information—are policy- and performance-driven, considering a range of alternatives with clear criteria for decision making and investigating the most cost-effective solutions through analyses of tradeoffs. The business processes are managed to elicit effective contributions from all levels of the organization and to foster communications on asset management needs and accomplishments within and outside the agency. • Asset Management is a Set of Technical Tools. Having quality, accurate, complete, and timely information is important at all stages of asset management. Information technology is a practical necessity in supporting asset management, although there are many ways in which automated techniques can be beneficially applied. Barnes, G., and P. Langworthy. (2004). “Per Mile Costs of Operating Automobiles and Trucks.” Transportation Research Record: Journal of the Transportation Research Board, No. 1864, Transportation Research Board, National Research Council, Washington, DC, p. 71–77. This report presents a methodology and model for calculating variable per-mile costs of operating cars and trucks for use in the benefit/cost analysis of highway projects. Although the marginal vehicle operating costs generated by changes to trip mileage or operating conditions are typically a small part of total project costs, they can be significant in deciding among alternative designs, construction scenarios, or project timing. The report notes that operating costs for personal vehicles (such as autos, pickups, SUVs, and vans) are developed primarily from consumer guides, with an overall fleet average cost based on vehicle sales. Operating costs for large commercial trucks are based on reviewing a number of sources of trucking costs. The results indicate that, for a baseline case of highway driving on smooth pavement, with a fuel price of $1.50 per gallon and other costs in 2003 dollars, personal

70 vehicles average 17.1 cents per mile to operate and trucks average 43.4 cents per mile to operate, not counting costs associated with drivers or travel times. City driving conditions, involving frequent stops and starts, increase this cost by 3.9 cents per mile for personal vehicles and 9.5 cents for trucks. Extremely rough pavement increases the baseline cost by 2.7 cents for personal vehicles and 5.5 cents for trucks. Hawkins, N., and O. Smadi. (2013). “NCHRP Synthesis 439: Use of Transportation Asset Management Principles in State Highway Agencies.” National Academy of Sciences, Transportation Research Board, Washington, DC. This report defines transportation asset management as a strategic and systematic process of operating, maintaining, upgrading, and expanding physical assets effectively throughout their lifecycle. The concept focuses on business and engineering practices for resource allocation and utilization, with the objective of better decision making based on quality information and well-defined objectives. This report provides a DOT summary of practice and highlights several notable components of an asset management system. Though focused on managing transportation infrastructure, some themes remain relevant to fleet vehicles and equipment. There are notable categorizations from the survey undertaken through this project. Over 50% of agencies conduct condition assessments, leading to supporting investment analysis for project selection and resource allocation recommendations. Over 70% of responding agencies noted that using asset management principles has made their decisions more data driven, defensible, and performance based. About 60% of agencies balance asset management preservation and capital improvements—a critical component for developing a sustainable infrastructure. The primary performance measures that drive agency decision- making include physical condition (98%) or safety (90%). However, more than one-half of agencies reported operations and capacity as decision-making drivers. Only 27% of respondents incorporate risk into their short-term decision-making, which is normally associated with cost and schedules. Only 19% of agencies consider long-term risk in their decision making, which includes design, sustainability, and climate change. Warne, T. R. (2003). “NCHRP Synthesis 313: State DOT Outsourcing and Private-Sector Utilization.” National Academy of Sciences, Transportation Research Board, Washington, DC. This report is an update of NCHRP Synthesis 246, which found that the outsourcing rate has increased and is projected to continue growing. One area of great interest is how DOTs make decisions to outsource. The report shows that while there are occasions when the legislative or executive branches of state government mandate outsourcing directly, they more commonly act to limit or reduce the number of state employees; this results in a de facto mandate to outsource. In most cases, the decision to outsource is unique to the state

71 DOT and the specific activity. In response to the survey questionnaire, the DOTs identified staff constraints, specialty skills, and equipment as principal factors influencing the decision to outsource, while cost-effectiveness was rarely cited as a reason. Boudart, J., and M. Figliozzi. (2012). “Key Variables Affecting Decisions of Bus Replacement Age and Total Costs.” Transportation Research Record: Journal of the Transportation Research Board, No. 2274, Transportation Research Board of the National Academies, Washington, DC, p. 109–113. This paper notes that bus operations and maintenance costs per mile increase as a bus ages. There is a cost trade-off between the lower operation and maintenance costs of newer fleets and their higher initial capital costs. This trade-off has a significant impact on the optimal timing of purchase and replacement decisions. Using cost data and an optimization modeling framework, this paper analyzed the impact of purchase timing decisions on fleet costs per mile. The paper found several outcomes: increases in diesel prices do not affect total bus fleet costs as much as increases in maintenance costs; increases in maintenance costs and utilization per year reduce the optimal replacement age; increases in utilization and increases in fuel economy have similar impacts in terms of total fleet costs; and bus purchase price changes have a significant impact on the optimal replacement age. Boutueil, V. (2016). “Fleet Management and the Adoption of Innovations by Corporate Car Fleets.” Transportation Research Record: Journal of the Transportation Research Board, No. 2598, Transportation Research Board, Washington, DC, p. 84–91. This paper investigated the potential future of electric vehicles and car-sharing by corporate car fleets in large organizations, and found significant challenges, most of which are internal and rooted in fleet management processes. One of these challenges is gaining information, which is key to achieving innovation in corporate car fleets is information—its production, reporting, and use as well as its availability and reliability. Corporate car fleet decision makers must gain insights into the operations of fleets and must develop adequate decision support tools to improve the overall performance of fleet management, from acquisition to day-to-day use, and ultimately to fleet renewal. In particular, the large-scale adoption of innovations by corporate car fleets would require greater expertise in fleet costs, over the vehicle life and across a wide range of vehicle use patterns. This discussion of opportunities and challenges of innovations would have been very different for organizations with less formalized and less centralized decision-making processes for fleet management, and especially for smaller organizations. Notably, the report finds that fleet management processes have entered a phase of rapid change under the influence of growing economic pressure and the introduction of digital technologies (such as monitoring and tracking) into their operations.

72 TRB Committee on Maintenance Equipment. (2002). “Financial Aspects of Equipment Acquisition.” Transportation Research Circular, Number E-C047. This paper discusses different capital financing approaches for fleets. It notes that financing strategies can be grouped into five equipment acquisition methods: (1) Rental, (2) Lease, (3) Cash purchase, (4) Lease purchase, and (5) Cash purchase with trade or buyback guarantee. Any of the five methods combine with cost approaches for repairs, parts, and labor; manufacturer’s recommended maintenance; and replacement equipment. However, the choices can be simplified by determining whether to only pay for use of the equipment or to pay to own and use the equipment. This paper discusses the relative advantages and disadvantages of each acquisition method as well as cost factors to account for, such as part replacements, cash flow analyses, and lifecycle costs. Mercury Associates, Inc. (2016c). “Managing Direct and Indirect Fleet Costs.” National Education Seminar, August 29–September 1. This presentation provides an overview of GSA Bulletin FMR B-38: Motor Vehicle Management. It notes that in a Government Accountability Office evaluation of some transportation agency fleets, none captured all the data elements recommended by the General Services Administration. The missing data were most often related to fleet costs, especially indirect costs. Indirect costs are typically considered as fixed and their evaluation can be difficult as they are often diffused. Accounting for these costs is vital and often overlooked by many fleets. In cases where a fleet cannot ascertain its indirect costs, the presentation notes it is recommended to use $468 per vehicle per year, or 7.5% of the total cost (excluding indirect). The General Services Administration is also available to answer questions about vehicle costing through its dedicated email address: vehicle- policy@gsa.gov. American Association of State Highway and Transportation Officials (ASHTO). (2018). “AASHTO Equipment Management Technical Services Program.” https://www.emtsp.org/ The Equipment Management Technical Services Program comprises four regional equipment management partnerships of state highway agency equipment managers and their staff. The Equipment Management Technical Services Program website notes that partnerships exist to serve as the comprehensive national resources, supporting effective and efficient governmental highway equipment fleet management. The organization seeks to “provide governmental equipment fleet management personnel and agency executives with the resources, material and support to promote effective fleet asset management, advance emerging equipment technologies, communicate best practices, and to provide a voice to decision makers and industry on issues impacting fleet operations.”

73 Khasnabis, S., J. Bartus, and R. D. Ellis. (2014). “Asset Management Strategy to Meet Long- Term Transit Fleet Needs of State Departments of Transportation.” Transportation Research Record: Journal of the Transportation Research Board, No. 1887, Transportation Research Board, National Research Council, Washington, DC, p. 45–54. This paper presents an asset management strategy for state DOTs to meet long-term transit fleet needs. The strategy is described as a two-stage process: (1) allocating capital dollars for the dual purpose of purchasing new buses and rebuilding existing buses and (2) distributing funds among agencies in an equitable manner. The proposed management strategy includes two optimization models. Model 1 attempts to maximize the weighted fleet life of all buses being purchased and rebuilt for a given peer group, within the constraints of a fixed budget. Model 2 is designed to maximize the remaining life of the entire peer group, composed of the existing buses as well as those replaced or rebuilt. The model addresses every single bus eligible for replacement through replacing or rebuilding. The paper also uses a comprehensive case study, depicting a seven-year planning cycle for the entire fleet of medium-sized buses in the state of Michigan, to demonstrate the strategy. Case study results show that the strategy is viable and can be used for the designated purpose with fleet data currently available to transit agencies. The strategy is demonstrated with medium-sized buses, but the paper asserts it will function with buses of different sizes and with a different number of agencies. Asset Management Associates. (2015). “PLLC, Lifecycle Cost Analysis for Class 8 Snowplow Trucks DOT150358WK, Business Case – Final Report.” This report outlines a lifecycle cost analysis of Class 8 snowplow trucks, recommending replacement at nine years. The report also recommends adding a points-based equipment condition assessment process to aid the DOT in prioritizing units for replacement. For the equipment assessment process, the report recommends that the DOT modify its current annual inspection process to include several aspects of the recommended vehicle condition evaluation system: • A thorough inspection and operational check of each unit • An initial itemized list of repair/maintenance work for each vehicle • A general assessment rating using a standardized grading (alpha-numeric or defined term) • A priority ranking for each item (such as critical, urgent, needed, and recommended) • A detailed cost estimate for each vehicle • A determination of expected service life if repairs/rehab are completed • A decision of the course of action for each equipment unit (such as routine maintenance only; selective repairs; full repair/rehab; defer and reevaluate within __ days; no

74 14. APPENDIX G. FREQUENTLY ASKED QUESTIONS ABOUT COST ACCOUNTING The following is a list of common cost-related questions about fleet. Many of these cannot be answered directly with cost accounting principles, but rather require managerial accounting knowledge that is outside the scope of this Guide. 1. What is fleet cost accounting?” Cost accounting is the recording of all costs incurred in an organization in a way that can be used to improve its management. Note that cost accounting differs from management accounting, which focuses on using cost information to make decisions (see Section 2.3 above for six common uses of fleet cost information). It also differs from financial accounting, which focuses on generating external financial reports. 2. Which costs need to be calculated as part of fleet cost accounting? At a high level, fleets organize costs by activities, sometimes called “lines of business.” Common activities including providing equipment, providing maintenance and repair services, providing parts, and providing fuel. As discussed in the Guide, all activities are calculated using similar initial steps, but each has a different unit of measure. Equipment costs are typically in terms of costs per mile or costs per hour. Maintenance and repair costs are in terms of the hourly composite rate of the shop(s) (known as the shop rate). Parts and fuel are typically discussed in terms of the markup applied to each. Thus, fleet managers organize their fleet costs to enable efficient calculation of these activities. 3. Should a new piece of equipment be purchased to reduce costs? A lifecycle cost analysis is the generally accepted best practice basis for determining when equipment should be replaced. NCHRP Research Report 879 and guidance documents from the APWA and the NAFA provide methodologies and tools for performing such an analysis (Hamilton 2018). Fleet cost accounting can support this decision by estimating the cost per mile or cost per hour of the old and new equipment. 4. Should a new building, shop, or warehouse be built or acquired when the number of units of equipment in the fleets increases? A benefit/cost analysis is the only way to quantitatively determine if a new facility is needed. However, a fleet manager should consider several alternative options, which may be lower cost: a. Add a second or third shift to push more work out of the existing facilities, b. Share the facility costs with other department or organizations, and c. Outsource to address the expansion in fleet size equipment.