Plan a fleet budget you will be able to deliver

Before we start work on preparing our fleet budget, it is worth listing point by point the elements to pay attention to before filling in the templates with specific figures for the forecast costs.

I will now try to explain each point and suggest which mistakes to avoid – mistakes that could adversely affect the quality of the fleet budget and the perception of our professionalism.

Why should a Fleet Manager prepare an annual fleet budget at all?

There is no clear-cut answer to the question of how much it costs to run a company car. The monthly TCO (total cost of ownership) ranges on average from PLN 1,500 to 4,000 net, and for a fleet of 100 vehicles the Fleet Manager's annual budget may be anywhere between PLN 1.8 million and PLN 4.8 million. Of course, everything depends on the class of car, the method and cost of servicing, whether it may be used for private purposes, the distances covered, the accident rate of the whole fleet and how many cars it consists of. That is why budgeting fleet costs is a key element of managing a company's finances. Its main purpose is to ensure that all vehicle operating expenses are controlled and predictable. This allows the company to:

• Avoid unexpected expenses, such as sudden increases in servicing or insurance costs.
• Optimise the fleet's cost structure, e.g. by negotiating leasing or fuel contracts.
• Plan future investments in new vehicles or technologies (e.g. telematics systems).

Possible mistakes in the process:

• A budget without the right parameters can lead to uncontrolled cost growth (e.g. through the lack of fuel limits when cars are used for private purposes).
• Incorrect assumptions may result in too low a servicing budget, increasing the risk of vehicle breakdowns.
• Skipping the analysis of historical data can lead to underestimating expenses.

What should the budget include?

The annual fleet budget should cover all vehicle operating costs. The key categories are:

• Leasing/purchase costs – monthly leasing instalments, initial fees, buy-out costs.
• Fuel costs – a forecast based on fuel consumption, the mileage of individual drivers and fuel price fluctuations.
• Servicing and repair costs – periodic inspections, tyre changes, accident repairs, end-of-contract repairs when returning rental cars.
• Insurance and taxes – third-party and comprehensive cover, vehicle tax, registration fees.
• Operating costs – fees for GPS tracking systems, telematics, fleet management.
• Reserves for unforeseen expenses – e.g. fuel price rises, vehicle breakdowns, surcharges for exceeding mileage limits in rental contracts.

Possible mistakes in the process:

• Omitting additional costs such as parking fees or penalties for exceeding mileage limits.
• Overly optimistic assumptions about fuel prices or servicing costs.
• Failing to account for the costs of taking vehicles out of service.

Be sure to learn the expectations of all stakeholders

Fleet management affects many departments of the company, so it is worth consulting the key stakeholders:

• Finance department – expects cost optimisation and precise forecasts.
• HR department – may be planning to increase the number of employees who need company cars.
• Board – may have a sustainability strategy and expect a switch to an electric or hybrid fleet.
• Vehicle users – expect reliable and comfortable cars.

Possible mistakes in the process:

• A lack of consultation can lead to underestimating the number of vehicles needed.
• Ignoring the company's strategy (e.g. environmental) can result in misguided investments.

Check the headcount plan and possible changes in the company's organisational structure

If the company plans to increase headcount, this may affect the number of company vehicles needed. Restructuring, on the other hand, may mean reducing the fleet.

Possible mistakes in the process:

• Failing to account for headcount growth leads to the need for quick and costly rental of additional vehicles.
• Failing to account for planned redundancies may result in surplus cars and unnecessary costs of early lease termination.

Check whether you have historical data on fleet costs

Analysing historical data lets you identify cost trends and avoid incorrect budget assumptions. It is worth knowing that if the company does not have all the data it needs, much of it can be obtained from contractors providing servicing, insurance, leasing, telematics or fuel card services. Let us also remember the iron rule of validating the accuracy of the data we will use for budgeting. With costs running into millions, an error of a few per cent has a very large impact on the results shown to the Board.

Possible mistakes in the process:

• A lack of data can lead to underestimating the servicing costs of older vehicles.
• Misinterpreting data (e.g. ignoring inflation) can result in an incorrect budget.

Review existing contracts and the obligations arising from them

Long-term rental (leasing) contracts often contain clauses on the recalculation of instalments, e.g. when agreed mileage is exceeded. They may also contain penalties for early return of the vehicle, or the method of calculating valuations when vehicles are returned at the end of the contract. I wrote about this in a little more detail in the article: How to negotiate a favourable long-term rental contract for your fleet?

Possible mistakes in the process:

• Failing to account for possible increases in leasing instalments as a result of changes in fleet mileage.
• Not renegotiating unfavourable contract provisions.
• Returning cars to the lessor with unreported or unsettled damage.

Meet your insurer and discuss the forecast accident rate

Regularly reviewing vehicle accident data can bring savings and prevent very costly premium increases. By knowing and understanding the mechanisms of policy management, claims handling costs and fleet risk assessment, we can more easily estimate third-party and comprehensive premiums. Constant, effective cooperation with the insurer, regular fleet audits and preventive measures are very important.

Possible mistakes in the process:

• A badly concluded policy may not cover key risks (e.g. towing limits, restrictions on the availability of a replacement car).
• A lack of negotiation may result in overpaying for insurance.

Check new trends on the fleet market

Electromobility, telematics, gamification, all-season tyres, car sharing and changing EU regulations can all affect fleet costs. Everything new always has good marketing, and the Fleet Manager's role is to properly match trends to the expectations of the main stakeholders.

Possible mistakes in the process:

• Ignoring environmental trends can lead to higher taxes and charges.
• Ignoring new technologies, especially in the area of telematics, can increase operating costs.

Always plan the budget in 2 scenarios

It is worth preparing the budget in two versions: optimistic (assuming stable costs) and pessimistic (assuming price rises). Remember that Boards and Finance Departments expect realistic data as close as possible to current performance. On the other hand, the Fleet Manager should look after their own interests and show all the possible risks that may arise during vehicle operation, and be able to estimate how much more money needs to be set aside in related reserves. In my view this point is absolutely crucial!

Possible mistakes in the process:

• The lack of a contingency scenario can result in unforeseen costs and the need for sudden savings.
• Regularly missing the budget and not drawing quick conclusions from that lesson is the hallmark of a Fleet Manager who leads to financial instability.

Consult the budget with industry experts

Exchanging experience with other Fleet Managers helps avoid mistakes and find savings. Meetings with the industry specialists behind the leasing, servicing, insurance or IT services provided are also very valuable.

Possible mistakes in the process:

• Creating the budget based solely on your own knowledge and experience.
• Ignoring the advice of other experts, audit recommendations or other consultations on current spending.

Be careful about an excessive appetite for quick cost savings

Cuts in servicing or insurance can bring short-term savings but long-term losses. Do not give in to the temptation to make changes without thoroughly understanding all the details. Remember the stakeholders, and above all the end users, i.e. the drivers. Spectacular achievements can unfortunately have a catch: the hidden costs of the change introduced.

Possible mistakes in the process:

• Cutting the servicing budget can result in breakdowns and higher repair costs.
• Insurance premiums that are too low may mean poorer cover for the vehicles.

As a committed Lean practitioner, I am a proponent of introducing standing checklists wherever they can make the user's work easier and also standardise it to some extent. So if you wish, you can use my checklist, which I personally use in my fleet's annual budgeting cycles.

Checklist of steps in the fleet budgeting process

Here is a detailed checklist of steps in the fleet budgeting process – you can download it at the end of the article:

1. Define the purpose of the budget
   Define the main budget assumptions, e.g. cost control, spending optimisation, implementation of new technologies.
2. Analyse historical costs
   Gather data from previous years on fuel, servicing, leasing and insurance costs, etc.
3. Identify key costs
   Draw up a list of the main expense categories (leasing, fuel, servicing, insurance, taxes, telematics systems).
4. Consult stakeholders
   Meet the finance department, HR, the board and vehicle users – discuss their expectations.
5. Verify headcount plans
   Check whether staffing changes affecting the number of vehicles needed are planned.
6. Analyse the fleet structure
   Review the number of vehicles, their age, mileage and planned replacements.
7. Review existing contracts
   Verify the terms of leasing and long-term rental, instalment recalculation and notice periods.
8. Meet the insurer
   Discuss current policies, cover terms and the possibility of renegotiating premiums.
9. Analyse fuel costs
   Review fuel consumption, assess optimisation options (e.g. fuel cards, fleet policy).
10. Calculate servicing costs
    Account for planned inspections, tyre changes and accident repairs.
11. Include administrative costs
    Costs of fleet management systems, GPS, telematics, legal services, etc.
12. Check market trends
    Review new technologies, regulatory changes and fleet electrification options.
13. Prepare a reserve for unforeseen expenses
    Estimate an additional budget for sudden breakdowns, fuel price rises and tax changes.
14. Create two budget scenarios
    Develop an optimistic version (stable costs) and a pessimistic one (price rises, breakdowns, regulatory changes).
15. Consult the budget with experts
    Meet Fleet Managers from other companies, industry consultants and fleet service providers.
16. Verify savings and risks
    Check whether planned cost cuts will not adversely affect fleet efficiency.
17. Finalise the budget and present it to the board
    Summarise the data, report the key assumptions and proposals for approval.
18. Monitor the budget after implementation
    Regularly check spending, compare it with the plan and respond to deviations.

Summary

Finally, let us remember that managing a fleet budget is more than just entering numbers into a table. It involves regularly monitoring expenses to identify ways of reducing operating costs. If we want to be seen as professionals, let us deliver our annual budgets and respond proactively to any significant deviations.

Reporting in a well-implemented IT system that archives cost data for all vehicles allows the efficiency of the whole fleet to be optimised. As a result, we can make smarter business decisions that reduce costs and respond faster to upcoming changes.

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