Running vehicles costs money, the best way to recover the costs is by using an activity-based costing (ABC) mechanism. For the purposes of this financial model, ABC is used to calculate all costs associated with purchasing, managing and maintaining each vehicle. Riders allocates the costs based on kilometres travelled by each vehicle. Distance travelled is the key activity as it determines the maintenance, interventions, and fuel required.
To determine the monthly per-kilometre cost a vehicle’s odometer is taken and calculate vehicle mileage since its last reading. The monthly cost is based on upon vehicle mileage rather than for specific labour and parts. Riders has been successful with the CPK charging mechanism because the financial model allows Riders to forecast the maintenance needs of vehicles with a high degree of accuracy. Costing by the kilometre also creates disincentives for abuse or over-usage of vehicles because every kilometre travelled produces additional charges. Agencies quickly adapt to the reality that effective transport actually costing money.
Six components comprise the building blocks for the total CPK calculator. Each component has its own CPK which contributes to the total CPK for the vehicle. The first five of these components already exist for Riders’ TRM model and relate to the management and maintenance of the vehicles as defined in a TRM contract. The sixth component represents the costs of leasing. The six components are:
- Interventions (parts and tyres)
- Direct staffing (technicians and drivers)
- Direct management (staffing and overhead costs)
- Leasing costs (capital and interest)