Internal Service Fund Rate Development and Billing for Fleet Management.

• Author: Wahl, Brent
• Position: Statistical data

Fleet management agencies are usually internal service funds, and a wide variety of methods exist for calculating and collecting charges. While some are better than others, all of these methods generally work. For some agencies, however, the methodology of rate calculation and collection may drive behavior that is counterproductive to good asset management and the best interest of fiscal stewardship. This article will explore strategies for using rates and fee collection to create incentives for good asset management behavior.

PRICING AS A TOOL

Pricing is a powerful tool that has been used to drive consumer behavior throughout the world, and it can also be used to drive behavior in your organization. Although internal service funds cannot subsidize or charge less for services than they actually cost, they can ensure that the lowest-cost alternatives are available and not lumped in with less efficient options. This situation often occurs in vehicle and equipment fleets where vehicle types are consolidated into "classes" for billing purposes. Costs are assigned to fleet users or customers based on vehicle use, and rates are determined for each class to better align the billing with the actual costs of maintaining the fleet vehicles. Although more billing classes require additional calculation and management, ensuring a situation where the most cost-effective sedan is in its own class, instead of being lumped in with more expensive vehicles, gives customers the opportunity to make the best decisions.

Regularly reviewing the class assignments can also help, as new vehicle models come, go, and change over the years. For example, the Ford Explorer has grown in size and cost from its early years and is now a more upscale and costly vehicle, but it is sometimes put into the same vehicle and billing class as the Ford Escape, a smaller and sometimes more cost-effective SUV. Given the option of paying the same price for both, most internal service fund customers will select the larger Explorer instead of the more economical Escape.

Another price tripping point is the "free" asset. Some organizations allow vehicles to stay in the active fleet after a replacement vehicle is acquired, charging only maintenance costs--a good deal from the perspective of the department using the vehicle but bad of the government overall. This is because most vehicles that are kept past the effective economic replacement point cost the parent agency more money by allowing "fleet creep," where the size of the active equipment fleet grows and loses value as the asset depreciates year after year.

FUEL HEDGING

This is one of the most misunderstood and underused benefits of operating an internal...