Whether you manage procurement for a small fleet of vehicles or a large-scale operation, understanding the financial implications of your choices is key. This is where Whole of Life cost (WOL) comes into play. WOL is more than just a catchy acronym; it’s a comprehensive financial estimate that helps you evaluate the true costs associated with fleet decisions.
This article will guide you through understanding fleet WOL and highlight its significance in making informed long-term procurement decisions.
Hidden Depths: Understanding the Full Financial Impact
Much like an iceberg, the majority of WOL lies beneath the surface. This submerged part includes numerous costs that can significantly impact the overall financial picture. For instance, operating costs, such as ongoing fuel expenses, maintenance, repairs, insurance, depreciation and potential end-of-lease costs, and expenses such as tolls, fines, and costs related to accidents or wear and tear, play a crucial role.
Detailed projections of both the visible and submerged costs can help you make more informed and strategic decisions about fleet procurement. Ignoring the "underwater" costs can lead to uninformed decisions.
Why WOL is important in fleet procurement
Understanding WOL means you can make decisions that reflect your organisation’s financial realities, ensuring you’re not just looking at upfront costs but also planning for the long haul. Fleet procurement isn’t just about getting vehicles on the road, it’s about ensuring those vehicles contribute positively to your bottom line. When evaluating options, WOL can provide a holistic view, enabling businesses to forecast expenses accurately. This insight is invaluable when managing budgets, making the decision around buy vs lease and planning for future needs. In an environment where operational costs can spiral out of control, understanding WOL is key for maintaining a competitive edge.
Why Evaluate WOL in Fleet Leasing?
1. Comprehensive financial insight
WOL offers a detailed perspective that goes beyond assessing monthly payments only. It encompasses maintenance, fuel, insurance, potential end-of-lease fees and other costs and expenses, giving businesses a clearer picture of their financial commitments.
2. Comparison with alternative options
With WOL, organisations can effectively compare leasing against purchasing vehicles outright. This evaluation includes critical factors like depreciation and maintenance responsibilities, enabling more informed decisions.
3. Cost efficiency
By identifying hidden costs, such as excess mileage fees or unexpected maintenance charges, WOL can help you optimise fleet size and composition, potentially leading to significant cost savings.
4. Strategic decision-making and forward planning
WOL supports long-term planning by providing insights into future costs. This foresight is crucial for making informed decisions about fleet expansion or reduction, and it assists in risk management by highlighting financial implications of fluctuating costs like fuel prices.
Components of WOL in Fleet Procurement
Every FMO will have a different cost structure, but as a general rule, there are five components of WOL in fleet procurement:
- Leasing costs: Monthly lease payments and initial fees.
- Operating costs: Fuel, maintenance, repairs, and insurance.
- Depreciation considerations: Understanding how vehicles lose value over time.
- Additional costs: Potential costs associated with accidents, infringements, and tolls.
- End-of-lease costs: Fees incurred at the end of the lease term
Calculating WOL
Calculating the WOL for your fleet involves a few key steps.
When analysing the results, look for trends, outliers, and areas where you could potentially save on costs. Finally, remember that WOL isn’t a one-off calculation. It’s good practice to update your WOL analysis regularly to keep it in line with changing market conditions and operational factors
Incorporating WOL into Procurement Policies
Integrating WOL considerations into your fleet procurement framework can be a game-changer in terms of shifting organisational focus from short-term and immediate costs to a longer-term creation of value. Consider approaching implementation of WOL calculation like a change management exercise and be sure to educate stakeholders to bring them along on the journey. As with any metric, the strength (or weakness) of your WOL calculations lies with the accuracy of your data. Assumptions can skew accuracy, as can using other fleets’ data. The good news is that if you have partnered with an FMO with a great fleet management platform, most of this data should be readily available.
Conclusion
At Interleasing, we encourage our customers to adopt WOL as a standard practice in their procurement strategies. By considering all associated costs, businesses can make informed choices that lead to long-term success.
Still not sure where to start? Download our Fleet Value Checklist to gain a wider understanding of value and how it impacts your fleet’s WOL.
