Fire Trucks The Key Factors to Know When Developing a Fleet Replacement Plan

It's every Chief's dream - to have a completely modern and safe fleet.

Sounds impossible? Well, it's not if you develop a comprehensive fleet replacement plan and have the discipline to work the plan.

Many departments have been developing and using a truck replacement schedule to define when to upgrade their fleet. This is a critical first step but falls far short of developing a comprehensive fleet replacement plan. Creating a replacement schedule only is like having a Christmas wish list but without any money to buy anything. A comprehensive plan includes the schedule and the budget to guide you for a properly replaced fleet.

This article will guide you about the 4 key steps in developing a comprehensive fleet replacement plan.

Step 1. Inventory and plan your fleet. This is the critical first step that many departments are doing right now. This step involves writing down every single vehicle that your department owns and determining when you should replace each vehicle.

Then develop replacement criteria - should you replace the vehicle based on age, mileage, hours, condition, or other criteria that demands you update the vehicle. Determine a year that each vehicle will have to be replaced according to the schedule.

A word of caution here: You must have defensible reasons for replacing your fleet. Government budgets are tight and getting tighter. You will be second-guessed about the need for the purchases. They need to know that spending this money is. Each replacement should be measured against some definable cost - whether in terms of safety for the fire fighters or community, the technological obsolescence of the old truck, or the costs of repair and maintenance.

But a comprehensive plan also includes more than just vehicles. Remember to include such major purchases such as large gear or equipment replacements or a new station or station addition.

Step 2. Develop your future budget. A comprehensive fleet replacement plan includes both the replacement schedule and the capital and operating budget necessary to buy the trucks you will need. The next step is to develop the financial roadmap that will pay for your new modern fleet.

It's important to include all the financial factors to ensure you have a complete and accurate plan. The key is to analyze all 3 financial factors that will control what your future budget will look like.

First factor: Project your revenues. This can be a daunting calculation but you already have a lot of information in your head and at your fingertips to help with this factor.

First, start with your past 3 year's revenues. Eliminate all the non-recurring income such as grants or other revenues that you can't count on receiving each year. You should have an accurate repeatable revenue amount. Then, you want to begin projecting your future revenues from this amount.

What do you think will happen to your revenues over the next 3 to 5 years? Based on the past 3 years, do you think that they will be increasing, staying stable, or decreasing?

After you have a general sense of your revenue trend, it's time to estimate a percentage change. Use your actual experience to help guide you. Will the rate increase at the same pace, lower pace, or higher pace? Let's show an example.

If your revenues have increased at 4% per year, on average, over the past few years and you see a consistent growth rate, use 4% to increase your revenue each year. If you have lower expectations, use a lower percentage. If you feel that your revenues will do much better than the recent past, use a higher percentage.

Second Factor: Project your operating expenses. This follows a similar path as your revenue projection.

Determine your recent repeatable operating expenses. Calculate the historical annual growth rate. Examine if the expense growth rate will be higher, same, or lower than your recent experience. Finally, project your future expenses based on recent experience and at the calculated growth rate. Be sure to specifically include any significant expenses that you know will grow beyond the expected inflation rate such as insurance premiums or fuel.

Third Factor: Capital expenses. You spend money on two types of expenses - operating expenses such as insurance, payroll, fuel, utilities, repairs, maintenance, etc. and capital expenses for large purchases such as new trucks, stations, loan payments, or large equipment purchases.

For a comprehensive plan, project what capital purchases you consistently have to make each year. Analyze your past few years of purchases and again calculate if they will rise, fall, or stay the same.

Please note that this is not your future fleet replacement purchases - we'll get to that later.

If you have loans, you'll need to continue to include the payments until the loans are paid off. Loan payments are a capital expense since they were used to buy a capital item such as a truck or station.

So, after you've projected your revenues and subtracted your operating expenses and capital expenses, you have an amount of cash flow to use for new trucks.

The next step is to determine how much your future trucks will cost when you need to buy them.

Step 3. Predict your future purchase costs. An often-overlooked factor in fleet plans is the reduced buying power as each year goes by.

Many replacement schedules have been sidelined when the time comes to buy the truck and the bid prices are 20% - 50% higher than expected.

But a comprehensive plan includes the future cost. For example, if the truck you need will cost $300,000 today and you expect truck prices to increase 5% per year, that same truck will cost $382,884 in 5 years. So, if you budget $300,000 in 2013 to replace the truck, your plan will be off by over $82,000. It's key to prepare for a higher future cost so that your plan will not be sidetracked.

It's easy to think that the plan you developed back in 2008 will accurately predict the future. After all, you did do all the steps correctly and didn't overestimate anything. Well, the plan works because you work the plan. Here's how.

Step 4. Work the plan. The plan is not an exact picture of what your future will be like. It's more like a roadmap, providing a sense of direction and a path of where you'd like to head.

The key factor is to use the plan to chart your course and determine if you are still on track each year. Your future revenues, expenses, and truck costs will not be exactly what you planned.

So, what's the purpose of the plan at all? The purpose is to help you know if you are heading in the direction of your primary goal which is a fully funded modern fleet replaced according to a set operational schedule.

Work your plan each year by examining your results. Were your actual revenues, operating expenses, capital expenses, and truck purchase or financing costs last year close to what you projected? If not, what changes in your plan are needed to get back on track?

The point is that if you don't have a plan to measure where you should be, you don't know how you are doing. Without a plan, you won't know if your financial results each year are leading you toward a fully replaced modern fleet or not.

A comprehensive fleet replacement plan is a fully developed replacement schedule and a financial budget designed to ensure your funding is ready when you need to replace your trucks. When you have a comprehensive plan, you'll have all the factors in place to have a station full of modern, safe trucks.

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Fire Trucks The Key Factors to Know When Developing a Fleet Replacement Plan