Route Costing
TAS has developed a generic route costing model that enables consideration of all the key factors in bus service operation. Effective route costing can be used to:
- Determine whether a service is 'commercial' in whole or in part, with a view to curtailment or withdrawal if it is not.
- Set performance targets for each part of the business and focus management action on parts of the business that are not performing satisfactorily.
- Benchmark services against each other to determine the relative merit of each service for the allocation of resources (marketing, new buses etc.).
- Ensure that each part of the business makes an appropriate contribution.
Although the purposes of a route costing system may appear self evident, all systems have three particular functions:
- The allocation of non-cash revenue (i.e. anything other than the cash fares handed over to the driver).
- The allocation of direct costs, almost always on a 'unit cost' basis (labour, fuel etc.)
- The apportionment of indirect costs (depot costs, supervision, marketing etc.).
The TAS model has the capacity to test all of these parameters. It is broken down into the following segments:
- costs by:
-
- peak vehicle
- scheduled vehicle hour
- scheduled mileage
- indirect costs
- services
- costing statement
Costs
The direct costs of running the service can be apportioned by peak vehicle, scheduled hours or scheduled miles. For each vehicle category, the TAS model allows use of each method or a combination of methods, as shown in Table 1:
Table 1: Direct Cost Apportionment
| By Bus | By Mile | By Hour |
| Maintenance | Maintenance | Drivers' wage rate |
| Lease or depreciation | Insurance | Wage overhead |
| Insurance | Fuel | |
| Tyres |
We use the total costs per hour, mile and bus within the costing statement to calculate total route costs.
Indirect Costs
We can apportion indirect costs by one of three methods:
- scheduled hours
- total revenue
- peak vehicle
Costing Statement
All the above information is brought together in the costing statement. Patronage, revenue, hours, mileage and vehicle utilisation figures are used to produce the following outputs:
- Total Revenue
- Total Direct Costs
- Gross Profit (revenue - direct costs)
- Gross Profit Margin
- Net Profit (revenue - direct and apportioned indirect costs)
- Net Profit Margin
- Percentage of Total Revenue
- Total Revenue per bus
- Gross Profit per bus
- Net Profit per bus
These outputs are provided by service and for the entire network. A facility to add in other fixed, unapportioned costs and miscellaneous revenue sources is also provided.
In summary, our approach to reviewing any operator's route costing is:
- Agree a definitive cost structure with the management team.
- Apply the generic TAS route costing model, suitably adapted to take account of the structure agreed from the above.
- Apply the agreed model to present a detailed analysis of performance of the current business, by service and profit centre.