Finance Fleet

An internal guideline paper

November 19, 2011
The Strategic Functional Roles

to control Fleet’s Finances

To help achieve the following objectives:

1. Optimal VOEs efficiency; and

2. Optimal availability of vessels

 The organizational position of “Fleet Finance”

Assets Management
(policies regulating function)

Fleet Management
Posting (SMs, Superintendents,
Asst Super, Fleet’s
administration): Usage,
and requisition

Fleet
Fleet/VOE
As the “gate-keeper” to help
Finance safeguard the objectives of
Accounting
the functional roles Central
Purchasing
& Warehousing:
Procurement &
Storage

Reporting

Back-office function Mid-office function Front-office functions

As the formal records keeping
based on the accounting
Technical scope of works

In order to effectively control Fleet’s Finances, ie to help

achieve the following objectives:

1. Optimal cost efficiency of VOEs; and

2. Optimal availability of vessels

The technical scope of works are:

A. VOE reporting & analysis; and

B. Payments control
A. VOE Reporting & analysis

1. Help facilitate the company (Assets Management) to have a “VOE Reporting & Analysis
Guidelines”:
i. Drafts, engage the discussion forum to adopt (common understanding, rules, known
limitations, the derived interpretations, etc);
ii. Formalize the guidelines – push the approval of BoD
iii. Engage each and every SM, Sup, Asup, Fleet administrator to fully comprehend the
guidelines
iv. Translation into accounting policies (amortization of docking costs, capitalization of
upgrading costs, etc)

2. Reporting analysis of VOE accounting data

i. Analyse & check accounting data for anomalies (horizontal and vertical analysis).
Engage accounting as necessary – find out accounting anomalies (timeliness of
accruals, EOM cut off, etc);
ii. Prepare VOE Report(s): the basics, slicing and dicing of data, benchmarking, and
variance analysis (pto);
iii. Issue the necessary memorandum (email, Memo to BoD/AM, the subject front function
units, Head of Finance/CFO) about the indicated deficiencies which may materially
affect/compromise the cost efficiency and/or the integrity of system of internal control;
iv. Help, as necessary, the organization of Fleet Management to comprehend the analysis
for follow up purposes (for their own PMS)
Slicing and dicing of VOE data – and the use of it

1. VOE1, VOE2 - by vessels: sorted further by age, acquisition date, specs;

2. Combined with the “KO Contribution” to report the owner’s margin;
3. Benchmarking analysis:
 Sister ships
 Other/3rd party SM – for the similar vessel
4. Horizontal analysis/: YoY, M-to-M, YTD, last year-current YTD
5. Aggregation and its pro-rated calculations of the unexpected R&M (for KO Purposes)
6. File1, File 2, File 3

7. For the items that changed materially (based on the above analysis) – check the volume, units
consumed – and check with the available technical standards (technical life span, standard
consumption). Our internal references: Reasonableness, logic, rationale;
8. On quarterly basis, do the turnover analysis to try to gauge the efficiency of the “Carrying
Costs”, and the “Ordering Costs”. Identify the causes;
9. Find out the significant “Shortage Costs” and identify the cause (Fleet Management/SM,
and/or the Purchasing and its Warehouse System):

Because of what?
 People?, human error?
 Underlying policies? (what’s available, is it clear, & in writing?) This is the value
 Systems and procedures? (available in writing?, lack of it?, no good by design?) adding works of
 Supporting IT system? Fleet Finance
 Two units: Fleet, and/or Central Purchasing?
Based on the VOE Analysis (which should be continually performed) . .

. . . Initiate the “Finance Policy Action” (exercise the proper departmental judgement to discipline
the Fleet and Purchasing), such as:

1. Stop, postpone, reschedule payment should the following is suspected:

 Dubious purchases due to highly abnormal usage
 Unreasonable lead time (without professional rationale to justify it)
 Abnormal purchase pattern (too frequent or infrequent, etc)
 The TOP is compromised to our disadvantage
 Apa lagi??
 Remember, we are the “gate-keeper” – raise the “red flag” as necessary, we don’t have to
know everything down to the very detail

2. Accelerate, and/or by-pass procedures (with approval from the Head of Finance, CFO, CEO)
should it be beneficial to the objectives;

3. Call the necessary meeting with the subject functional units (Fleet, and/or Purchasing, and/or
Assets Management):
 Present the case in systematic, self-explanatory way – for others to understand
 Push for result-oriented-action/measures
 Should the above is stuck, call a higher meeting (involving BoD, CEO)

4. Make the rigourous follow up of the above point 3 This is the value adding works
of Fleet Finance
Based on the VOE Analysis (which should be continually performed) . .

5. With regard to the daily/routine payment of Fleet Finance an internal guideline is as follows:

 Administrative / clerical works, seperti . . .

 The reponsibility of the above works is with the head. The Head is to make sure that the
clerical works are done with discipline and in proper way. However, H/She is not to be
directly perform redundant checks – only occasionally – in this respect the system
WITHIN FLEET FINANCE is to be assured to work – and THAT IS THE JOB OF THE
HEAD
 UNTUK PENGELUARAN YANG (BESARNYA MELAMPAUI . . ATAU DIPANDANG ANEH
APANYA YG ANEH?, ATAU APA) MAKA DIBERLAKUKAN . . .
 ....
 ....
 .
 .
 .

6. Ccc

This is the value adding works

of Fleet Finance
B. Help the organization to achieve the optimal availability of vessels

1. Monitor and report the planned and actual dockings (timing/when, scope of works, costs using
the same dollar value, docking days);

2. In close cooperation with the KO – to get the unplanned offhire data and make it easy to
monitor/analyse it:

i. Vessel,
ii. Dates
iii. Why, the cause
iv. The costs: direct and indirect costs
v. What should have been learned and mitigated from the similar events in the past? – and
what have not?
vi. ...

3. Design and engage special report on availability?

4. Special report on vessels which have been significantly underperforming over the last (one,
two years) in term of availability and the level of R&M Costs – this is coupled with KO’s views
– as an input for our Assets Management to decide.

This is the value adding works

of Fleet Finance
B. Help the organization to achieve the optimal availability of vessels

5. ....;

6. ....

7. ....

This is the value adding works

of Fleet Finance

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Some reference materials
The definition of “Availability”

The focus

Optimal = minimum!

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The concept of availability

Reliability Maintainability

Availability

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Availability and reliability – a definition

• Availability:
– Availability is defined as the percentage of time that a system is available to perform its
required function(s);
– Availability is the proportion of the system “Up-Time” to the total time (Up + Down) over a
long period

• Reliability:
– Reliability is concerned with the probability and frequency of failures (or more correctly,
the lack of failures). A commonly used measure of reliability for repairable systems is the
mean time between failures (MTBF). The equivalent measure for non-repairable items is
mean time to failure (MTTF);
– Reliability is the probability that a device or a system will operate without failure for a
given period and under given operating conditions;

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Availability

• It is a time-related factor that measures the ability of a product or service to perform its
designated function.
• The product or service is available when it is in the operational state, which includes active
and standby use.
• Can be defined as:

Up-Time
A=
Up-Time + Down-Time

• Or if it is expressed in terms of MTBF and MTTR

MTBF
A=
MTBF + MTTR

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 MTBF (Mean Time Between Failure)

MTBF is defined as the mean time between successive failures.

(A1 + B1) + (A2 + B2) + (A3 + B3)

MTBF =
3

B1 B2 B3
Up

t
Down
A1 A2 A3

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 Mean Time To Repair (MTTR)

MTTR is defined as the mean time of restoring a device or system to operation

condition.

A1 + A2 + A3
MTTR =
3

B1 B2 B3
Up

t
Down
A1 A2 A3

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Reliability

• Means quality over the long run.

• A product that “works” for a long period of time is a reliable one.

• Since all units of a product will fail at different times, reliability is a probability.

• There are four factors associated with Reliability:

1. Numerical Value: The numerical value is the probability that the product will function
satisfactorilyduring a particular time
2. Intended Function: Product are designed for particular applications and are expected to
be able to perform those applications;
3. Life: How long the product is expected to last. Product life is specified as a function of
usage, time, or both;
4. Environmental Conditions: Indoors, Outdoors, Storage, Transportation.

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Reliability (cont – further elaboration on its definition)

• First, reliability is a probability. This means that failure is regarded as a random

phenomenon: it is a recurring event, and we do not express any information on individual
failures, the causes of failures, or relationships between failures, except that the likelihood for
failures to occur varies over time according to the given probability function;
•
• Second, reliability is predicated on "intended function:" Generally, this is taken to mean
operation without failure. However, even if no individual part of the system fails, but the system
as a whole does not do what was intended, then it is still charged against the system reliability.
The system requirements specification is the criterion against which reliability is measured;

• Third, reliability applies to a specified period of time. In practical terms, this means that a
system has a specified chance that it will operate without failure before time . Reliability
engineering ensures that components and materials will meet the requirements during the
specified time. (in terms of miles, gun fire etc.);

• Fourth, reliability is restricted to operation under stated conditions. This constraint is

necessary because it is impossible to design a system for unlimited conditions. A Mars Rover
will have different specified conditions than the family car. The operating environment must be
addressed during design and testing. Also, that same rover, may be required to operate in
varying conditions requiring additional scrutiny

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