Decision Making for Outsourcing and Privatization of Vehicle and Equipment Fleet Maintenance (2011)

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11 The scope and requirements of the outsourcing decision framework described in Chapter 3 highlighted the features the logic model will provide. However, among these require- ments, two in particular pose significant challenges to the application of the logic model: 1. The framework should be widely acceptable and applicable to state DOT fleet and equipment maintenance. 2. The framework needs to be flexible and scalable to address a full range of outsourcing decision alternatives. The decision process framework aims to ensure usefulness, flexibility, and scalability. This project established generic, working definitions for the decision framework—the equip- ment class and maintenance type—to reflect typical agency fleet maintenance activities. Additionally, the project defined a core three-dimensional decision variable to use as a com- mon denominator to evaluate the variety of outsourcing alter- natives. This chapter describes these definitions and concepts in detail. 4.1 Equipment Class Most state DOTs maintain substantial fleets of equipment and vehicles. They represent significant investments and are a vital set of assets to support maintenance and management road networks. For example, the Oregon Department of Transporta- tion (ODOT) Fleet Services Section manages ODOT’s fleet, which includes over 5,000 pieces of active equipment worth approximately $340 million to $390 million (6), the Montana Department of Transportation has over 4,000 pieces of equip- ment that are located in over 150 facilities statewide (7), and the Virginia Department of Transportation has around 33,000 units (8) maintained in roughly 37 facilities statewide (9). The logic model can support outsourcing decisions for a single type of repair for a particular vehicle or equipment, as well as the outsourcing decisions with respect to a particular class of equipment or a particular type of maintenance and repair activity. A state DOT fleet typically consists of many types of equipment and vehicles, such as small and large trucks, cars, and heavy machinery (e.g., graders, bulldozers, many types of tractors). Meanwhile, maintenance actions also vary signif- icantly from vehicle to vehicle. To ensure that the outsourc- ing decision-making process will be broadly applicable and adaptable, the project developed a typology for equipment class and maintenance type. Table 3 shows six equipment classes to be applied in the process model. Gross vehicle weight and physical character- istics of the fleet and equipment were considered in the devel- opment of these equipment classes. This classification system is similar to the one proposed by the National Association of Fleet Administrators (NAFA) in the Fleet Maintenance Opera- tions Guide (10). According to NAFA, the gross vehicle weight- based classification system provides common attributes to compare vehicles from widely different fleets and fleet appli- cations. Also, operating and maintenance costs have a corre- lation to gross vehicle weight, vehicle type, and function. The proposed class provides a mix of small, medium, and large vehicles as well as more specialized equipment. For exam- ple, the classification includes small-engine equipment (e.g., chainsaws, grass trimmers, lawnmowers). The small-engine equipment constitutes a large portion of the equipment to be maintained but represents less value to the overall fleet and requires fewer repairs. Snow and ice management attach- ments, such as plows, deicing equipment, snow blowers, and sand/chemical spreaders, are grouped in a separate class. The light-, medium-, and heavy-duty vehicles are classified based on their gross vehicle weight. Due to different designs and functions as well as considerations of the typical availability of service providers, the tractors and construction equipment are in separate categories, with the purpose of differentiating them from the heavy-duty class. This project does not aim to define a national standard for equipment and vehicle classes. Table 3 provides an example C H A P T E R 4 Fleet Outsourcing Decision Framework

of one reasonable classification based on grouping similar equipment or vehicles together. The decision framework is flexible enough to adopt a different classification system. Users of the logic model should be able to refine the equipment class definition or create their own classification schemes by consid- ering the following: • Availability of data from an agency’s fleet management system; • Targeted level of accuracy or detail for outsourcing decision analysis; • Mechanical similarities among equipment; • Availability of external service providers; and • Consistency with industry peers, practices, and bench- marking systems. 4.2 Maintenance Types The main objective of maintenance, repair, and overhaul activities is to provide reliably available vehicles and equipment to meet operations needs, when they are needed, at minimum cost, with fully reliable performance. For a typical state DOT fleet, five types of maintenance were considered for the model. The intent was to group similar maintenance activities together and develop a type structure that is a good representation of common fleet maintenance and repair activities to both state DOTs and external service providers. Like the vehicle classifi- cation system, these maintenance types can be defined or expanded to suit specific users. For the logic model, the follow- ing are the assumed maintenance types: 1. Preventive maintenance is a schedule of planned inspec- tion, maintenance, and service actions aimed at the preven- tion of breakdowns and extension of service life. Preventive maintenance activities include inspection and replacement of minor parts and consumables such as wipers, bulbs, belts, brake pads, lubrication, fluids, and filters. 2. Minor repair involves the repair or replacement of specific parts and components that fail or wear out and that can be replaced in a relatively short time and may need some special tools and equipment. Examples are batteries, tires, electrical system components, brake system components, starters, and alternators. 3. Major repair usually includes component or system repair needing more special tools or equipment and typically requiring more time and training. Examples are replace- ment of large truck tires, suspension repair and alignment, brake system overhaul, hydraulics repairs, and electrical systems, as well as accident repair and heavy bodywork. 4. Overhaul and rehabilitation includes extensive renewals of power train, chassis, and body systems. 5. On-road repair includes mobile road-call response, with on-site repairs or vehicle recovery. Users of outsourcing decision tools may develop different, specific definitions of maintenance types. The model recog- nizes that there are several levels of maintenance activity that may require logically differentiated trade-offs when consid- ering factors such as costs, investments needed, management risks, and market options. 4.3 Outsourcing Decision Variables As emphasized in its requirements, the outsourcing deci- sion process must be able to account for a full degree of out- sourcing alternatives, ranging from privatizing a single type of maintenance for a single particular vehicle or a single equip- ment class at a particular location to privatizing maintenance for the entire fleet. The challenge is systematically expressing them so that all possible alternatives will be considered. This study defined a core decision variable for use as a com- mon denominator to construct all possible outsourcing alter- natives, as illustrated in Figure 2. This decision variable has three dimensions and considers three variable factors—a par- ticular equipment or equipment class, maintenance type, and organizational unit. For example, if a maintenance shop is evaluating the out- sourcing of hydraulic repair of a dump truck for a day due to operational reasons, the mathematic expression Dijk will be represented as DDump truck, heavy repair, shop. As another example, if a state DOT is evaluating the out- sourcing of all maintenance activities from a district/region in the state, the mathematical expression can be represented as DAll equipment, all maintenance types, all facilities in region/district. 12 Equipment Class Examples Small engine Chainsaws, grass trimmers, lawnmowers Seasonal attachments Plows, salt and sand spreaders Light duty Sedans, light pickup trucks, light trucks Medium duty Heavy pickups, medium dump trucks Heavy duty Heavy trucks Specialized Tractors, loaders, graders, backhoes, oil spreaders Table 3. Typical equipment classes. Figure 2. A three- dimensional outsourcing decision variable.

The value of this decision variable actually represents three possible outcomes from the outsourcing decision-making process: (1) the process clearly favors an insourcing decision, meaning that the candidate maintenance activity will be kept in-house; (2) the process clearly favors an outsourcing deci- sion; and (3) the process cannot deliver strong preference between insourcing and outsourcing. A robust trade-off analy- sis between cost and level of quality will be required. The agency may need to make a strategic decision based on available market options. The equipment (class), maintenance type, and organization unit represent the scope that a decision maker wants to control in the outsourcing decision. These three dimensions should not be confused with the key factors that govern the evaluation process—namely, cost, quality, staff workload, demand, inter- nal capacity and capability, and availability of private vendors and their capacity and capability. The high-level decision- making process presented in Section 4.6 addresses these factors in detail. 4.4 Performance Measurement From the perspective of the outsourcing decision frame- work, performance measurement establishes an objective basis for evaluation and comparison of the outsourcing alternatives that aids in decision making. Performance measurement is the process of developing measurable indicators that can be systematically tracked to assess progress made in achieving predetermined goals. Three key components of performance measurement are data, performance indicators or perform- ance metrics, and benchmarking. 4.4.1 Data or Information to Manage Fleet and Equipment Maintenance Performance Measuring performance involves data collection, review, and analysis to develop meaningful insights. The fleet informa- tion management system (FIMS) mostly captures data to man- age fleet and equipment maintenance. Many DOTs implement commercial off-the-shelf (COTS) systems that track and col- lect data on all functions associated with fleet and equipment maintenance. The following are examples of the types of infor- mation collected and accessed in the typical FIMS: • Vehicle inventory management, • Vehicle condition information, • Vehicle usage tracking, • Vehicle repair tracking, • Maintenance management, • Cost tracking, • Fuel usage, • Vehicle inspection management, • Warranty tracking, • Parts inventory management, • Labor management, • Work order management, • Billing and invoicing, and • Performance management. Other sources of data to manage fleet and equipment main- tenance performance include financial systems, corporate information systems, and customers (or user departments). The availability of sufficiently detailed and credible data affects the level of detail and accuracy in the outsourcing decision analysis. 4.4.2 Key Performance Indicators or Metrics to Monitor Performance Performance metrics are quantitative parameters that are used to assess the performance of processes and activities. Performance metrics are useful indicators of tactical day-to- day performance as well as strategic long-term performance trends. For fleet maintenance outsourcing decisions, activity cost, service quality, and shop productivity are the three broad areas for which performance metrics are suggested. The basic question to be answered in fleet maintenance outsourcing is whether an organization can get better service for the same cost or comparable services for lower cost. Table 4 lists these performance metrics and their calculation. Most metrics reported can be further disaggregated by equipment class and maintenance type. 4.4.3 Benchmarking to Gauge Performance Benchmarking is the process of comparing shop perform- ance against peers and/or industry standards and best practices using commonly accepted metrics. In this case, peers might refer to other maintenance shops or facilities within the agency or to similar facilities operated by other public or private organizations with similar physical, geographic, and opera- tional characteristics. Benchmarking helps evaluate how one’s performance stacks up against others. It helps identify activi- ties with relatively high performance and the activities that may need improvement. It identifies high-performing shops or facilities and may indicate potential improvement actions. Every agency should have a thorough understanding of the performance of its shops to complete a sound outsourcing analysis. Performance analysis uncovers the underlying rea- sons that may prevent the shop from performing well. Many COTS FIMS have customized performance reports and dash- boards that fleet managers routinely monitor to assess shop performance. 13

4.5 Modeling a Full Range of Outsourcing Alternatives Another significant advantage of the core decision variable described previously is that it can be aggregated or scaled along any of the three dimensions (i.e., equipment class, mainte- nance type, and organizational unit) to cover a full range of outsourcing alternatives. Table 5 enumerates the full range of outsourcing alternatives for a state DOT’s fleet maintenance operations. These alternatives can be reasonably grouped into three categories: • Day-to-day: Outsourcing decisions made independently at individual fleet locations. These outsourcing decisions can range from outsourcing a single type of maintenance for individual equipment classes to outsourcing the entire fleet’s maintenance services at a particular location. A key operational scenario for this group is that state DOT repair shops often need to make outsourcing decisions for a single type of repair for a single particular vehicle on a case-by-case basis. • Operational: Outsourcing decisions made at district and regional levels. For example, a decision can be made to out- source the entire district’s equipment heavy-repair services. Such a decision can be made by applying the outsourcing process model directly to the district’s fleet profile. • Strategic: Outsourcing decisions usually made at the fleet- wide level. These types of outsourcing decisions are typically strategic. Legislation, policy direction, the agency’s strategic plan, or recommendations of fleet managers after thorough performance analysis can drive these decisions. Such out- sourcing decisions may suit most—but not all—situations in the field, so they are usually implemented via policy, guidelines, phase-in plans, and exception rules. 14 Performance Category Suggested Performance Metric Comments Cost Maintenance cost per vehicle by maintenance type Total dollars spent on fully burdened labor, parts, materials, and other costs divided by number of vehicles. Allows for comparison and benchmarking with market providers. Average repair cost (for certain types of maintenance) Average unit costs for certain types of maintenance activities. Allows for comparison and benchmarking with peers and market providers. Analysis of unit cost for specific repair actions may provide useful sample comparisons. Maintenance cost per mile or per operating hour Total dollars spent on fully burdened labor, parts, and other relevant costs divided by vehicle miles or hours. Lower value implies that the organization is more efficient in utilizing and maintaining the fleet. Parts cost per vehicle by vehicle type Usually based on parts issue records, often a better indicator than unit labor costs. Service quality Frequency of in-service breakdowns Measured by overall vehicle miles or hours between in-service breakdowns. Repeat repair or rework Percentage of time a vehicle or piece of equipment returns back to the shop for the same problem within a specified period of time. Vehicle availability Extent to which the vehicle fleet is available for service and, in particular, the extent and frequency of any vehicle availability shortfalls. PM schedule adherence rate Number of PMs completed within the scheduled time period, and the extent and growth or decline in PM inspection backlogs in shops. Work order backlog Measure of all active work orders; indicates match of maintenance needs to capability. Work order schedule commitment Number of work orders completed within the scheduled time; indicates dependability of in-house service. Number of road calls Indicates quality of PM inspection program or poor condition of operating vehicles. Parts utilization Measures parts utilization as a portion of maintenance and repair production. Can indicate throughput for certain repairs. Parts turnover by part type and by vehicle type Computed by dividing average parts inventory in a period by parts issued in a period. Provides the basis for estimating inventory carrying cost. Table 4. Example performance metrics for fleet maintenance.

Outsourcing decision outcomes shown in Table 5 represent the theoretical possibilities. They provide a complete landscape of a typical agency’s fleet maintenance outsourcing alterna- tives. The outsourcing decision-making process presented in the subsequent section provides a systematic and logical way to derive these decision outcomes. 4.6 High-Level Decision-Making Process The concept of outsourcing is not new, and there are many industry articles and books on outsourcing models. The goal of this study is to design this core process model as a step-by-step (structured) process that focuses on the unique needs of the state DOT’s fleet maintenance and business operational environment. The core outsourcing decision- making process presented in this section has the following features: • A structured, transparent, and deliberated logic process that attempts to consider key factors, issues, and strategies; • An assessment of the costs and benefits of having work per- formed by internal staff versus outside service providers; and • A recommendation of a rational and reasoned outsourcing decision. The process model builds the foundation that state DOTs can use to arrive at a full range of outsourcing decisions, such as outsourcing a single service activity or outsourcing the entire fleet maintenance in a region. Figure 3 provides a view of the high-level process flow. Every block represents a group of key activities within the overall decision framework. The process model aims to help structure a complete and organized review of key decision factors, not necessarily in the prescribed sequence. It leaves the relative weighting of each decision factor up to the decision makers. Fleet management agencies may at any time have already thoroughly addressed 15 Organizational Dimension No. EquipmentClass Maintenance Type Outsourcing Nature Individual locations (i.e., a local garage/shop) 1 Specific unit Single type Day-to-day decisions 2 Single class Single type Operational decisions 3 Single class All types Operational decisions 4 Multiple classes Single type Operational decisions 5 Multiple classes All types Operational decisions Regional (i.e., district-wide all garage shops) 6 Single class Single type Operational decisions 7 Single class All types Operational decisions 8 Multiple classes Single type Operational decisions 9 Multiple classes All types Operational decisions Statewide (including all fleet locations) 10 Single class Single type Strategic outsourcing 11 Single class All types Strategic outsourcing 12 Entire fleet Single type Strategic outsourcing 13 Entire fleet All types Strategic outsourcing Table 5. Possible scenarios for equipment fleet outsourcing decisions. Figure 3. High-level outsourcing decision process.

or leap-frogged certain parts of the process and may want to adapt the decision process to existing knowledge or policy. The actual execution of the process model should be highly flexible, depending on the context of the outsourcing decisions such as the scopes of the outsourcing decisions and how often the outsourcing decisions need to be reviewed and updated. The logic model does not intend to be overly prescriptive; rather, it should assist in comprehensive and balanced evalu- ation of outsourcing decisions. A final general point is offered on a decision process that includes any degree of estimation and has qualitative judg- ment components. The process can lead to strong, unequivo- cal conclusions, or the conclusions may be equivocal. That is, the difference between options A or B may be so narrow that it is within the range of certainty of the accumulated estimates and judgments. This is when a choice has to be made based on other overarching strategies, policies, or constraints, such as disposition or reassignment of real estate assets, increasing the privatization of inherently nongovernmental functions, or solving capital or operating budget problems. 4.7 Outsourcing Decision Subprocesses This section describes each of the high-level outsourcing decision processes. 4.7.1 Process 1—Identify Critical Internal and External Conditions Deciding whether to outsource some or all fleet mainte- nance can have significant and long-term effects on fleet operations and maintenance. Before conducting any opera- tional outsourcing decision analysis, the state DOT’s man- agement should set the overall direction for making out- sourcing decisions within the context of the organization’s strategic goals. The purpose of this process (Process 1) is to build a proper foundation for outsourcing decisions before undertaking any detailed technical decision analysis. Specifically, it aims to ana- lyze a series of critical internal and external conditions and decide on a set of potentially feasible and practical outsourcing targets/scopes for further evaluation. Figure 4 illustrates these subprocesses and their logical sequence. For day-to-day tactical decisions to outsource a single vehicle or type and a single maintenance type, some of the steps in this process may not be applicable. For example, most DOTs already outsource some aspects of fleet mainte- nance. Procurement mechanisms and established relation- ships with vendors may already exist for day-to-day use. In such cases, legislative and policy drivers or constraints would not be relevant concerns. Issues in this case would likely be the criticality of immediate need, timeliness of completed work, cost, and service quality. The day-to-day case can omit the following steps. 4.7.1.1 Subprocess 1.1—Select Outsourcing Candidates The purpose of this subprocess is to generate a list of can- didates for fleet maintenance outsourcing consideration. This subprocess is also to identify and document the needs of the organization and understand why outsourcing may be appro- priate. To outsource effectively, the state DOTs must under- 16 Figure 4. Process 1—Identify Critical Internal and External Conditions.

stand both the potential benefits and costs of outsourcing and its specific drivers. To do so, organizations must have a clear conceptual understanding of the reasons behind the outsourcing consideration. Performance analysis, discussed earlier, provides key input to the identification of the out- sourcing candidates. To start the subprocess, the state DOTs and their fleet man- agers could brainstorm and develop initial ideas about activi- ties or candidates to be outsourced using objective methods that are as inclusive as possible. The list is merely a starting point for the analysis process. It does not constitute any out- sourcing inclination from the managers. In fact, the managers should start this subprocess with a neutral or objective mind- set to identify the areas or problems to be addressed and seek either outsourcing or insourcing as the solution at the end of the evaluation process. The following are a few suggested methods to identify the outsourcing candidates: • Candidates suggested by DOT management, leadership, or a higher-level authority; • Candidates identified based on the performance analysis (e.g., trend analysis, benchmarking analysis) usually char- acterized by increasing costs, declining service standards, lack of experience or expertise, and lack of resources; • Candidates identified based on collective institutional knowledge of experienced maintenance personnel (e.g., fleet managers, shop foremen, district or facility supervisors); • Unsolicited proposals received with the prospect of cost savings and good quality maintenance service in a timely manner; • Tactical, situational, and operational considerations (e.g., severe weather, staff availability, workload, critical situa- tion, unanticipated problems and needs); and • Other methods deemed appropriate by the DOT fleet main- tenance managers. The outcome from this subprocess is a complete list of can- didates encompassing the three dimensions in the outsourcing decision—namely, equipment class, maintenance type, and the organizational unit. 4.7.1.2 Subprocess 1.2—Identify Legislative and Policy Drivers and Constraints In contrast to Subprocess 1.1, which investigates operational reasons for outsourcing, this subprocess attempts to identify and capture the outsourcing drivers from the legal, policy, and legislative perspectives. For example, there are occasions when the legislative or executive branches of state government man- date an increasing amount of privatization in certain state DOT functions. As a result, state DOTs may take the initiative to assess the possibility of outsourcing certain types of mainte- nance services, including fleet maintenance. The following is an initial list of issues that state DOTs may consider when documenting the drivers and constraints to outsourcing: • Compatibility of outsourcing fleet maintenance with state legislative intent, • State laws or statutes mandating outsourcing specific equip- ment maintenance activities, • Legal constraints (i.e., procurement regulations and rules extant) that should be overcome or changed to permit appropriate outsourcing options, • Extent of political support for fleet maintenance service in the region, • Outsourcing of fleet maintenance services by other state agencies (e.g., general services agency), and • Possibility of violating any civil service rules or conflict with labor agreements as a result of outsourcing. 4.7.1.3 Subprocess 1.3—Determine If the Candidates Are Mission Critical When compelling reasons and drivers exist for considering outsourcing of maintenance activities, fleet managers can pro- ceed to evaluate whether the potential outsourcing falls within the agency’s strategic framework. One of the issues to be exam- ined in this subprocess is whether all or some fleet mainte- nance activities are at the core of the agency’s strategic mission. The core activities of an agency’s strategic mission usually relate closely to the public interest, and are often mandated to be performed by the government. Although the DOT fleet is often treated as an essential and integral agency resource for accomplishing its transportation management mission, fleet maintenance is not often regarded as a core line of business. As such, virtually all fleet mainte- nance operations could be feasible candidates for outsourcing. Nevertheless, the fleet is an important resource that must be available when required and must serve reliably for DOTs to accomplish operational missions. Therefore, this analysis should be conducted to determine and define any risk or poten- tial for negative impact on the agency’s core mission activities that would result from outsourcing. In regard to this, the agency fleet manager should consider • The importance of the outsourcing candidates to the oper- ations of the agency, • The impact of outsourcing on the accomplishment of the agency’s mission and delivery of services under its specific operational environment, • The impact of outsourcing on the agency’s business processes and organizational change, • The ability of the agency to retain skilled personnel who are able to respond directly to agency needs and apply their unique knowledge into fleet maintenance, 17

• The effect of outsourcing on the agency’s ownership of the fleet asset, • The impact of outsourcing on divulging confidential information, • The impact of outsourcing on the interdependent functions within the state agency, • The experience of other public or private entities in out- sourcing similar public services, and • Opportunities to enhance mission performance and rede- ployment of freed-up resources through outsourcing. 4.7.1.4 Subprocess 1.4—Determine External Competing Market Conditions The purpose of this subprocess is to analyze the strength of the competitive market and determine whether sufficient fleet maintenance service providers are available within the region in which the outsourcing decision is considered. The intent of this subprocess is not to evaluate or rank the capabilities of individual service providers. As a result of this step, the state DOT managers should be able to determine whether the exter- nal market conditions warrant or preclude further outsourcing decision analysis. The external vendors in a location may include local auto service shops, truck and auto dealers, repair chains, leasing companies, and truck shops. For some types of vehicles and equipment, the manufacturers or dealers are the more likely service and repair sources. Agency locations that already out- source some work on a periodic basis may already have knowl- edge of competition in the market. Otherwise, various listings and sources are available to search for service providers. A key consideration in this subprocess is to study the impact of outsourcing decisions on local market competition and its long-term impact on the private-sector service availability, cost, and quality. A familiar worst-case story in outlying areas is when only two sources exist for a particular service. One is selected on the basis of price and then builds capability and strength in the local market through increased scale, whereas the other source becomes noncompetitive. After the DOT commits to outsourcing, one provider remains, and there is no buyer leverage on cost or quality. The DOT might consider addressing this issue through alternate methods (e.g., managed competition, procurement policies). Another key consideration is the proximity of the external vendors to the shop/facility where the services are required. The time taken to transport the vehicles to a remote location and the associated costs should certainly be factored in when assess- ing the external market condition. The following lists the spe- cific information to be collected and analyzed under this step: • Availability of multiple capable contractors in the region; • Number of contractors, types of maintenance services provided, availability of their services, capabilities, and their location with respect to the shop/facility under consideration; • Long-term impact of the outsourcing decision on market competition; and • Potential for creating a private-sector monopoly. 4.7.1.5 Subprocess 1.5—Organize Outsourcing Candidates The purpose of this subprocess is to carefully sort and organ- ize this list of the outsourcing items into strategically meaning- ful categories on which the fleet managers are most likely to base their outsourcing decisions. This subprocess provides the managers with the first opportunity to consider and prepare outsourcing decision analysis on a broad range of alternatives instead of conducting separate or isolated outsourcing analy- ses on individual equipment classes and maintenance types. Although there are subsequent activities in the process model devoted to aggregating outsourcing alternatives or outcomes to a broader or higher level, it is necessary to try to consider, capture, and organize the full range of alternatives up front. Section 4.5: Modeling a Full Range of Outsourcing Alterna- tives includes an example approach for sorting and organiz- ing outsourcing alternatives based on equipment class, main- tenance type, and organization unit. For illustrative purposes, Table 6 provides an example list of organized outsourcing alternatives for further assessment. 4.7.2 Process 2—Analyze Internal Demand and Capabilities Process 1—Identify Critical Internal and External Condi- tions will yield the following two types of outcomes: 1. Fleet maintenance alternatives that are not to be considered for outsourcing (i.e., insourcing decisions) and 2. Organized potential alternatives that represent an initial range of viable outsourcing candidates. The purpose of Process 2 is to evaluate whether the selected candidates are viable for either outsourcing or insourcing after analyzing internal demand and capabilities. The first step involves estimating the demand for maintenance services and comparing it against the current capabilities of the mainte- nance shop or facility. This capability assessment evaluates the adequacy and sufficiency of the maintenance shop(s) to accom- modate the demand. Essentially, this is a gap analysis to judge whether there are sufficient resources to conduct the mainte- nance activities if a decision has not been made yet to pursue outsourcing options for a specific shop based on resources. The second step in this process is to determine whether capa- bility adjustments are possible to meet the demand. The result of this step will be an initial assessment of outsourcing or 18

insourcing inclination, which the cost and performance eval- uation in Process 4 will further validate. As described in the following subprocesses and shown in Figure 5, the outcome of this process should provide a strong inclination between outsourcing and insourcing decisions with respect to the selected alternatives, which will lead to appropriate entry points to Process 4—Analyze Cost and Per- formance Trade-Offs. 4.7.2.1 Subprocess 2.1—Assess Capability Against Demand This subprocess evaluates the shop capabilities against the expected service levels. Maintenance demand is a key deter- minant of the resource requirements and, more specifically, how many and what types of resources are required. The fol- lowing describes the three elements of this assessment. Assessment of Capacity Based on Staffing. Fleet man- agers should periodically monitor the maintenance work- load and the fleet and equipment size to strike a balance between workload and staffing size. Historical vehicle/staff ratios and interagency shop benchmarking are common approaches used in cases where the maintenance manage- ment system does not provide insight on production capac- ity and demand. Historical data from some FIMS may be used to quantify the actual level of effort (maintenance labor hours) required to fully maintain each class of fleet 19 Alt. No. Potential Outsourcing Alternatives Internal and External Condition Analysis Equipment Class Maintenance Type Organization Scope Operational Driver Legal or Policy Driver Mission Critical Available Competing Market 1 Smallengine All types Statewide Recent budget cut No barriers No Strong 2 Light duty Preventive maintenance Garage X and Y High internal costs Procure- ment issue No Strong 3 Heavy duty Major repair Statewide Lack of special skills No barriers No Weak in some locations 4 All types Overhaul and rehabilitation District A Lack of special skills and high internal cost No barriers Minimum Strong in only a few locations 5 Medium duty All types District B Rapid aging of this equipment type No barriers Minimum Location specific 6 All types All types District C Recent budget cut Procure- ment issue No Strong Table 6. Example of initially organized outsourcing alternatives. Figure 5. Process 2—Analyze Internal Demand and Capabilities.

and equipment assigned to shops at predetermined service levels. Methods such as vehicle equivalency analysis may also be useful to assess capacity based on staffing. According to NAFA’s Fleet Maintenance Operations Guide (10), vehicle equivalency analysis is a method of categorizing a diverse fleet conceptually into a homogenous fleet, which establishes a consistent apples-to-apples method of comparing across different garages or from one fleet to another. Because state DOTs have a combination of fleets and equipment, con- cepts such as maintenance and repair unit (MRU), also dis- cussed in the NAFA guide, which is a variation of vehicle equivalency analysis, can also be used to estimate the main- tenance demand. The following example, adapted from NAFA’s Fleet Main- tenance Operations Guide (10), uses five steps to estimate the maintenance demand using the equivalency analysis. 1. Place fleets and equipment in classifications (or by equip- ment class) and count them; 2. Compute the maintenance hours expended by equipment class for a given time period using historical data from FIMS; if historical data is not available, industry standards and benchmarks may be used; 3. Normalize the fleet and equipment by setting a base fleet or equipment unit and ranking all others relative to it based on maintenance hours expended; 4. Calculate vehicle equivalents using total fleet and equipment in a class and the maintenance repair factor determined earlier; and 5. Determine estimated staffing levels using technician avail- ability, which is computed by subtracting paid time off, sick time, breaks, training, and meetings from total paid time. Assessment of Shop Capabilities. The capability assess- ment is also important because if the shop does not have the needed capabilities (skills and knowledge) to perform the mix of maintenance work needed, then outsourcing is a viable alternative, notwithstanding other considerations. The specific capabilities depend on a variety of factors, including but not limited to size, type, and mix of fleets and equipment; condi- tion and age of fleet and equipment; type of maintenance activities; geographical location; vehicle technology; and shop space. Vehicle technology continues to evolve, with more and more vehicles outfitted with onboard electronic and computer systems that are technologically complex to diagnose and repair. In order to maintain these more sophisticated systems, the basic skill sets that maintenance technicians require have evolved rapidly. The capability assessment is conducted for equipment class and repair type for each shop. Staff should be evaluated for their skills and technical knowledge. The assessment should take into consideration the following: • Skills required to provide the candidate maintenance services, • Number of technicians with the required skills, and • Availability of sufficient diagnostic equipment and special tools/devices in the shop(s). Assessment of Facility and Equipment. Finally, the shop facilities and equipment should be evaluated for their ade- quacy to conduct the required maintenance. Commonly used industry standards (e.g., 1.5 bays per light-vehicle technician, 2.0 bays per heavy-vehicle technician) could be adapted to determine whether shops have adequate bays and lifts. The specific capabilities needed may vary with equipment classes and maintenance types. The following should be considered in this assessment: • Number and size of maintenance bays that can accommo- date fleet mix; • Availability of sufficient parts, incidental tools, and equip- ment needed to conduct required maintenance activities; • Adequacy of physical layout and space to conduct mainte- nance and storage; and • Availability of technology and support to adequately mon- itor and document the work performance. At the end of Subprocess 2.1, the fleet manager or evaluator of outsourcing candidates should have sufficient information to determine whether capacity issues drive the need for out- sourcing some or many activities. 4.7.2.2 Subprocess 2.2—Determine If Capability Can Be Adjusted to Meet Demand The intent of this subprocess is to determine whether the issues identified in the previous step can be addressed by improving the capability of the shop, provided required funds to make the enhancements are available and it is feasible, cost- effective, and less time consuming, relative to outsourcing. There are a few options available: • Lower service levels; • Add capacity with a new or expanded facility; • Add extra staff and shifts; • Provide on-the-job or external training opportunities; • Provide additional tools, repair equipment, and make enhancements to the facility to improve technician capa- bility and productivity; and • Evaluate opportunities to consolidate or centralize. 20

If the capabilities of the shop can reasonably be adjusted to meet the maintenance demand, then the maintenance activ- ity candidate exhibits initial inclination toward insourcing and the evaluator can proceed to Process 4—Analyze Cost and Performance Trade-Offs. If the capabilities of the shop cannot reasonably be adjusted to meet the maintenance demand, then the maintenance activ- ity candidate exhibits initial inclination toward outsourcing and the evaluator can also proceed to Process 4—Analyze Cost and Performance Trade-Offs, but will initiate that process at a different point. Table 7 is an illustration of the results from Process 2— Analyze Internal Demand and Capabilities. 4.7.3 Process 3—Evaluate External Service Providers The purpose of this process is to conduct research and assemble information about the external maintenance service providers with respect to their service capabilities, service qualities, and cost. This process should be considered in par- allel to Process 2. The outcome of this analysis indicates the availability of capable external service providers meeting the agency requirements. Process 4 will then compare the internal and external cost and service quality to develop final recommendations. Figure 6 shows the key activities in this process. 4.7.3.1 Subprocess 3.1—Identify Needed Service Providers The purpose of this subprocess is to identify the likely serv- ice providers for the maintenance outsourcing candidates. The organization may already know some service providers through ongoing work with private vendors, and others may be identi- fied through agency sources (e.g., through requests for expres- sions of interest or from vendor registration databases that may already exist). The choices for fleet maintenance outsourcing may include local shops, truck and auto dealers, repair service chains, leasing companies, and truck stops. For certain types of equipment, the manufacturers or dealers of the equipment may also be likely service providers. The output of this step is a set of likely qualified service providers. 4.7.3.2 Subprocess 3.2—Determine Whether Capable Service Providers Exist The purpose of this subprocess is to develop data on the cost and performance that can reasonably be expected from the external service providers for the services that remain viable candidates for outsourcing. For previously outsourced services for which reliable data is available, records can be sampled to reasonably assess cost, quality, and past performance information. For services that have not previously been outsourced, the agency can also work with the procurement department to 21 Equipment Class Maintenance Type Capability Assessment Adjust Capability to Meet Demand Process 4 Entry Point Staff with Adequate Skills Facilities and Equipment Capability Relative to Demand Light duty Preventive maintenance Adequate Adequate Adequate Possible 4.1 Light duty Minor repair Average Adequate Adequate Possible 4.1 Light duty Major repair Inadequate Not available Not available Not possible 4.3 Light duty Overhaul Not available Not available Not available Not possible 4.3 Medium duty Preventive maintenance Inadequate Adequate Inadequate Possible 4.1 Medium duty Minor repair Inadequate Adequate Inadequate Possible 4.1 Medium duty Major repair Notavailable Not available Not available Not possible 4.3 Medium duty Overhaul Notavailable Not available Not available Not possible 4.3 Heavy duty Preventive maintenance Available Less adequate Average Possible 4.1 Heavy duty Minor Repair Average Adequate Average Possible 4.1 Heavy duty Major repair Notavailable Not available Not available Not possible 4.3 Heavy duty Overhaul Notavailable Not available Not available Not possible 4.3 Table 7. An example of internal demand and capability analysis summary.

collect the information through requests for information for bids (IFB) or other established procedures to collect the infor- mation needed. In some instances, the agency will be required to conduct basic research and make sound assumptions. Based on vendor research, service providers would be identified, and cost/performance assumptions would be developed based on the top probable providers. This will require some care- ful judgment since it is by no means certain that the infor- mation assembled will provide totally reliable data on what will actually be proposed or agreed on in negotiations with the vendors. At the same time, it is very important for the cost and performance assumptions developed to be reasonable and conservative—these assumptions could lead to outsourcing decisions that once taken may have a long-term impact and may not be easily reversible. Table 8 lists examples of information that may be useful to consider for subsequent decision analysis. This analysis will determine the availability of external serv- ice providers to offer the maintenance services. If there are capable service providers, then the outsourcing candidate has an inclination towards outsourcing. This determination fur- ther validates the entry point into Process 4 to conduct cost and performance trade-off analysis. 4.7.4 Process 4—Analyze Cost and Performance Trade-Offs Once the outsourcing candidates have been screened, and the market, cost, and performance of outside services have been assessed, the insourcing versus outsourcing choices will likely come down to economics, value, and risk comparisons. For a sound decision on outsourcing a candidate maintenance service, cost-effectiveness in comparison to the insource alter- natives must be demonstrable, with acceptable performance and risk expectations, which is the objective of the evaluation in this process. At this point in the logic process, the evaluator will have • Identified virtually all maintenance-related processes that are initially fair game for outsourcing consideration— management functions, all maintenance activities, all vehicle/equipment classes, all locations; • Screened all candidates for whether outsourcing is appro- priate within the core strategic mission framework of the agency (Process 1); • Assessed in-house capabilities to determine whether limi- tations drive the candidate services toward outsourcing or if they support continued insourcing (Process 2); and • Evaluated and screened markets for the remaining candi- dates to determine whether viable markets exist to deliver outsourced services (Process 3). 22 Figure 6. Process 3—Evaluate External Service Providers. Category Information on External Service Providers General Competency Established service standards and processes Past performance information Financial stability Geographic coverage Distance from the shop under consideration References License, insurance Capacity/capability Facility and equipment adequacy Repair capability/capacity Certified technicians Ability to meet special requirements Key technologies in-house Timeliness and adherence to committed maintenance schedules Quality Quality control mechanism Customer service Scheduling and delivery Service measurement Warranty coverage Cost Shop rate information Transportation cost Table 8. Useful information on service provider’s capabilities.

This series of screening processes includes quantitative aspects but is dominated by qualitative judgments and assess- ments. The evaluator will have discarded candidates with either mission-critical considerations or very strong cases against out- sourcing, regardless of cost and performance considerations. Two groups of candidates will remain: • Outsourcing candidates where initial screening is not con- clusive but is inclined toward insourcing decisions, and • Outsourcing candidates where initial screening is not con- clusive but is inclined toward outsourcing decisions. The cost—performance trade-off logic process has two separate starting or entry points for each of the two groups of remaining outsourcing candidates. Accordingly, the process will lead to separate logical flow paths to perform cost and per- formance analysis, but with different perspectives, as shown in Figure 7. Any cost and performance analysis based on imperfect data, assumptions, and qualitative judgments will have a degree of uncertainty. It is reasonable to assume that there will be three kinds of outcomes from this trade-off analysis: • Clearly favoring an insourcing decision within a range of certainty, • Clearly favoring an outsourcing decision within a range of certainty, and • Indeterminate due to either estimating uncertainty or lack of consensus on key assumptions. The first two outcomes of the trade-off analysis will pro- vide strong, considered cases for a strategy decision, and the indeterminate result will most often lead to opting for the status quo—or a higher-level management decision could be taken on those candidates to fit an intended policy direction (such as, “focus more on agency’s core business” or “embrace public—private partnership”). If done in an objective way, the cost—performance trade- offs should effectively address most of the candidate activities. But there will inevitably be some indeterminate cases. The following describes the steps in this key logic process. 4.7.4.1 Subprocess 4.1—Determine Whether Insourcing Options Are Satisfactory This step in the logic process addresses the remaining screened outsourcing candidates for which qualitative assess- ment indicate a moderate inclination toward a decision to perform the action in-house. A major element for this eval- uation is the in-house service quality. Most fleet managers routinely monitor the performance of fleet and equipment maintenance shop-by-shop or on a higher level. Along with regular monitoring, some agencies conduct internal and external benchmark analyses to compare shops and indus- try peers. In-house performance data, along with accepted fleet indus- try standards, can provide useful performance indicators to determine whether in-house service quality falls within an acceptable quality range. If so, the next step in the logic process is the cost analysis (Subprocess 4.2). If in-house service qual- ity is not acceptable, the next step is to determine whether viable service performance is available from outside sources (Subprocess 4.3). 23 Figure 7. Process 4—Analyze Cost and Performance Trade-Offs.

4.7.4.2 Subprocess 4.2—Determine Whether Costs Strongly Favor Insourcing The purpose of this subprocess is to compare internal and external costs for the selected maintenance that is considered to be better kept in-house. The purpose of this analysis is to assess whether the internal costs are significantly less than the external costs. The results of this analysis will produce two likely outcomes: • Outcome 1: The cost comparison strongly indicates that the internal costs are much less than the cost if the service is outsourced. In this case, the insourcing decision will be favored. • Outcome 2: The cost comparison does not strongly show that the internal costs can be significantly less than the cost if the service is outsourced. This means that the agency is able to perform the service at an acceptable quality level but is not able to provide it significantly more efficiently or at signifi- cantly lower cost than the external service providers. Thus, the analysis will proceed to Subprocess 4.5 to validate the cost estimates for the service. Unless this turns up new informa- tion on the cost of either service option, this will result in an indeterminate outcome for this candidate service. As part of the cost trade-off analysis (which is addressed in Subprocess 4.4), agencies should consider comparing the inter- nal and external costs over multiple years in the near term, beyond the initial year, in order to negate the impact of any one-time costs or savings in the first year and to better assess steady-state costs. For this step, also see the “Estimating the Full Cost of Insourcing and Outsourcing” section under Subprocess 4.4. 4.7.4.3 Subprocess 4.3—Determine Whether Outsourcing Options Are Satisfactory This step is similar to Subprocess 4.1; however, it focuses on assessing the performance of the outsourcing options. As part of Process 3, potential external service vendors will have been identified and researched. This step uses the results of the external vendor analysis and any available experience with local vendors to determine whether outsourcing will provide for a satisfactory performance overall. As shown in the logic diagram, this step can generate the following possible outcomes: • Outcome 1: The subprocess indicates that the candidate out- sourcing options would provide satisfactory performance; this leads to Subprocess 4.4 in the logic model. • Outcome 2: The subprocess indicates that the outsourcing options are not likely to produce satisfactory service. This will ultimately lead to either continued insourcing or, if neither insourced nor outsourced work can be made satis- factory, an indeterminate result. 4.7.4.4 Subprocess 4.4—Determine Whether Costs Strongly Favor Outsourcing This step is similar to Subprocess 4.2 and compares internal and external costs for the selected maintenance service candi- date that is considered for outsourcing. The purpose of this step is to indicate whether the external service providers can perform this maintenance service at lower cost than agency shops. This subprocess will produce two likely outcomes: • Outcome 1: The cost comparison strongly indicates that the external service providers can perform this service in a much less expensive way. In this case, the outsourcing deci- sion would be strongly recommended. • Outcome 2: The cost comparison does not strongly indicate that the external service providers can perform this service less expensively than the agency. This means that the exter- nal service providers can perform adequate service, but not in a more cost-efficient manner. Thus, the subprocess goes to validation of the cost trade-off and most likely to an inde- terminate recommendation. As noted in Subprocess 4.2, agencies should consider com- paring the internal and external costs over multiple years in the near term, beyond the initial year, to negate the impact of any one-time costs or savings in the first year and to better assess steady-state costs. Estimating the Full Cost of Insourcing and Outsourcing. One of the most common motivations for privatizing public functions is the perceived potential for cost savings and the ability to free up resources that can be applied elsewhere. Apart from day-to-day outsourcing activities, the decision to outsource is for the long run and cannot be reversed easily without incurring significant costs. Hence, outsourcing deci- sions should be based on a thorough cost analysis using reli- able, complete, and actual data. Understanding the magnitude of the potential savings or costs simplifies the outsourcing decision and makes it easier to justify and implement. At the heart of the cost analysis problem is the estimation of the cost of insourcing and outsourcing. In the case of insourc- ing, the cost represents the direct labor costs plus a share of indirect costs plus other direct costs. Table 9 lists the typical components of insourcing costs. Other cost items that are often overlooked (and not listed in the table) such as interest expense, depreciation of capital assets, and insurance should be included while estimating insourcing costs. 24

The total cost of providing the services in-house is a sum of the three components: Direct costs are defined as costs that only benefit and are fully chargeable to a maintenance activity. The direct labor costs include the salaries, wages, and fringe benefits of the maintenance technicians and other staff personnel involved in direct performance and supervision of the maintenance activities. Other direct costs include non-labor cost items such as fuels, lubricants, tires, parts, travel, training, copying or printing, telephone charges, other materials and supplies, and other expenses that can also be directly attributable to the maintenance activity. Indirect costs, as defined here, include the overhead costs, facility and equipment costs, and utilities. Overhead costs are cost items that benefit the maintenance services and other state DOT services or programs. It is an amount allocated to the activity and represents only a proportional share of the total overhead costs. There are various methods to allocate the overhead costs. These include an allocation based on the number of full-time equivalents (FTEs) in each activity or by total direct costs associated with each activity or by one or more bases that serve as a good surrogate to the direct costs. Most public agencies have automated accounting systems that are capable of defining, tracking, and allocating overhead costs. In some agencies, overhead rates are developed period- ically that can be used to develop the overhead costs. In the case of outsourcing, the cost represents the contrac- tor’s cost plus the cost of administering service contracts plus possible dislocation cost. Table 10 lists the typical components of outsourcing costs. The total cost of providing the services in-house is a sum of the three components: Total Outsourced Costs Contractor Service C= harges Contract Administration Cost + Disloc + ation Cost Total In-House Costs Direct Labor Costs Ind= + irect Costs Other Direct Costs+ The contractor cost is the most straightforward determina- tion to make. It is the cost the contractor will charge to deliver the service. This includes labor, materials, parts, and fuel. Agency contract administration cost includes procure- ment, contract negotiations, contract award, processing of amendments and change orders, the resolution of disputes, processing of contractor invoices, and contract monitoring and evaluation (11). Essentially, this cost includes everything from the moment a decision is made to contract to contract closeout. One of the most widely accepted methods for esti- mating contract administration cost is the Office of Man- agement and Budget (OMB) Circular A-76 guidelines (12). This circular requires the use of a staffing formula to esti- mate contract administration costs. This staffing formula assumes that the best indicator of contract administration requirements is the number of people engaged in providing a service. Finally, the dislocation cost is the one-time expense that is generated as a result of outsourcing for relocating employees, terminating the existing lease arrangements, and other costs (e.g., transfer of property and equipment). Table 11 provides a template to compare the in-house and outsourced costs. Activity-Based Approach. One generally accepted cost- ing approach is activity-based costing (ABC). ABC is defined as an “accounting method(s) that identifies, describes, assigns costs to, and otherwise details the activities of an organiza- tional unit” (13). ABC defines a unit of work, its inputs (resources) and outputs (outcomes or results), and all related costs, usually expressed as cost per unit (14). Traditional accounting systems report costs in categories such as salaries and wages, fringe benefits, materials, and parts. However, an activity-based system associates the cost with the activity, which consumes resources and produces a product, service, or result. The cost of the activity will be the fully loaded cost, including the direct and indirect costs. Table 12 provides a simple example to illustrate the difference between traditional accounting and activity-based accounting approaches. DOTs may also use other approaches. The state DOT should adopt the approach that is best suited for its needs depending 25 Insourcing Cost Component Object Class Direct labor costs Salaries Wages Benefits Indirect costs Overhead Facilities and equipment Utilities Other overhead expenses Other direct costs Fuel and lubricants Parts Other materials and supplies Other expenses Table 9. Typical components of insourcing costs. Outsourcing Cost Component Cost Item Contractor service charges Charges for service provided Agency contract administration Procurement Contract management Payables management Quality management Other contract administration costs Agency dislocation cost Personnel expenses Termination of existing leases Other costs Table 10. Typical components of outsourcing costs.

on the availability of cost and performance data at a sufficiently detailed level and the magnitude and complexity of the out- sourcing decision. 4.7.4.5 Subprocess 4.5—Validate Cost and Performance Trade-Off Analysis This step addresses the situation in which the cost and service quality comparison of in-house and external service providers does not clearly favor either insourcing or outsourc- ing within the confidence level of the estimation involved (indeterminate result). In this case, the managers then need to investigate the trade-offs between cost and performance and make an intelligent and informed decision. This subprocess will not be as analytic as other subprocesses. It will require the managers to examine the cost and performance data and eval- uate the result against possible strategic and policy options— or remain with the status quo in these cases. In summary, this trade-off analysis together with the prece- dent cost comparison and the evaluation of external service providers’ capabilities can lead to several possible analysis outcomes, as described in subsequent text and illustrated in Figure 8. The figure shows that state DOTs should consider outsourc- ing when the private-sector market has the capacity and capa- bility to deliver adequate and above-service quality standards and when outsourcing costs are on a par or more competitive than insourcing. Three out of nine outcomes in the cost ver- sus performance and quality trade-off analysis result in out- sourcing as the recommendation. State DOTs should consider insourcing if the external service providers do not have either the capability or capac- 26 In-House Costs Cost ($) Outsourcing Costs Cost ($) Direct labor costs Contractor cost Indirect costs Contract administration Overhead Procurement Facilities and equipment Contract management Utilities Payables management Other overhead expenses Quality management Other direct costs Other contract administration costs Fuel and lubricants Dislocation cost Parts Personnel expenses Other materials and supplies Termination of existing leases Other expenses Other costs Total In-House Costs Total Outsourcing Costs Cost Comparison Absolute difference = Percent difference = Ratio = (In-house cost divided by outsourced costs) Cost Comparison Decision Determination = Cost favors insourcing or outsourcing Recommendation = Insource or outsource Table 11. Comparison between in-house and outsourced costs. Traditional Approach Activity-Based Approach Salaries and fringe benefits $24,000 Replace tires $21,800 Parts $3,000 Replace wipers $4,000 Fuel $1200 Wash vehicles $1,200 Supplies $1000 Change oil $2,200 Total $29,200 Total $29,200 Note: Adapted from Kehoe et al. (13) Table 12. Example of traditional versus activity-based accounting approach.

ity, which could result in poor service quality irrespective of the private sector’s cost competitiveness. Also, if private- sector costs are prohibitive and performance and service quality bias is neutral, DOTs should consider insourcing. Four out of nine outcomes in the cost versus performance and quality trade-off analysis result in insourcing as the recommendation. State DOTs will need to explore strategic and market options if both cost and performance and service quality bias are neu- tral or equivocal. If the external service providers have suffi- cient capacity and capability and can deliver exceptional serv- ice quality but their costs are prohibitive, DOTs should consider strategic and policy options before arriving at a final decision. However, this may not be purely an analytical process. The agency must consider cost, quality, and performance to make an informed and intelligent decision. Two out of nine outcomes in the cost versus performance and quality trade-off analysis result in this option. 4.7.5 Process 5—Synthesize and Finalize Outsourcing Decisions The purpose of this process is to complete the outsourcing analysis and bring the final outsourcing recommendations to the decision makers for implementation. All data and results from previous processes are assembled for managers to system- atically evaluate, organize, and finalize the outsourcing deci- sions on fleet maintenance operations. Specifically, this final step aims to accomplish the following: • Review and organize the outsource decisions from the previous processes; • Assess and organize these decisions to ensure the agency has considered the full range of options at the level it wants to consider; • Assess the implementation issues as a result of insourcing and outsourcing decisions; and • Finalize and recommend the decisions to senior manage- ment for implementation. Figure 9 illustrates the key steps under this process and their logical sequence. 4.7.5.1 Subprocess 5.1—Organize and Review Insourcing and Outsourcing Decisions The purpose of this subprocess is to organize and summarize the results of the evaluation from the previous processes and review the results across the entire range of outsourcing deci- sion schema. Figure 10 shows an example template to sum- marize the individual outsourcing decisions. Additional sum- maries can be also developed and used to present the evaluation results. As the results are reviewed, the senior DOT managers will take a broader view of the outsourcing results and assess the 27 Figure 8. Outsourcing decision and trade-off scenarios. Figure 9. Process 5—Synthesize and Finalize Outsourcing Decisions.

entire range of the outsourcing decision schema. As a result, any opportunity to synthesize or aggregate the outsourcing decision across equipment classes, maintenance types, or dif- ferent locations can be determined. The aggregation can involve aggregating either the data to the organization level or the decisions made at the previous levels. Because of the expected wide variety of fleet mixes, operating conditions, shops, or organizational levels, data aggregation may result in losing some unique or special (or local) situations. From that perspective, the aggregation of the decisions made at shop levels (rather than data) in a qual- itative approach may yield a more reasonable decision. No matter what approaches are taken, it is important to under- stand that the aim of a high-level outsourcing decision is to improve the entire fleet from a wide organizational level. As a result, it is possible that its outcome may not represent the best optimal solution to some candidates. 4.7.5.2 Subprocess 5.2—Assess Implementation Issues This is the last step in the outsourcing decision logic. The objective of this subprocess is to generate some internal think- ing on the next steps and issues associated with the implemen- tation of the insourcing and outsourcing decisions. The agency should develop strategies to improve and strengthen its internal maintenance service delivery capabil- ities for candidates identified to be kept in-house and where improvement opportunities exist. For example, such strate- gies can result in consideration of the following actions: • Justifying the need for more resources; • Hiring skilled technicians, supervisors; • Providing more training to current staff to gain required skills; • Adjusting business processes to make maintenance more efficient; • Adding new capacity or expanding/enhancing existing infrastructure; • Developing strategies to reduce costs; and • Exploring opportunities to consolidate and centralize. For the candidates identified for outsourcing: • The organization should develop a strategy for procuring the maintenance services. This will require coordinating with the agency’s procurement department. As part of the procure- ment strategy, the agency should develop appropriate pro- curement methods to prevent impeding market competition over the long run. • The organization will need to develop internal capabilities to monitor the external service providers and manage the contracts. • The organization will also need to determine an approach to deal with the staff affected by the outsourcing decisions (e.g., replacement in other places within the organization, early retirement packages, severance and outplacement packages). • If an outsourcing decision leads to closing a maintenance service location, the agency will have to handle excess equip- ment and facilities or dispose of them. The final recommendations and high-level implementation issues should be presented to the decision-making authority. A well-organized summary of results from different steps of the model should support the final recommendation on out- sourcing. The presented information should reflect the logi- cal sequence of the analytical processes as well as judgments and decisions made throughout the process that led to the final recommendations. 28 Figure 10. Outsourcing decisions template.