To: Warren Tobin, Planning & Grants
From: John Newmeyer, Management Team
Re: Savings achieved by Van Service
Date: April 1, 1997

I received a copy of your "Van Service Update" Memorandum, dated February 28th. It enabled me to compare costs of the Van Service to the most similar alternative mode of transportation: hiring Yellow Cabs for each "Trip". The steps of my analysis are shown below.

From your memo, I deduced that 70 individual point-to-point Trips were made during the month you reviewed. I counted round trips as two Trips, and, when two clients were taken to separate places, I figured two cabs for two Trips.

Yellow Cab has a "drop charge" of $1.70 to initiate a trip. Therefore, the aggregate "drop charges" for 70 trips is $119.

Yellow Cab also charges $1.80 per mile and $.30 per minute. To calculate the total mileage in the 70 trips, I inserted pushpins at each of the pickup or dropoff sites mentioned in your Memo, then ran a string between the termini of each Trip along the most direct routes. The aggregate length of the string for the 70 Trips corresponded to 172 miles. For this, therefore, the mileage charge for Yellow would have been $310, and, assuming a mean Trip speed of 20 mph, a time charge of $155.

I assumed 15% for drivers' gratuities, added to each Trip charge.

The total cost of all of the Trips undertaken by the Van Service during the month, had they been done by Yellow Cabs instead, is estimated at ($119 + $310 + $155) x 1.15 = $672.

By subtracting the average monthly expenses of the van (depreciation, insurance, fuel, maintenance, driver's salary and fringe, etc.) from the $672, you can estimate our Net Monthly Savings. For example, if it cost $500 to operate the van during the month, the Net Monthly Savings would have been $172. Multiplying the Net Monthly Savings by 12 gives an estimate of the Net Annual Savings to the HAFCI, by using its own van rather than Yellow Cabs.

Of course, additional van use will only increase the Net Monthly Savings amount, because variable costs are a small part of overall van costs. Moreover, my analysis does not encompass intangible benefits of the van, such as companionship for the clients, and exposure of the HAFCI name to the public.

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