14.2System Entities

All the different entities in the system may be financially modelled to compose the total yearly system cost. However, the most significant entity, and the focus of this chapter, is the vehicle operating company.

The vehicle operating company is the main player in a transportation system. Not only that, but the vehicle operating company is composed of the greatest investments made throughout the concession before the system even starts operating, and it consists of 70 to 90 percent of the total system yearly cost. By thoroughly analyzing the vehicle operating company, it is possible to shed light on the levels of profitability and sustainability of the system and to address the following:

  • If the system will require subsidy and if so, the size of the possible subsidy;
  • If the fleet should be purchased or partially purchased by the vehicle operating company or the government;
  • The concession length, in years;
  • If the BRT agency should be funded by the system itself or by the government;
  • If the station/terminal security and maintenance should be incorporated or funded through the system;
  • If there is to be a trust fund provision through the system surplus or if this should be topped off by the government.

The fare or technological component of the system can be conceived in many different sizes and specifications. Depending on the size of the system and the sophistication of the design, the number of components, their specification, unit value, and quantities may vary greatly. Hence, the fare system model is trickier to standardize; however, the system must contain the following items below:

  • Capital expenditures (Capex), including year zero investments, in order to set the fare system up, comprised of:

    • Equipment (station, external point-of-sale, vehicles, and depots);
    • Control center (main office, data center hardware, data center software, and smart cards);
    • Other (customer service, start-up costs);
    • Equipment and control center renovations.

  • Operational expenditures (Opex), including yearly system operating costs for the following:

    • Operational personnel (collection, customer service, and administrative);
    • System upkeep and equipment replacements;
    • Administrative costs.

Depending on the system, the fare system could be run by a private operator as a profit generator, or have its expenses funded by the system itself. As a rule of thumb, the fare solution for the BRT system should consume 5 to 10 percent of system revenue, or about 15 percent of total vehicle operator company payment. Hence, for modelling purposes, it is possible to assume a percent cost for the fare system, without compromising the total system cost appraisal or conclusions.

The BRT agency with a secretary of transportation is also a simpler model to develop because it is mostly personnel driven. Issues such as the CCTV and fleet control may lie within the agency, or perhaps be bundled in a single technological component for the system. In any case, the BRT agency’s cost structure is composed of the following items:

  • Capital Expenditures (Capex):

    • Control center (hardware, software);
    • Bus software (fleet control, planning);
    • CCTV (stations and terminals, control center, garage depots).

  • Operational Expenditures (Opex):

    • Personnel;
    • Voice/data costs for fleet control;
    • Administrative costs;
    • Maintenance and equipment replacement costs;
    • Station/terminal security and maintenance personnel (service contract outsourcing).

Unlike the fare system, the agency should not be run as a profit generator, and rather it should have its cost structure funded by the BRT system itself. Depending on the size of the system, responsibilities of the agency and, also, organogram and salary structure, the agency may vary greatly in size. However, the agency costs should lie within the range of 3 to 8 percent of total system revenue. Albeit simpler to model, if one were to adopt a percent representation for the agency, similar to the fare system simplification, the total system cost appraisal would not be compromised.

Having developed the separate models for financing and operating costs, they should all be integrated into a system appraisal, in order to determine system surplus/deficit. The system appraisal should possess the following items/and considerations:

  • (+) Potential system revenue:

    • Tariff revenues;
    • Other revenues.
  • (–) Discounts/gratuities;
  • (=) System net income;

  • (–) Payment/funding do system entities:

    • Vehicle operators;
    • Fare system;
    • Agency.

  • (=) System surplus/deficit:

    • Trust fund.

The potential system revenue is obtained from the projected annual customer ridership estimates by the corresponding tariff scheme. Other revenues may be obtained from publicity or other ventures, but they usually correspond to a very small percentage of the total potential revenue. As a conservative approach, one should model the system limiting the other revenues to 3 percent, or disregard it altogether. System discounts for elderly citizens, children, or special groups may be present in the current system. In this case, it is important to properly identify which parcel of which ridership category is affected by these discounts and plan accordingly.

Once the system cash flow is appraised, it is recommended that the percent representation of every item be calculated, in order to understand the relationship between each entity and validate for possible under-/overestimations. If the system produces a surplus, then that surplus amount should be destined to the trust fund. In case the system has a deficit, it is recommended to add an additional provision to the trust fund so that the system operation/budget may be more independent from the government. As an index, one may look at the vehicle operating company’s costs in relation to the system’s net revenue. In case the vehicle operating cost is well over 50 percent, then the system will probably require a subsidy (continuous or onetime).