Cutback management. You are the budget director of a transit department that has

Question

Cutback management. You are the budget director of a transit department that has a budget of $9 million and serves on average daily 937,500 “transit dependent” riders (people who cannot get anywhere without the transit department busses) and 1,562,500 choice riders (people who choose to ride buses from time to time, but have alternatives to buses). The city wants to cut the department’s budget by 5%; their main reason is that the system can generate their own revenue. They currently generate $1.6 million in fare revenues. The transit system has recently conducted a study in the fare structures which found that any fare increases (or complex fare structures) may decrease the number of choice riders significantly. The city does not charge any fees for ride and park parking lots to boost the ridership (mainly choice riders). The city also does not currently allow any advertisements on busses/stations and vending options on transit stations. What part of the budget would you first examine? Why? After that examination, what would you cut? Why? Create alternatives so the department has choices.

Explanation / Answer

Present budget - $9 Mn

After 5% deduction Allocated budget = $8.55 Mn

The first thing which I would consider would be the bus routes. I would see if all bus routes are optimized or there is scope for improvement in allocation of the routes. Also I would try to find out the number of transit dependent riders and number of choice riders in each route.

If there are routes where the choice riders are much more than transit dependent riders or in those routes where there are no transit dependent riders those routes can be curtailed. This would reduce the budget.

This is required to be done since city needs to provide buses for transit dependent riders because they have no alternative. But choice riders have an alternative, hence buses in those routes can be stopped.

Another alternative would be to increase the fare for choice riders to make up for the budget curtailed. If the Choice riders decide to avail alternative modes of transport, then riders would reduce and hence the bus routes can be optimized.

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