Mr Khoza recently received a R$1,5$ million severance package from his company. He purchased two taxis at R$450000$ each, totaling R$900000.$ Mr Khoza was advised by his friend of a route he could take and serve commuters without affiliating to an approved taxi association. To register with an approved taxi association will cost Mr Khoza an annual fee of R$2000$ and also $2\%$ of his monthly income. Other factors that will have an impact on his revenue stream are the, COVID$19$ pandemic restrictions, ever$-$increasing petrol price, and taxi maintenance. Despite the aforesaid, he still expected that the taxi fees would cover the costs. Mr Khoza will be required to purchase sanitisers and face masks for the two taxis at an additional cost of R$1000$ per month. Mr Khoza decided that his taxis' chosen routes should be pretty safe, and he does not envisage any severe accidents. Taxis are frequent road users and as such, they are exposed to traffic fines. Mr Khoza decided that he will not disobey the traffic rules and should therefore avoid any such fines. These incidents are usually caused due to a lack of adequate training and the competition between taxis to get to a point where they can get the maximum number of commuters at a particular time, usually peak hours. Mr Khoza forecasted in his business plan that the two taxis would make ten trips per day each $(20$ days per month$)$ with a minimum of $10$ passengers per trip at a fee of R$12\mathrm{.}00$ per passenger. The distance is $20$ km each trip, and the fuel consumption per trip is $3$ litres at R$15\mathrm{.}00$ per litre. Each taxi will average $200$ km per day $(5000$ km per month$).$ After every $10000$ km$,$ the taxis must be serviced at an average of R$4000\mathrm{.}00$ per service for each taxi. Mr Khoza decided to take out an insurance policy on the taxis to the value of R$800000$ at a premium of R$800\mathrm{.}00$ per month. He$,$ however, did not consider insurance for the passengers. Mr Khoza calculated that the vehicles must be serviced every two months and decided to save R$5000$ per month for this. The annual licence fee per vehicle is R$600\mathrm{.}00.$ Mr Khoza decided to use a marketing company for advertising his taxis at an annual rate of R$10000$ per annum to increase revenue. He also determined that an insurance policy for passengers for a year would cost R$24000.$ This premium of R$2000\mathrm{.}00$ per month includes a medical cover of R$30000\mathrm{.}00$ per passenger to a maximum of $5$ passengers per vehicle at a time, which includes hospitalisation to a maximum of five days at R$20000\mathrm{.}00($per passenger$)$ and emergency transport to hospitals $($excluding air transport$).$ The final critical issue is new competitors entering the industry, for example, Uber. According to a news article, Uber, a transport technology company, is considering entering the minibus taxi industry. Their service will enable users to request a ride through the app, and they will find other passengers travelling in the same direction so that the user can get to their destination with fewer stops. Unending stops are a major frustration for current traditional minibus taxi users. With their service, passengers will be sharing a ride with other Uber passengers, which means the price will be affordable enough for everyday use. Whilst minibus taxis prices are affordable for many users; the prices are constantly going up as minibus taxis owners are trying to cover their operational costs. As a global company, Uber has an advantage of economies of scale and advanced technology that can charge more affordable prices than traditional minibus taxis. The local taxi industry should embrace innovation and technology to improve the current transport services offered for local transport users.

The following table contains further information on the taxi industry in South Africa: Number of registered taxis $250000$

Commuters travelling by taxi per day $15000000$

Average fare charge R$12\mathrm{.}00$

Monthly revenue made by a taxi owner R$40000\mathrm{.}00$

Monthly expenses R$24000\mathrm{.}00$

Net profit before tax R$6000\mathrm{.}00$

Monthly salary per driver R$8000\mathrm{.}00$

Question

Identify and discuss seven operational risk factors that Mr Khoza faces and indicate how they can be addressed.

Answer rating: 100% (QA)

Mr Khoza faces several operational risk factors in his taxi business Lets identify and discuss seven of these factors along with potential ways to add... View the full answer