Utilizing software that is mathematically accurate, and which is also adaptable is an extremely important part of completing a reserve study. With so many scenarios we encounter having flexible software helps us to create comprehensive and adaptable reserve studies. Some of our proprietary software functions include:
Fully Funded Balance Age Adjustments
The Fully Funded Balance (FFB) age calculations (effective ages) for each component will be adjusted if a component received a positive or negative age adjustment, has been set to be delayed, a repeat limit function has been applied, a delay function has been implemented and/or a future date has been utilized. These adjustments are needed so that the fully funded balance mathematical calculation for each component is accurate and appropriately contributes to the total fully balance calculation (located on the executive summary page, projection pages, fully funded balance calculation page, and component details pages) for all components in this reserve study.
Note that the FFB age element of the formula is a cycling number, and the adjustments simply change where in the cycle the age number is. Example: A 20-year-old roof that is lasting longer than what was originally projected may receive a positive age adjustment of 2 years in the reserve study to match a Roof Vendor’s recommendation/opinion of having “a couple more years until replacement is needed”. This adjustment simply pushes out the date we recommend having the money fully allocated towards the roof project and which is based on the advice/opinion of a roofing professional.
Install / Allocation / Delay Year
In this reserve study you will find reference to a heading which shows Allocation/Delay Year. This refers to the date that allocation to this component was started (typically the approximate year it was last built and/or replaced). However sometimes allocation towards a component is not based on the install date and may be a date that is based on a future year (often so when projects coincide with one another) regardless of when they were last constructed or if the last replacement date is not known. If the delay function is utilized the allocation towards the component is not started until the year after the year listed in this column (i.e., the fully funded balance has been set to zero through the year listed - see below "Delay Funding" comments).
An initial allocation year may be the current year or a future year and therefore would a have a zero effective age (at the start of the fiscal year). An example of this could be sealcoating roadways which is not currently present but will be when the roads receive a fresh Resurfacing.
Adjustments
Adjustment may be utilized for a variety of scenarios including a component is deteriorating faster or slower than is typical and/or initially projected, to align projects dates so that they may coincide with one another for cost efficiencies, to align the reserve study with approved budgeting scenarios (e.g., Vendor approved project phasing), Vendor recommendations, etc. Adjustments alter a component's effective age and will move the projected component project backward in time (a negative adjustment) or forward in time (a positive adjustment).
Delay Funding
When the delayed funding function has been used for any specific component the corresponding fully funded balance is set to zero in subsequent years until funding is to begin. Note that delaying a component's funding in the reserve account is typically done so that projects are not being double funded in any specific time period (e.g., paying for immature tree care from the operational account until they reach an age and size that their expense is large enough to cause issues budgeting for them operationally, a road replacement component that cycles before a future overlay - typical in an older community).
Repeat Function
The repeat function is most often utilized when we are seeking to limit the number of cycles a component has in the future. This can be due to decommissioning a component at a particular date, a repair component date that comes before a replacement component date, when we are seeking to target a specific period for funding, but which ends after completion (e.g., a tree removal project over several years but that ends at a particular date).
Percent Replace
The percent replace option is utilized when we recommend funding for something other than total replacement. This is most often done with components which do not tend to all fail in a similar time frame (e.g., concrete sidewalks which are most often damaged by underlying root intrusion and drainage issues than actual deterioration. Problem areas tend to be a reoccurring problem while other areas have little to no need to fund for replacement.) We will also utilize the percent replace option if the Client is responsible for less than 100% of the project cost (e.g., a shared fence where costs for replacement are being split with a neighboring parcel 50%-50%).
Risk Indicator
We utilize a risk indicator on the Executive Summary page which is an average Percent Funded over the initial years of the reserve study. We have found an average over time to be a more accurate reflection of risk in the near future than just the Percent Funded calculation. While Percent Funded is a very reliable indicator of risk in the fiscal year the study has been developed for, it can often be misleading as the years pass. Examples of this would be a community which has a good funded level but which has an allocation rate that is too low; the Percent Funded calculation can fall into the low funded range in a very short period. Conversely a community can rapidly go from a low funded level to a good funded level in a short time period with significant changes to their reserve budgeting.
Variable Interest / APR Rate
We can adjust the annual return rate to whatever the Client is averaging for investments and not invested account (typically with a weighted average). This can be helpful in more accurately representing projections related to investments that may mature in a specific year or if investing is to start after a certain reserve account balance mark is met.
Variable Annual Tax Rate
We can adjust the annual rate to whatever the Client is or will be paying on investment/bank account returns. This is helpful for communities which may have a low current reserve account balance (minimal return on investments/interest) but which will be higher returns in the future and have a tax liability when it reaches a certain annual amount.
