Two Parts of a Reserve Study

By: Robert M. Nordlund, P.E.

Every Reserve Study has two parts: information on the physical condition of the property and the financial analysis performed using that information. While every Reserve Study should have a similar financial analysis, most professionally provided Reserve Studies differ in how thorough the physical information was compiled (a site inspection where the information was created "from scratch", a site inspection updating information from a prior analysis, or an update without a site visit). It is natural, therefore, to divide the Reserve Study into these two parts.

The Physical Analysis contains three parts: the component Inventory, the component Condition Assessment (Useful Life and Remaining Useful Life estimates), and the component Valuation (Replacement Cost estimates). The component Inventory listing is usually stable from year to year, while the Condition Assessment and Valuation estimates will clearly change each year.

The Financial Analysis contains two parts: the computation of the current Reserve Fund Status (as measured by cash and Percent Funded) and a recommended Funding Plan (typically in the form of a monthly Reserve contribution recommendation, developed using one of many available computational methods). While the cash Reserve balance may change significantly from year to year, the Percent Funded may be more stable since it measures Reserve Fund size compared to Reserve expense obligations. The amount of year to year change to the Funding Plan recommendation will vary depending on the amount of changes to the underlying Physical Analysis, economic factors, or Funding Plan objectives.

In summary: one Reserve Study, with two parts: Physical and Financial information.


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