Questions to Ask Before Updating Your Reserve Study or Reserve Funding Plan

by John H. zumBrunnen, Founder, zumBrunnen, Inc.

Reserve funding plans (also known as replacement reserve studies) are critical planning and budgeting tools for effective facilities management. The process of developing an initial reserve study (or funding plan) involves a comprehensive facilities assessment of all fixed and movable assets. This property assessment provides the foundation to develop a list of immediate and long-term facility budget items to create the initial plan.

Funding plans, however, are not one-time, static reports. They require continual updates to maximize their effectiveness. National Reserve Study Standards (NRSS) recommend the initial reserve study (or Level 1 Study) be completed by a consultant with the next two annual updates completed by the owner.

Every three years, the NRSS recommends an update to the plan by a consultant. A Level 2 update includes a site visit and review of the plan by the consultant. A Level 3 update only calls for a review of the plan by the consultant without any trip to the property.

So, how do you determine if you need a Level 2 or Level 3 update to your plan? Below is a list of questions to help determine if you should conduct a site visit along with your update:

  • Has any significant maintenance been deferred?
  • Did annual funding contributions occur as planned?
  • Did all significant expenses occur as planned?
  • Has the reserve balance deviated more than 5% from the desired percent-funded goal?
  • Has local pricing or inflation been significantly impacted?
  • Has a significant building code citation been received?
  • Have there been any new mandated changes of significance made to the building codes?
  • Have any major systems or equipment become obsolete?
  • Has there been any extreme wear or tear to major components or critical systems?
  • Have any major systems or components been added, overhauled, or replaced?
  • Are any developer, contractor, or critical manufacturer warranties set to expire?
  • Are there new technologies or product developments that may impact operations?
  • Have any environmental/geological events occurred that may have a negative impact?
  • Has there been any significant change in demographics or competition?
  • Has there been a change in service vendors, property managers, or senior level executives?
  • Has there been a change in the leadership or membership of the board or trustees?
  • Is there a plan to refinance, apply for accreditation, renovate, expand, sell, or merge?
  • Is there any significant change to corporate goals or mission?
  • Has it been three years since the assessment and funding plan was completed (note: NRSS recommends every three years)?

If you answer “YES” to 1-3 of these questions, it is recommended you discuss this with your consultant to determine if a site visit is beneficial and the best course of action. If you answered “YES” to 4 or more questions, you should definitely consider the Level 2 update with a site visit to assure your scope, schedule, and funding plan align with your obligations and business model.

“Risk management” factors into literally every business decision, whether your business plan is margin or mission driven.  Funding replacement-reserves minimizes maintenance risk, one of the principal risks in property ownership.  Choosing to manage maintenance risk by funding reserves is a fundamental and sound business practice that will help ensure your mission and long-term goals are achieved!

About the Author:

John zumBrunnen is founder of zumBrunnen, Inc., an independent construction and building consulting firm founded in 1989 with offices in Atlanta, GA and Charlotte, NC. zumBrunnen has a BS in mechanical engineering from the University of North Dakota and completed the US Army Corps of Engineers Training Program in 1972. zumBrunnen is involved with LeadingAge (and various state chapters of the organization). His company is also a member of the Georgia, North Carolina and South Carolina Chapters of the Community Associations Institute (CAI). zumBrunnen has been a faculty member since 2003 for the University of North Texas, Coalition for Leadership in Aging Services (CLAS), a national certification program for aging services professionals (CASP), and authored their “Asset Management” training module. zumBrunnen has 40+ years’ experience in construction, property assessment, development, and reserve budgeting. He is the inventor of the FacilityForecast® software system and a respected industry author and speaker.

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