There are a number of benefits to a Community when conducting and maintaining a professional Reserve Study or Maintenance Plan. We are exploring some of these benefits in the "Benefits of a Reserve Study and Maintenance Plan Series" as part of our Reserve Study Food for Thought emailers.

BENEFIT: Understand the expenditure requirements to optimize member contributions (Part 2).

We introduced this benefit in our first emailer of the series (21 Sept 2023 - click here to view), focusing on the first part, namely "understanding the expenditure requirements". We mentioned that one of the outputs of a professional reserve study is a detailed maintenance plan. The maintenance plan includes a blueprint or action list of items that needs to be replaced or maintained, on a monthly basis, for the next 30 years. This should be used by management as the blueprint to ensure maintenance actions are executed on a pro-active manner, as per the plan.

The second part, "optimising member contributions" is just as important and beneficial. This addresses the funding plan in order to pay for the execution of the maintenance items as per the blueprint.

The NRSS (National Reserve Study Standards) from the USA advocate the following Reserve Study Funding Principles, as indicated in the image below:

A method that is applied as part of the component list compilation process of the reserve study is expenditure levelling. A 30-year component expenditure plan is constructed, indicating the planned yearly spend, over the next 30 years. Many times the plan looks something similar to the below example:

In order to meet the first funding principle, ensuring sufficient cash at all times, one need to plan for the peaks, or the expensive years (year 34, 39, 44 & 49 in this example). This is specifically difficult if these peaks occur early in the cycle, or in the first 5 to 10 years. This does not allow for enough time to steadily build up reserves to cover these years. It then usually result in a high initial member contribution requirement or the need for other funding options like a special 'take-on' member levy. 

To 'level this out', we do exactly that, we aim to level the spend. The aim is for a more equal yearly spending plan rather than having the high spend peak years as per the previous example. To achieve a 'flat spending plan' is not possible for various reasons, but the aim is to flatten it as much as possible. This is typically achieved by applying the following tactics:

• Where possible, non-critical spend is delayed with a year or two, or even moved forward. Components in the high spend years are analysed and if high value items are identified for which the activity is not critical in that exact year, it is delayed or moved forward to reduce spending in that specific year.

• Where possible, major spend items are split up in phases in order to spread the spend over a few years. The painting of the perimeter wall can for example be done in three phases over three years rather than all in one year.

The key here is that this is done in a pro-active and structured manner through planning and careful consideration of the impact and risk of delayed or accelerated expenditure.