Reserve Studies - The Complete Guide is 436 pages explaining the concepts and process for making a reserve study. For more information and to order, click here.



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Reserve study - More Information

Facilities Advisors, Inc. is Redefining the Reserve Study (RS) Process

Current industry standards based on a once-every-three-years site visit and a static, paper report will continue to result in failure to meet expectations.  The current process used by the industry contains so many disconnects that it is not surprising that special assessments are somewhat commonplace, even where reserve studies have been prepared annually.  Even where associations use RS software to provide more current information, software limitations prevent the creation of an effective knowledge based system.

There is a basic misunderstanding of this process.  The HOA industry views the reserve study as a stand-alone process, and the reserve study report as the end product of that process.  In fact, the focus should be on the establishment of a truly integrated facilities management system as the process, and the RS report as simply a byproduct of that system.

Current industry practice is to have a static reserve study prepared every three to five years, resulting in the issuance of a paper report.  This is typically done based on a site visit by an outside reserve preparer.  Associations that are more aggressive in the reserve process prepare annual updates without a site visit, resulting in an updated, static, paper report.  Some associations have seen the limitations of this paper-based process, and buy RS software in an attempt to keep their reserves analysis current and actually use it as management tool.  Unfortunately, this typically results only in a more frequently updated static reserve study.  

For some smaller associations or those that don’t maintain complex or numerous common areas, this process may actually work.  But, for larger associations or those that maintain complex common areas, the above method will always fall short of expectations.

The RS Report

The RS report is nothing more than snapshot at a point in time of the long range plan for the maintenance, repair, or replacement of association common areas, and only those that do not fit within the annual operating budget.  The RS report is part of a process, and viewed properly, it is not a reserve study process, it is a facilities maintenance process.  The reserve study does not determine the maintenance process; rather, it is a reflection of the maintenance process.

A very small number of associations have attempted the first step of an integrated system that allows them to coordinate their day-to-day, or annual operating maintenance activities with their long term, or reserve maintenance activities.  Such systems are generally not well adaptable to the HOA industry for the simple reason that the software they select was not designed for this industry.  This software, known as CMMS (Computerized Maintenance Management Software) was developed primarily for the manufacturing industry.  While such software allows integration of the maintenance activities, it does not produce a RS report, and is not capable of the long-term financial projections.

Integrated Facilities Management System

But, the RS really is just a first step of the integrated facilities management process.  A truly integrated facilities management system will include each of the following modules:

1.    Reserves - (Long-term capital repair and replacements)
2.    Operations maintenance and repair
3.    Capital improvements
4.    Asset management
5.    Insurance tracking
6.    Depreciation calculation
7.    Project management

Each of the above modules has one thing in common; they are based on the physical facilities (common area components) of your association.  Because operating staff and volunteers within an association have different, and limited roles, they tend to see only the portions of a system that relate to their duties.  Hence, most people would not think to include all the above modules into a single integrated system.   This has resulted in the creation of a series of separate, isolated systems (silos) professing to deal with the same set physical assets of the association.

Reserve Study Software

This is largely caused by inadequate software technology, which has caused information to be accumulated in different “silos.”  Until that basic problem is corrected, it is so cumbersome for a large, complex association to correlate the information from different silos (sources) that it ends up being either too expensive or completely unworkable.  The only practical solution is to create a single database of assets / components that allows the different users, with their different needs to accumulate data within a single software system.  

The different software systems presently used by associations to accomplish all these tasks are either multiple Excel spreadsheets, or Excel spreadsheets combined with reserve study software, budgeting software, CMMS (Computerized Maintenance Management Software), and depreciation software.  The ONLY integrated facilities management system presently available is Facilities 7, developed for and used exclusively by Facilities Advisors, Inc.

But, having the right software solves only part of the problem.  Removing the disconnects from the existing process is also necessary.  The primary disconnect in the existing reserve study process is the failure to establish reserve study policies, which results in:

  • No policy on what items should be included in the reserve study
  • No policy on who makes that determination
  • No policy on establishment of replacement cycles
  • No policies on cash handling procedures
  • No policies on investment of reserve funds

In addition, identifying the correct software and facilities consulting company are critical to this process.  The software determines how you can accumulate and use component data.  The facilities consulting company determines the proper accumulation of data at the correct level.

There are significant differences between identifying components for a RS and identifying components for an integrated facilities management system.

Traditional reserve studies must accumulate components at a macro level; meaning many individual minor components are “grouped” into a single line item identified as a “component” for purposes of reporting in the reserve study.  This is generally done for two reasons; (1) it is too much trouble to separately identify each of the “minor” individual components, and (2) the software used is incapable of reporting detail components in any meaningful fashion, as the detail would overwhelm the readers of the report.

A dynamic facilities management system requires that components be compiled at a detail level, which is the level at which association dollars are expended.  A key concept of facilities management is accurately tracking expenditures and updating facilities management information resulting therefrom.  At Facilities Advisors, Inc, we participated in the development of the Facilities 7 integrated facilities management software to ensure that the software would both handle the appropriate level of detail, and also be able to be summarized into meaningful reports without overwhelming the reader.  We can compile components at a macro level for a traditional reserve study, as can all of our competitors.  But, we are the only reserve preparers that also have the knowledge to compile components at a detail level for a facilities management system, and have the software to accommodate such a system.

The complete description of the Facilities 7 software system is shown separately.