Reserves, for many community associations, is the single largest line item in the overall annual budget. Over time, the "health" of the reserve fund and adequacy of the reserve budget have become more and more important to board members, unit owners, prospective buyers and governmental agencies. The advent of personal computers and a multitude of software applications has sparked a revolution that is saving a lot of time and producing a superior reserve budget for many associations.
Since the early 1980s, many engineering companies have started performing these services and companies have formed that even specialize in this field. While these firms offer an invaluable service to many clients, the majority of community associations in the United States continue to analyze their own reserves. As the 21st century approaches, there is a challenge to those associations who wish to (or must, for economic reasons) analyze their own reserve budget. The challenge is breaking away from the old approach to take the time to get familiar and comfortable with a personal computer and the new approach.
For years, community association boards and management agents have been analyzing reserves with a thick pad of paper, a pen and a calculator. This practice, while unnecessarily time-consuming and not particularly exacting, is sure to continue because it is "the way it's always been done." For these associations, analyzing the reserve budget begins with a list of maintenance responsibilities and a review of past expenditure data. The experience and foresight of the board and management agent are used to anticipate what expenditures will occur in the future. All of this information is recorded on several sheets of paper from which a reserve budget is created. To determine the reserve contribution requirement, most rely on a "straight-line" or simple "cash flow" calculation method that most likely will not take into consideration inflation, net investment yield or an annual contribution increase. While this process will "get the job done," there are now ways that will produce more accurate results with greater efficiency and speed.
Using a personal computer and an "off-the-shelf" software application, many associations have automated the process described above. By creating a modest spreadsheet template, associations now have the ability to calculate the data in more ways and with greater precision. Adding parameters for inflation, net investment yield and annual contribution increases can also make the analysis more realistic. Obviously, adding more parameters and options into the spreadsheet requires more software application knowledge and "programming" ability. Also, automating the process makes multiple "what if..." scenarios easier to calculate. Overall, the association will have more information at its disposal to make a sound decision in regard to its reserve budget.
In the last two years, there have been a few software applications specifically developed for analyzing reserves, that have become available. The prices of these programs start at approximately $300 and go up from there depending on the level of service and support the end-user desires. Smaller associations located away from metropolitan areas, that previously could not afford to have a professional analysis done, now have the ability to complete a comprehensive and useful reserve analysis on their own. Larger associations can now have complete control over their reserves and maintenance responsibilities.
These specialized applications offer many
advantages over "off-the-shelf" spreadsheet or database
programs. Most of these programs are easy to use and require very
little computer related experience to actually get started. Inputting
data with these applications is much easier and more straight-forward
than a spreadsheet. The source of these applications is also very
important to the end-user. Some of these programs have been developed
over a period of years by companies who specialize in analyzing
reserves for community associations. These programs can transfer
years of reserve analysis experience to the end user in the form
of thoroughly tested calculation methods, output that is truly
useful and the avoidance of "bugs" that always seem
to be present in a new or untested program. Some of these applications
come complete with a database of localized cost and useful life
estimates for thousands of typical reserve components that can
save the user a lot of time and aggravation. The most precise
results are obtained by using multiple parameters and calculation
methods that have been thoroughly tested.