A reinvestment formula
for estimating keep-up
costs for major maintenance and capital renewal that falls
into the category of lifecycle
formula sums the value of all capital
projects that are forecast to
occur over the planning
horizon (say 30 years), typically in future values
(FV) and then divides the results by the planning horizon. In
words, the load is divided into the load period.
If all projects in future values add up to $30 Million and it
is divided into a 30 year planning horizon, the owners need to set
aside $1 Million per year.
Variables and Parameters
The summary of funding attributes for this formula is provided in the
- Termed vs.
Continuous - Termed (30 years)
- Inflated vs.
Non-inflated - Future Values (FV)
- Proximity vs. Non-proximity
- Linear vs. Lumpy - Linear
- Funding vs. Funded -
Funding ($ per year)
- Catch-up Costs vs. Keep-up
Costs - Keep-up and Catch-up (one formula)
Included below are some of the merits and advantages of this approach:
Included below are some of the limitations of this approach:
model is quick to generate and it considers both escalation and
liability as a portion of the funding requirements. Depending
on the age of the facility the funding requirements can fluctuate
- This model works best for young buildings and with asset
frequencies that divide equally into the planning horizon, such as
intervals of 2, 3, 5, 6, 10, 15 years.
this formula provides a linear funding trajectory, it fails to
recognize that projects are distributed unevenly across the 30-year
horizon and, therefore funding may not be adequate at certain years due
to the close proximity
to certain projects.
- This model misrepresents
renewal activities that have a frequency that does not divide equally
into the planning horizon (30 years), such as projects at 20 or 25 year
This method may be considered too simplistic for
quantifying the unfunded liability for the purposes of meaningful and
realistic benchmark analysis.
funding trajectories and inflection points resulting from three
alternative funding methods - "Adequate Reserve", "Capital Load" and
Fig. Roof replacement is an example of a capital project contemplated in the capital load model.
Fig. Repiping project.
Fig. Pool resurfacing
Fig. Examples of some types of projects that are considered normal
during each of the lifecycle stages.