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Lumpy Funding
Setting aside funds, on an as-needed basis, for capital projects that will occur in future years and are expressed by "lumps" on a bar graph or financial cash flow table.

This method of funding conducts a sensitivity analysis by asking the question: "What should our funding be each year to ensure that the owners never encounter a special assessment (or an assessment above a certain level)." As a result, the funding allocation will vary each year based on the number of projects each year.

A lumpy funding model provides for fluctuations in funding levels each fiscal year.



Attributes
Lumpy funding is c
haracterized by the following attributes:
  • Both inflows and outflows will fluctuate each year based on the number, size and proximity of asset renewal projects.
  • Funding for projects is not amortized over the life of each asset.
The size of the lumps is affected by the following"

Evaluation
Listed below are some of the merits and advantages of lumpy funding:

  • Lumpy funding is still predictive so long as the owners are aware of the varying inflows over the course of the planning horizon.
Lumpy funding is a result of an onerous capital load and proximity load.

A lumpy model recognizes the realities of varying cash flow requirements at different points in time, particularly over long planning horizons. The challenge with lumpy models, however, is to ensure that the sizes of the lumps are not too large. Mitigation measures to flatten the lumps can include increased funding in the certain years, particularly the lead period to significant projects.

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Fig. Lumpy funding


Funding Trajectories
Fig. Overlay of four different funding approaches with lumpy funding options shown in blue and red.


Workflow to illustrate how lumpy funding models form part of a sensitivity analysis.
Fig. Workflow to illustrate how lumpy funding models form part of a sensitivity analysis.

See also:
Compare with:


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