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Physical Needs Assessment (PNA)

A form of reserve study that is sometimes prepared for the benefit of mortgage underwriters as part of the loan approval process. 

A CNA is another form of a capital plan that is common in the commercial property sector.


Purpose
The primary objectives of a capital needs assesment are listed below:

  • To identify "catch-up" costs over a specified planning horizon (typically at at 10 years).
  • Backlog
  • To provide a strategic plan and a tactical plan for the owners.
  • To establish the funding liabilities and unfunded liability of the owners.
  • To provide a compelling business case to support the establishing of an adequate capital reserve.
The outcome of the CNA is to enable the owner to make an informed decision regarding risks and stewardship of the property.

One of the many decision support tools to assist owners, managers and operators.



Scope of Services
Listed below is a summary of some of the deliverables that are tuypically included and excluded from a CNA.

       I n c l u d e d:

  • An inventory of assets.
  • Realistic forecasts of the remaining service lives of the assets.
  • Identification of capital projects associated with the end of life of the assets.
  • Estimation of the capital expenditures (capex) associated with the capital projects, aggregated into a capital load, and organized into an expenditure analysis.
  • Bundling of certain near-term projects into a tactical plan
  • Disclosure of financial assumptions, such as inflation rate.
       O p t i o n a l:

       E x c l u d e d:

  • An estimation of "catch-up" costs - that is, the deferred maintenance backlog. No Facility Condtion Index is provided. 
  • Estimation of "get-ahead" costs- that is upgrades and adaptations to address the forces of obsolescence.
  • Development of an asset replacement policy.
  • Maintenance strategies to preserve the assets and help them in "reaching" life or "extending" life.

Attributes
Listed below are some of the attributes of a capital needs assessment:


Data Collection
Listed below is a summary of the data collection procedures that are included or excluded from a capital needs assessment:

     I n c l u d e d:
     O p t i o n a l:
  • Survey questionnaires.
  • Facility staff interviews and operator evaluations.
  • Contractor interviews.
     E x c l u d e d:
  • No destructive testing on the assets.
  • No recommissioning test on the assets.
  • No review of codes and standards


Level of Study
Listed below are the four different grades of physical needs assessment:




Process
Listed below are the key steps in the process of preparing a capital needs assessment:
  • Mobilize the consulting team
  • Collect the data - document review, field visits, etc
  • Analyze the data
  • Peer review the data
  • Submit the draft report
  • Submit the final report
  • Present to the owner group


Methodology & Domain Knowlege
Listed below are some of the concepts taken into consideration by the consulting team when making evaluations and analysis for the capital needs assessment:
  • Capex vs. opex.
  • Optimistic vs. pessimistic vs. realistic
  • Strategic vs. tactical planning.
  • Funding vs. funded. 
  • Like-for-like renewal vs. upgrade renewal
Further information on each of these concepts is included in the respective pages of this asset management glossary.

The reserve study contains two parts: physical analysis and financial analysis, which:

  • Compiles an inventory of the assets 
  • Estimates the remaining useful life of each asset 
  • Projects the replacement costs in future year dollars and records these in a cash flow table that displays opening and closing balances in each fiscal year.

There are four methods for identifying which assets should be included in thee scope of a reserve study:

While reserve studies provide complete analysis of the timing, costs and funding for renewal projects, they should ideally be supported by a maintenance plan that assists the owners in arranging for adequate maintenance to achieve the predicted service lives of the assets.


Evaluation
Listed below are some of the merits and advantages of a capital needs assessment:
  • Sometimes it is cheaper to procure than a full multi-disciplinary condition assessment.
  • The CNA can serve as a screening tool to identify the need for further study (see: mixed scanning)
Listed below are some of the limitations of a capital needs assessment:
  • A CNA is heavier on the financial analysis than it is on the physical analysis
  • It does not provide any information on the backlog of deferred maintenance other than an indirect statement on the effective age of the assets.
  • The report becomes staledated after 1-3 years and needs to be updated periodically (see: update study).
Physical needs assessment (PNA) as part of the triad of three classes of assessments
Fig. Physical needs assessment (PNA) as part of the triad of three classes of assessments.


Matrix of assessment tools for vertical assets, linear assets and portable assets
Fig. Matrix of assessment tools for vertical assets, linear assets and portable assets.


Matrix of datas associated with each of the three classes of assessment
Fig. Matrix of datas associated with each of the three classes of assessment


The alignment of the different types of assessments to each asset (the mix) and the register those that have been commissioned to date (the status)
Fig. The alignment of the different types of assessments to each asset (the mix) and the register those that have been commissioned to date (the status)


Cycles of assessments and re-assessments for PNAs, CNAs and FNAs over a 40-year planning horizon
Fig. Cycles of assessments and re-assessments for PNAs, CNAs and FNAs over a 40-year planning horizon.


I. Care is figuring out the right balance of assessments for his assets, including: physical needs assessment (PNA), capital needs assessment (CNA) and functional needs assessment (FNA)
Fig. I. Care is figuring out the right balance of assessments for his assets, including: physical needs assessment (PNA), capital needs assessment (CNA) and functional needs assessment (FNA)

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