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Reserve Study

Also referred to as a "Reserve Fund Study", "Contingency Reserve Study" or "Depreciation Report" (in British Columbia).

Alternative Definitions

A simple definition: The art and science of anticipating and preparing for the future replacement of assets.

A more elaborate definition: A long-range financial planning tool that identifies the current status of the owners' reserve fund and recommends a stable and equitable funding plan to offset the costs of anticipated future major expenditures associated with replacement of the assets (such as roofs and boilers).  

The primary objectives of a reserve study are listed below:

  • To identify "keep-up" costs over a specified planning horizon (typically at at 10 years).
  • 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.
  • To ensure that adequate funds are set aside each fiscal year in order that renewal work can be carried out at the appropriate time before asset failure occurs and with minimal financial hardship for the owners that may result from special assessments.
The outcome of the reserve study 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 reserve study.

       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.

Listed below are some of the attributes of a reserve study:

Data Collection
Listed below is a summary of the data collection procedures that are included or excluded from a reserve study:

     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 reserve study:

Furthermore, reserve studies should evolve into a Reserve Management Plan.

Methodology & Domain Knowlege
Listed below are some of the concepts taken into consideration by the consulting team when making evaluations and analysis for the reserve study:
  • 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.

Listed below are some of the merits and advantages of a reserve study:
  • 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 reserve study:
  • 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).

See also:
    Compare with:
    See the services matrix for an analysis of the integrated deliverables.

    Fig. YouTube Video

    Fig. Funding models in a reserve study.

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