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Sherman-Dergis Formula
One of a group of reinvestment models for estimating "keep-up" costs for major maintenance and renewal of a facility, which can be classified as falling within the class of models known as a lifecycle (actuarial) model.

The formula was developed and published in 1981.



Elements of the SD Formula
The Sherman-Dergis formula (see figure 1) includes three key variables:
  • Building age;
  • Building value; and
  • A renewal constant.
The formula is generally applied to two facility life expectancies: 30 years and 50 years. 



Purpose of the SD Formula
The primary purpose of the Sherman-Dergis formula  is as follows:
  • To provide a simple and rapid means of establishing funding requirements for a facility.
  • To provide a preliminary screening tool that guides an informed decisions regarding the collection of further data on reinvestment or redevelopment in a facility
  • To determine if the funding requirements are consistent or inconsistent with the age of the facility, typically with reference to either an asset deterioration model, asset survivor curve or facility lifecycle model. 
  • To establish a potential funding trajectory for a facility.
The SD formula is most effective when used in conjunction with other reinvestment formulas or as part of a preliminary screening process.



Evaluation of the SD Formula
The Sherman-Dergis formula has the following general merits:
  • The data on age and replacement value is easy to collect.
  • The formula is simple to apply as a desktop assessment.
The Sherman Dergis formulas has the following general limitations:
  • It does not provide insight into the proximity of the individual capital projects to the base year.
  • The strategic horizon is limited to either 50 years or 30 years. 
  • The formula does not evaluate any empirical data on the actual performance of a facility.
  • It does not account for non life cycle based factors that may accelerate failure of a sub-system, such as neglect through inadequate maintenance, poor installation or extraordinary exposure conditions.

Classification of Reinvestment Models
Reinvestment formulas can be grouped into three general categories, as follows:
Each class of reinvestment models has merits and limitations that are discussed in more detail on the separate pages of this glossary.


Expenditure Quantification Models
Other similar formulas include: These answer the question, "How much money will we need?" They are part of the expense analysis.
Each class of expenditure quantification model has merits and limitations that are discussed in more detail on the separate pages of this glossary.


Funding Allocation Models 
Models to determine actual funding allocations once the quantum is known. These answer the question: "How much money will we have?". This is part of the funding plan.

      Group 1:
      Group 2: Each class of funding allocation model has merits and limitations that are discussed in more detail on the separate pages of this glossary.
The Sherman Dergis formula for estimating capital funding requirements for a facility
Fig. The Sherman Dergis formula for estimating capital funding requirements for a facility.


1  1
Roof renewal project
1  1
Fig. Examples of different types of capital projects that are contemplated in facility reinvestment formulas, such as exterior painting, roof renewal project and boiler retrofit.


The relationship between the long-range strategic plan and the shorter range tactical plan.
Fig. The relationship between the tactical and strategic planning horizons, where activities in the former will affect the timetable of the latter.


Facility Life cycle model indicating get ahead costs
Fig. Model to indicate the quantum of capital renewal costs at different stages in a facility life cycle.


Funding trajectories and inflection points resulting from three alternative funding methods - "Adequate Reserve", "Capital Load" and "Non-Termed.
Fig. Lifecycle funding trajectories and inflection points resulting from three alternative funding formulas.


Major maintenance tasks mapped to the P-F Curve
Fig. Major maintenance tasks mapped to the P-F Curve.


Array of the different applications of thermographic scans to various assets
Fig. Some of the different applications of thermographic scans to various assets.

See also:


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