Cash Flow Method
A method of calculating Reserve contributions where contributions to the Reserve Fund are designed to offset the variable annual expenditures from the Reserve Fund.
Different Reserve Funding Plans are tested against the anticipated schedule of Reserve expenses until the desired Funding Goal is achieved.
Component
The individual line items in the Reserve Study developed or updated in the Physical Analysis. These elements form the building blocks for the Reserve Study.

Components typically are:
1) Association responsibility,
2) with limited Useful Life expectancies,
3) predictable Remaining Useful Life expectancies,
4) above a minimum threshold cost, and
5) as required by local codes.

Component Assessment And Valuation
The task of estimating Useful Life, Remaining Useful Life, and repair or replacement costs for the Reserve Components. This task is accomplished either with or without on-site visual observations and is based on Level of Service selected by the client.

Component Inventory
The task of selecting and quantifying reserve components. This task can be accomplished through on-site visual observations, review of association design and organizational documents, review of established association precedents, and discussion with appropriate association representative(s).

Component Method
A method of calculating Reserve contributions where the total contribution is based on the sum of contributions for individual Components.

Current Cost-
The current years' estimated cost to maintain, replace, repair, or restore a reserve component to its original functional condition.

Deficit
An actual (or projected) Reserve Balance less than the Fully Funded Balance. The opposite would be a Surplus.

Effective Age
The difference between Useful Life and Remaining Useful Life. Not always equivalent to chronological age, since some components age irregularly. Used primarily in computation.

Field Inspection
A site visit which includes a visual inspection of all components. In cases where plans of the property are unavailable it would also include the quantity survey.

Financial Analysis
The portion of a Reserve Study where current status of the Reserves (measured as cash or Percent Funded) and a recommended Reserve contribution rate (Reserve Funding Plan) are derived. The Financial Analysis is one of the two parts of a Reserve Study.

Fully Funded
100% Funded. When the actual (or projected) Reserve Balance is equal to the Fully Funded Balance.

Fully Funded Balance (FFB)
Total Accrued Depreciation. An indicator against which Reserve Balance can be compared. The reserve balance that is in direct proportion to the fraction of life "used up" of the current cost. This number is calculated for each item, and then summed for a total.

Funding Goals
Independent of methodology utilized, the following represent the basic categories of Funding Plan goals:
  1. Baseline Funding
    Establishing a Reserve Funding Goal of keeping the Reserve cash balance above zero.

  2. Fully Funding
    Setting a Reserve Funding Goal of attaining and maintaining Reserves at or near 100% funded.

  3. Statutory Funding
    Establishing a Reserve Funding Goal of setting aside the specific minimum amount of Reserves required by local statues.

  4. Threshold Funding
    Establishing a Reserve Funding Goal of keeping the Reserve Balance above a specified dollar or Percent Funded amount. Depending on the threshold this may be more or less conservative than "Fully Funded".
Funding Plan
An association's plan to provide income to the reserve fund to offset anticipated expenditures from that fund. The following represent the basic methodologies used to fund reserves:
  1. Cash-Flow Method- A method of developing a reserve funding plan where contributions to the reserve fund are designed to offset the variable annual expenditures from the reserve fund. Different reserve funding plans are tested against the anticipated schedule of reserve expenses until the desired funding goal is achieved.

  2. Component Method- A method of developing a reserve funding plan where the total contribution is based on the sum of contributions for individual items. (Probably the most costly because it requires more capital in reserve than would be ever required.)

Inflated Expenditures
The combined annual expenditures for a given year inflated to reflect their estimated future replacement cost.

Inflationary Multiplier
The number by which the annual expenditure is multiplied to estimate the future replacement cost. If inflation was currently projected at 3%, the initial year multiplier would be 1.00, Next Year 1.03, Next year 1.061, etc.

Methodology
A statement which addresses the procedures and methods used to prepare a Reserve Study.

Minimum Balance
A minimum Reserve Balance established by the client.

Percent Funded
The ratio, at a particular point of time (typically the beginning of the Fiscal Year), of the actual (or projected) Reserve Balance to the Fully Funded Balance, expressed as a percentage.

Physical Analysis
The portion of the Reserve Study where the Component Inventory, Condition Assessment and Life Adjustment and Valuation tasks are performed. This represents one of the two parts of the Reserve Study.

Quantity
The total quantity of each component.

Remaining Useful Life (RUL)
Also referred to as "Remaining Life CRL). The estimated time, in years, that a reserve component can be expected to continue to serve its intended function. Replacements anticipated to occur in the initial or base year have "zero" Remaining Useful Life.

Reserve Assessments
The portion of assessments contributed to the Reserve Fund, also called Reserve Contribution.

Reserve Balance
Actual or projected funds as of a particular point in time that the association has identified for use to defray the future repair or replacement of those major components which the association is obligated to maintain. Also known as Reserves, Reserve Accounts, Cash Reserves, Reserve Fund.

Reserve Item (or Component)
The individual line items in the reserve study, developed or updated in the physical analysis that form the building blocks of the reserve study. They typically are:


   association’s responsibility
   with limited useful life expectancies
   predictable remaining life expectancies within the study period
   above a minimum threshold cost
   as required by local codes
   not maintenance items or replaced every two years or less
   the useful life is not beyond the study period (i.e. Storm sewers are excluded?)

Reserve Study
A budget planning tool which identifies the current status of the Reserve fund and a stable and equitable Funding Plan to offset the anticipated future "major common area expenditures". The Reserve Study consists of two parts: the Physical Analysis and the Financial Analysis.

Special Assessment
An assessment levied on the members of an association in addition to regular assessments. Special Assessments are often regulated by Governing Documents or local statutes.

Straight Line
A formula used to calculate the annual reserve fund contribution for a specific component. Projected replacement cost divided by the useful life equals the annual payment.

Surplus
An actual (or projected) Reserve Balance greater than the Fully Funded Balance. See "Deficit".

Unit Cost
The cost of a component. The unit cost is multiplied by the Component's quantity to obtain the total estimated replacement cost for the component.

Unit of Measure
Refers to the method of measurement applied to a particular component. The following are examples: Square Feet, Lineal Feet, Each, Square Yards, Lump Sum and Squares.

Useful Life (UL)
Total Useful Life or Depreciable Life. The estimated time, in years, that a reserve item can be expected to serve its intended function if properly constructed (& maintained) in its present application or installation.