Determining the useful life of reserve items

August 31st, 2012

Useful Life of Reserve ItemsWhen forecasting the useful life of a reserve study item, there are many factors that come in to play and different methods to predict the useful life.  Useful life depends on climate, usage, maintenance, and judgment.  A reserve analyst may use one of the following methods or a combination of them to forecast the useful life.

One method is published data.  There are several building handbooks that have costs and expected life guidelines.  Probably the most prominent is Marshall & Swift.  They offer a several hundred page handbook on various types of buildings, structures, and site improvements.  Most reserve analysts will have several different building publications in their office.

Another way of determining the useful life is past performance in the community.  Older communities have the advantage of historical costs and lives of various components.  Sometimes it is possible to find a substantial difference in theoretical useful lives (from books) versus actual useful lives.  The difference can be caused by a few different things.  For instance, the reserve item may have gotten very high level use, the reserve item was subjected to severe weather on a more regular basis (i.e. landscaping directly next to asphalt paving), or it just worked much better/worse than typical items of similar nature.

A third method is talking to an expert or local contractor in that field.  Sometimes a reserve analyst will come across an obscure item and may not be familiar with its replacement cost or useful life.  And since it is obscure, there may not be any relevant published data on it.  In these cases, talking to an expert in that specific field is a good way approach.  They can often give good cost and useful life information that is not widely known.

Sometimes a reserve analyst may have three different numbers from the methods listed above.  In those cases, it may be the most appropriate to use some sort of average figure.  In other cases, the analyst must use their best judgment to predict how long an item will last.  As you can see, predicting the useful life of reserve items can range from very clear to subjective.

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