Threshold Funding or Minimal Fund Balancing
In the past 5 years, life cycle costing and reserve fund management have advanced tremendously.
In the early nineties, the system that was used by most life cycle cost analyst was call Equity Replacement. This system added up the deprecated portion of the asset and set up a goal point in 25 years based on the calculated depreciated curve of the asset.
This form of asset management is similar to the use of the FCI (Facility Condition Index)
In 1998 most life cycle costing analysts abandoned the use of these systems due to the unnecessary funding requirements for future management based on their funding models.
What the private sector has learned is that funding levels set to meet goals based on the depreciated portion of an asset are unrealistic as to what is actually needed for the maintenance and repair of an asset during its complete life cycle.
A funding model has been developed that utilizes an analysis of the asset by the components actual age, predictive age and remaining life calculated over the predicted life of the asset.
The funding model then calculates the average annual expenditure and inflates it over time. Then the model calculates the most critical years of funding and sets them so that they do not fall below the average annual expenditure for that year.
In this form of funding the requirements for funds are considerably lower than the FCI and/or Equity Replacement. The assets are maintained in good standing and the requirement for funds are maintained.
This type of management you are actually managing the asset and at the same time servicing the depreciated portion of the asset's components as they are required.
The use of this type of system is considered to be a predictive program and along with the use of a predictive preventive maintenance program can help to extend the life of the asset by as much as 30% over time.
This model is based on the actual condition of the asset and the actual future funding needs of the asset.
This system has been tested and proven effective for the private sector to maintain assets in good standing with the minimum amount of funding over time.
Scott A. MacKay
EnerMac Consultants Inc.
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