Reserve Study Tutorial #6
How is the Fully Funded Balance Calculated?
Simply put, the formula for the fully funded balance
is:
FFB= (Current Cost * Effective Age / Useful Life)
Where:
Current Cost = the current cost of any reserve component project
Effective Age = The current age of the component adjusted for current
condition – expressed as a fraction of the useful life ([Useful
Life – Remaining Useful Life]/Useful Life)
For example:
If a reserve project has a useful life of 5 years and a current
cost of $5,000, then the association needs to put aside $1,000 a
year towards the future cost of that project ($1,000/year for 5
years = $5,000 total project cost). If that reserve component is
2 years old then the reserve fund should already have 2/5 of the
project cost or $2,000 towards the future project cost.
This calculation is repeated for each component.
The sum of the individual reserve requirements is said to be the
fully funded balance.
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