(Total cost – Past cost ) / EUL  = Annual Contributions

Definitions:

  • Past cost = Total maintenance & renewal cost , excluding capital cost  = sum of cycle cost ( Cycle cost/ cycle)
  • Total cost = Total life time  maintenance & renewal cost , excluding capital cost for expected useful life term.
  • EUL = Expected useful life.
  • Annual contribution = Total annual contribution for the specific year to the reserve fund

What does this formula do:

  1. This formula gives a estimated provision for a specific year that caters for cyclic maintenance cost, as well as unplanned failures, given the historical pattern.
  2. Cost provision for unplanned failures can be deduced by deduction the Annualized cyclic maintenance cost from the Annual contribution
  3. Can be used with replacement consideration by including capital cost and depreciation

Limitations

It does not factor inflation

It do not directly account for future cost escalation/reduction through the life cycle of a structural item.

It does not factor in STSMa minimum reserve fund requirements

 

For more insight contact us at plan@propertymd.co.za

 

 

 

 

 

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