PRESENTATION PARADOX

Identical work depicted by differing component presentations produces substantial Fully Funded Balance differences. Competing component presentations are commonplace and occur without intent. And to be crystal clear, we’re not talking about cost, quantity or life differences, but rather, we are simply talking about alternative component presentations which all achieve identical reserve work. In the following example, see how perfectly identical work is achieved by 2 different component presentations. The resulting Fully Funded Balance difference is astounding.

Identical Work with Single Vs Multiple Component Presentations

This example utilizes 2 different component presentations to accomplish an identical rain gutter replacement task. The annual gutter replacement expense is $1,000, but the resulting FFBs for the 2 component presentations are vastly different. The first presentation’s FFB is $1,000 each year while the second’s is $15,500 each year. Despite identical $1,000/year expense forecasts, the 2 presentations generate significantly different FFBs.

The following tables demonstrate the FFB disparity. In the first table, a single component with a 1 year useful life accomplishes gutter replacement, and in the second table, 30 individual components each with 30 year useful life accomplish the exact same gutter replacement. Inflation is ignored for simplicity.

Single Component Fully Funded Balance
Component CRC UL RL
Total CRC $1,000
Bldg $1,000 1 0 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
Total FFB $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000

Bold = replacement year, CRC = Current Replacement Cost, UL = Useful Life, RL = Remaining Life, FFB = Fully Funded Balance

Thirty Component Fully Funded Balance
Component CRC UL RL
Total CRC $30,000
Bldg 1 $1,000 30 0 $1,000 $33 $67 $100 $133 $167 $967
Bldg 2 $1,000 30 1 $967 $1,000 $33 $67 $100 $133 $933
Bldg 3 $1,000 30 2 $933 $967 $1,000 $33 $67 $100 $900
Bldg 4 $1,000 30 3 $900 $933 $967 $1,000 $33 $67 $867
Bldg 5 $1,000 30 4 $867 $900 $933 $967 $1,000 $33 $833
Bldg 6 $1,000 30 5 $833 $867 $900 $933 $967 $1,000 $800
Bldg 7 $1,000 30 6 $800 $833 $867 $900 $933 $967 $767
Bldg 8 $1,000 30 7 $767 $800 $833 $867 $900 $933 $733
Bldg 9 $1,000 30 8 $733 $767 $800 $833 $867 $900 $700
Bldg 10 $1,000 30 9 $700 $733 $767 $800 $833 $867 $667
Bldg 11 $1,000 30 10 $667 $700 $733 $767 $800 $833 $633
Bldg 12 $1,000 30 11 $633 $667 $700 $733 $767 $800 $600
Bldg 13 $1,000 30 12 $600 $633 $667 $700 $733 $767 $567
Bldg 14 $1,000 30 13 $567 $600 $633 $667 $700 $733 $533
Bldg 15 $1,000 30 14 $533 $567 $600 $633 $667 $700 $500
Bldg 16 $1,000 30 15 $500 $533 $567 $600 $633 $667 $467
Bldg 17 $1,000 30 16 $467 $500 $533 $567 $600 $633 $433
Bldg 18 $1,000 30 17 $433 $467 $500 $533 $567 $600 $400
Bldg 19 $1,000 30 18 $400 $433 $467 $500 $533 $567 $367
Bldg 20 $1,000 30 19 $367 $400 $433 $467 $500 $533 $333
Bldg 21 $1,000 30 20 $333 $367 $400 $433 $467 $500 $300
Bldg 22 $1,000 30 21 $300 $333 $367 $400 $433 $467 $267
Bldg 23 $1,000 30 22 $267 $300 $333 $367 $400 $433 $233
Bldg 24 $1,000 30 23 $233 $267 $300 $333 $367 $400 $200
Bldg 25 $1,000 30 24 $200 $233 $267 $300 $333 $367 $167
Bldg 26 $1,000 30 25 $167 $200 $233 $267 $300 $333 $133
Bldg 27 $1,000 30 26 $133 $167 $200 $233 $267 $300 $100
Bldg 28 $1,000 30 27 $100 $133 $167 $200 $233 $267 $67
Bldg 29 $1,000 30 28 $67 $100 $133 $167 $200 $233 $33
Bldg 30 $1,000 30 29 $33 $67 $100 $133 $167 $200 $1,000
Total FFB $15,500 $15,500 $15,500 $15,500 $15,500 $15,500 $15,500

Bold = replacement year, CRC = Current Replacement Cost, UL = Useful Life, RL = Remaining Life, FFB = Fully Funded Balance

Click here to return to Percent Funded Considerations