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.
| 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
| 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
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