Value Engineering Replacing Capital Assets

 During the 1940s, Willie Sutton developed a lucrative niche of robbing banks.  During his unapproved withdrawals, he sometimes made use of ingenious  disguises. Those were the days when grand larceny took place in a bank lobby  rather than the corporate boardroom. When a reporter asked him why he robbed  banks, Sutton is said to have replied, "That's where the money is."  

 That naturally leads us to the subject of managing the replacement of  condominium capital assets—that’s where the money is. Operating expenses, being repetitive and fairly  predictable, tend to be in the forefront of things. A reserve account can lurk  in the background, and if not managed properly, can cause all sorts of  unpleasant difficulties arising out of any cash shortfalls. “Well”, you might say, “that’s the job of our reserve study.” Truth be told, capital reserve studies, despite the best intentions of all  involved, are a notoriously underutilized resource.  

 When was the last time you compared your budgeted reserve expense for the last  two to three years against the actual? Why were some roofs not re-shingled and  the money used instead to resurface a parking lot? Did it come out of an  analysis of reserve study assumptions in the light of new information gained  from inspections? If so, what was the rationale behind that decision? Was it  documented?  

 The point here is that while we might all agree that it’s nice to take the reserve study off the shelf and review it regularly, there  seems to be little recognition of its true potential for being a proactive tool  for controlling, even reducing costs. Our experience has been that too many  association boards are, understandably in these times, focused on keeping  things going as they are. But replacing in kind may not always be the best  economic or technical solution.  

 Early during World War Il, the General Electric Company was faced with loss of  its overseas sources of raw materials. Substitute materials and new techniques  were desperately needed to produce more quality electrical products at reduced  costs. Enter Larry Miles, one of GE’s management engineers. Miles’ group asked four questions along the production line:  

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