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: