Tag Archives: long range planning

Best Practices, Budgeting, condo associations, Cooperatives, HOAs, long range planning, Reserve Studies, Strategic Planning

14 Things Your Reserve Analysts Might Not Tell You – And It’s Not Their Fault (Part 3)

Leave a comment

Two weeks ago,,  we shared five focus points to help you analyze property components. Last week, we offered another five, which were practical considerations to discuss with your reserve analysts in order to estimate project expenses as accurately as possible. To recap, we’ve covered:

1. Engineering Study for Stuff You Can’t See
2. Elements Impacted by Code Compliance
3. Piping Systems
4. New Construction Technology
5. Underground Piping and Wiring
6. Project Design & Management Expense
7. Logistics for Limited Access Projects
8. Collateral Damage
9. Items Outside Study Period
10. Strategic Improvements

We close out the series with the last four nuggets. These cover areas where the Board has a level of discretion and help you deal with some thorny cash flow issues.

11. Interior Renovation Upgrades: Interior renovations can take many forms. If you don’t tell your analysts what you have in mind, they are left to guess. For instance, I helped one client to plan for wallcovering, painting and lighting that would last through two cycles of carpet. In another case, the whole lighting plan was to be revised. That specific data had to be plugged into the reserve study.

12. Alternative Funding Options: If the community is behind the ball financially, debt service, special assessments, or a combination of the two might be options to consider. Clarifying the Board’s authority to do either and strategically planning to communicate options to members are absolutely crucial. This will no doubt be the subject of a future blog. Your reserve analysts should be able to help you to run “what if” scenarios, but you are going to have to tell them what those options might be.

13. Big Trees, Drainage & Other Landscaping: I’ve heard arguments that greenspace does not belong in reserve studies. However, mature trees and landscaping can be really expensive to remove, not to mention replace. Over time, surface drainage can become ineffective and might even lead to flooding. A review by an arborist, landscape designer or architect can be a real eye-opener. You can consult with your reserve analyst and auditor to confirm the appropriateness of including such items in the replacement reserve. If it gives either of them heartburn, you have an option. See #14 below.

14. Major Periodic Maintenance: I regularly see five-year electrical panel and switchgear maintenance in reserve studies. I even see the cost for future reserve studies in some reserve schedules. Even though these expenses may not pass the test as a reservable component, it makes sense to flow the funding evenly from year to year. Including such expenses in the operating budget could have significant impacts on fees. The fact that it’s on a schedule and in the financial plan helps Boards to maintain the discipline to actually tackle these vital projects. Depending on the property there might be other major periodic maintenance that is just as vital and has a similar financial impact. Hydro-jetting of plumbing stacks and laterals, dryer duct/vent cleaning, HVAC duct cleaning, and chimney inspections and cleaning can add up. There may be a couple of approaches to consider. If the property can be divided up with a portion of the work done each year, it would flatten out the expense. But if that’s not feasible, you might ask the reserve analyst to include such projects in the study. If the analyst (or the auditor as noted in #13) or the Board is uncomfortable with that approach, there is an option. You can create an operating reserve, set up a schedule of expenses, and calculate a monthly contribution to that reserve in the same manner as the replacement reserve. This will make sure the money is in the bank, keep you from deferring critical preventive maintenance, and even out the financial impact on association members.

Who & When?

We’ve identified a number of capital projects that may require additional professional support to properly plan and estimate replacement costs. Investing funds up front to work with a qualified, structural engineer, mechanical engineer, construction manager, construction estimator, project manager, elevator expert, fire protection system engineer, architect, or contractor can significantly mitigate the possibility of unhappy surprises and create a realistic funding plan. We’ve identified a few areas where legal and audit advice is advisable. Making this a point of discussion with your reserve analyst will help. Some firms that provide reserve studies are multi-disciplinary and may have some of these resources in-house.

The optimal time and depth of study will depend on the projects themselves. Hopefully this series has helped you to take a hard look at the components in your reserve schedule, do a risk analysis and take the holistic approach described in last week’s blog. Once you’ve identified elements that may benefit from further analysis, check the timing. Early on, perhaps you can get some inexpensive thumbnail estimates (hint – plan for the worst, guess high). If you are getting to within about five years of a large project, it might be time to make a more significant investment and hire specialists to take a deeper look. The more complicated the project, the more important this is.

Bottom Line

A truly comprehensive reserve plan can make all the difference in the financial health of a community association and the quality of life of its members. The reserve study is a tool. Your reserve analysts are your partners. See the bigger picture. The better the data, the better the study. The better the study, the better the plan. The better the plan, the better the execution of the plan. The better the execution of the plan, the better the community.

Budgeting, community associations, condo associations, Cooperatives, HOAs, long range planning, Reserve Studies

14 Things Your Reserve Analysts Might Not Tell You – And It’s Not Their Fault (Part 1)

2 Comments

Reserve studies are invaluable tools for condominiums, cooperatives, and homeowners associations. Used properly, they assist boards and managers to make good decisions for reserve funding with long range planning in view. They also help to plan for near term capital projects. The reserve study provides a basis for a systematic and disciplined approach to reserve funding and capital project planning.

At the same time, I’ve heard too many complaints from clients through the years about accuracy of the data included in their reserve studies. This tends to occur when unpleasant and unplanned realities throw a monkey wrench into the best laid plans. I’ve found that either an unrealistic expectation or a poor understanding of the study process are typically at the root of the issue. This series of 3 blogs helps to address the first issue. I’ll provide tips on how to work with your reserve analyst in another blog soon.

What a Reserve Study Is…And Isn’t

Professional reserve studies have two components – a physical analysis and a financial analysis of major property components. The physical analysis helps to estimate the remaining useful life. The financial analysis turns it all into an actionable plan to recommend a funding level that ensures the Association will have enough money in the bank to replace components when needed. For more details, you can review CAI’s National Reserve Study Standards, and the Association of Professional Reserve Analysts Standards of Practice.

Reserve studies are relatively inexpensive as compared to other engineering analyses. There are reasons for that.

  • Reserve analysts are by definition generalists engaged for the specific purpose of creating an overall financial plan. They do not undertake the detailed condition reports, basis for design, or specifications that a specialty engineer may create in preparation for a particular capital project.
  • Reserve studies do not include destructive testing. No walls will be opened, ground dug up, or other means to get into the details of conditions unseen.
  • Reserve analysts are neither omniscient nor clairvoyant, nor do they possess X-ray vision. You’d have to pay a lot more for that!

Throw Me A Bone, Man!

The good news is reserve analysts LOVE data. The more valuable information you can give them, the more they will plug into the study. The better the study, the better your plan.

Here are a few nuggets you should consider feeding to your reserve analyst. Complicated condominiums and cooperatives, especially high rises, are more likely than HOAs to benefit from the additional data points listed in this blog series. Regardless, it’s worth taking the time to consider whether each of the 14 nuggets factor into your association’s reserve plan. I can tell you they’ve either saved my clients a lot of heartburn, or I learned about them because of my clients’ heartburn!

These first 5 nuggets deal largely with building components. The next 2 blogs will address discretional expenses, practical project planning, and approaches to thorny cash flow issues.

  1. Engineering Study for Stuff You Can’t See: This could apply to components like waterproofing systems under patios, parking lots, green space, fountains, etc. Without doing destructive testing and taking a look at what is underneath, you may have no idea how much it will cost to design and replace a system you can’t see. You will likely pay far more for this engineering study than you will for the reserve study, but it will be well worth it. One client’s reserve study had estimated system replacement for four garages to be $500K. When it was all said and done they paid about $1.1M…. per garage! The information gleaned from their engineer’s work helped them to prioritize and pay for the project. If they had that information up front and included in their reserve study they could have avoided sticker shock.
  2. Elements Impacted by Code Compliance: The typical reserve study assumes like-for-like replacement. However, local code may require a building to upgrade an old system to meet current codes, exponentially increasing the cost of some projects. This is particularly true of fire protection systems and elevators. Getting cost projections from sources familiar with local codes can save you from ugly surprises.
  3. Piping Systems: No pipe will live forever. Yet, I have seen common piping systems omitted from reserve studies for whatever reason. Also, determining the remaining useful life of copper piping is easier than ever before thanks to non-invasive technology. Obtaining a pipe condition study for domestic, HVAC and waste piping can provide invaluable data.
  4. New Construction Technology: Sometimes new building products or construction techniques can post a challenge until there is a track record of periodic major maintenance, rehabilitation or replacement. Installing contractors, architects or engineers involved in the new construction can sometimes provide some insights to help plan for future projects.
  5. Underground Piping and Wiring: This can be a big one for garden communities, especially those built in the 1960s as apartments, and particularly those with central HVAC plants. I don’t always see underground electrical feeds, HVAC piping, or domestic water piping in reserve studies for communities that have these components. Tracing a break or a leak, digging up between buildings to replace a section of wiring or piping and restoring the grounds on an emergency basis is an expensive proposition. It is surprising how much electrical wiring has been laid in the ground without being run through conduit. This can even impact the planning for replacement of light poles. Identify the risk and make a plan to include in the reserve study as needed.

Hard Reality

In some cases, the engineering and design costs outlined in the 5 nuggets above might exceed the cost of your reserve study. But that’s irrelevant. Think about the impact of not having the data. Underfunding by any means is a bad strategy.

When & Who?

In the third and final blog in this series, we’ll identify potential resources and factors that will help the Board to decide when to reach out.

Next…

In next week’s blog, we will discuss data points related to practical considerations when planning for projects. I will again reach back into my bag of experience to find the things that made a huge difference for my clients through the years.

Budgeting, community associations, condo associations, Cooperatives, HOAs, leadership, long range planning, values

The Vision Thing

Leave a comment

The words keep falling out of my mouth. I see it again and again. So many boards think their mission is to keep fees low, period. Ironically, the mindset that this engenders pretty much guarantees that in the end, everyone will pay more.

Never forget that the budget is a tool. It is part of the plan that provides the means by which the community’s needs are met. At a higher level, it can be part of the plan that provides the means by which the aspirations of the community are met. It is the tail, not the dog.

Don’t get me wrong – a fiduciary has a duty to make sure that members’ assets are well utilized. But there’s a huge difference between price and cost. A low price up front can mean tremendous cost later on. A myopic focus on trying to make sure expenses do not exceed the budget plan (key word PLAN) leads to a vicious cycle of failure that goes something like this:

A “we can’t afford it” mindset begets a budget that ignores the reality of the facilities, operations and shared values of community, which begets a budget filled with artificially low line item values, which begets cheap, shortsighted financial decisions during the year, which begets poor quality repairs, supplies, and low reserve funding, which beget Band-Aids and deferred maintenance, which beget emergency response repairs, poor curb appeal, and increasingly unsatisfactory service, which beget negative community spirit and higher accumulated expenses, which beget fear of conflict and board exhaustion, which beget more shortsighted decisions making until….

The bottom drops out. Special assessments, huge fee hikes, and/or debt service (unless the financial condition of the association has been flushed so far down the toilet it’s no longer an option). Ironically, in the end everybody pays more because the board managed down to the budget instead of leading up to a vision.

Vision doesn’t have to be a pie-in-the-sky, magical thing. It can be pragmatic. In working with community association clients, I’ve learned to start with a simple annual planning session. Tell me what you want to do and I’ll tell you what’s important to you. Which means you’ve identified your values. Which leads you to your vision.

So start with planning.  Establish a disciplined, robust budget preparation process. Lead.  And truly serve your members. That is your duty. It’s hard at first, but ask those who have tried to lead associations out of the ashes. It’s much worse.

Going cheap at all costs may be a value, but it does not lead to a sustainable vision. Walk around without your glasses and eventually you will stumble and fall. Don’t be afraid to open your eyes and get the help you need to see clearly.

community associations, condo associations, Cooperatives, HOAs, long range planning

Long Range Planning for Community Associations – Getting Down to Business!

2 Comments

In Part 2 of this series, I outlined the basic planning steps condominiums, HOAs, and cooperatives use to create a long range plan. You’ve assembled the team to take on the project (also covered in Part 2) and you are ready to roll. Now what?

Five Steps to a Great Plan!

 

There are different approaches to complete each step, considering the group and available resources. Here are a few success tips to think about as you tackle each step.

Step 1: Assess current conditions
• A “SWOT” analysis is a great tool. List the strengths and weaknesses inside the organization, and the opportunities and threats that impact, or may impact, from outside the community. Click here for a helpful guide to SWOT analysis from the Community Tool Box.
• Collect data from as many sources as possible; reserve studies, inspection reports, audits, governing documents, welcome packages, rules & regulations, newsletters, website, committee members, management and staff.
• Listen to your members. Use tools like surveys and town hall meetings to find out what they use, what they like, and what they want.
• See things as they really are with absolute, brutal honesty. No theoreticals, just facts. (Hint: A fact can sometimes be that there are widely differing opinions on a subject. So don’t argue about who’s right, just record the results of the fact-finding). This is where having diversity in the working group is extremely helpful. If your association is professionally managed, listen to the management team. The more perspectives the better.

Step 2: Identify the core purpose of the association
• Value Statements, Vision Statements, and Mission Statements are all great documents. Exactly which is created as a result of this step isn’t crucial. What’s most important is that document or documents, in whatever form they may take, accurately represent what the community is really about and where it wants to go.
• Oh please…don’t do the corporate thing – put pretty words on a plaque on the wall that nobody cares about and think you’ve nailed it. Unless the work product from this step creates a basis for decision making, it’s meaningless. I’ve read way too many mission statements that reek of groupspeak and left me wanting to rip it from the wall and fling it in to the fire. Make it real, even if it’s a little ugly. You can tweak it later.
• Real world tip: Some groups have a tough time enumerating values, vision and mission. Don’t worry. If you get stuck, feel free to skip ahead to Step 3, then come back. If you tell me what you want to do, if I listen carefully enough I can hear the values, vision and mission behind the plans. So can you.

Step 3: Set goals to work towards achieving that purpose
• Intense brainstorming happens here. There are no bad ideas. Disallow brainstorming creativity killers like “We tried that and it didn’t work,” and “That’s a dumb idea.” Culling and prioritization happen after brainstorming.
• Clarify results into “SMART” goals – specific, measurable, achievable, realistic, and timely. That being said, achievable and realistic does NOT mean easy. Progress is rarely easy. Timely refers to each goal having a target date for completion. This is where prioritization comes into play.
• If a goal does not support the mission, either the goal should be dumped or you have identified an adjustment to the mission.

Step 4: Decide what practical steps, or “objectives,” will be necessary to reach the goals
• Reverse engineer the process. Be clear on each goal and work backwards to identify the deliverables required to achieve the goal.
• Sometimes you will find a goal needs revisiting after this step. Adjust as needed.
• After identifying the work needed to achieve your goals, you might realize you need to adjust the target dates for completion. That will make for “smarter” goals (more achievable, realistic, and timely).

Step 5: Establish the plan to regularly review progress and update the plan as needed
• This is where great plans fail. Unless there is follow through and analysis, your initial efforts are wasted.
• Review the plan each year. Include community feedback in the analysis.
• Identify the objectives to be accomplished each year and plug them into the association’s master annual calendar so they can be tracked.
• Regularly communicate plans and progress. Hold yourself accountable. Don’t be afraid of failure; learn from it. Communicate some more. Support and momentum will increase.

What topics should your association include in the analysis and plan? The answer is…anything and everything.  That’s what I will cover in Part 4.  Stay tuned!

RESOURCES

• “Best Practices Report #3 – Strategic Planning” – Foundation for Community Association Research
• Strategic Planning for Public and Nonprofit Organizations: A Guide to Strengthening Organizational Achievement by John M. Bryston
• Creating Your Strategic Plan: A Workbook for Public and Nonprofit Organizations by John M. Bryston & Farnum K. Alston

community associations, Cooperatives, HOAs, long range planning

How Community Associations Plan to Succeed

Leave a comment

In Part 1 of this series, I explored the reasons why condominium associations, homeowner associations, and cooperatives by and large fail to engage in meaningful long range planning. If a failure to plan is a plan to fail, how can community associations plan to succeed?

BREAKING IT DOWN

Long range planning can be defined as the establishment of a strategy to successfully navigate the foreseeable future. The basic planning process will involve 5 key steps.

Step 1: Assess current conditions
Step 2: Identify the core purpose of the association
Step 3: Set goals to work towards that purpose
Step 4: Decide what practical steps (“objectives”) will be necessary to reach the goals
Step 5: Establish the plan to regularly review progress and update the plan as needed

KEYS TO SUCCESS

Thoughtfully selecting the team to take on this project is the first key to success. Each association has to take into consideration the availability of, and commitment to, human and financial resources. Getting a broad range of input is vital. An ad hoc committee including community members can be extremely valuable, especially since the final plan will need community support to have lasting impact. Leaders who allow the planning group to drive the process and who allow the collected data to tell the story are likely to garner support and succeed. Those who impose preconceived notions about the end result upon the group will destroy both creativity and the integrity of the final product.

Bill Selfridge, the chairman of an HOA ad hoc planning committee, shared why his Association took great care to bring diversity to his group,

“Our community has many members who have expertise and interest in different areas. When we established our working group, we were able to assign specific focus areas to people who expressed an interest in and a willingness to be the coordinator those areas. We identified 9 areas; everything from governance to communications, to clubhouse administration. We endeavored to take into account the diversity of approaches and ideas and opinions. That sometimes translated into very spirited, but extremely valuable dialogue, resulting in a much sounder plan.”

The person designated to lead planning sessions must be objective, patient, focused, and trusted. Bill’s HOA decided to engage me as an outside facilitator. He explains,

“We realized that with all the various viewpoints of the work group participants that it was important to provide for objectivity and subject matter expertise through a proven and qualified facilitator to help us maintain focus and work through the rough spots. We also had to agree that the meetings were his show. We found a facilitator who had the industry experience, the countenance, and the people skills that the group could respect. It made a big difference.

This is Part 2 of a 6 part series. In Part 3, I will dive into each of the 5 basic planning steps help you visualize how your condo, HOA, or coop can actually make this happen. Stay tuned!

community associations, long range planning

Why Don’t Community Associations Plan?

Leave a comment
RobinHood1
Howard Hill with Errol Flynn

The late motivational speaker Zig Ziglar taught the subject of goal setting by opining on the story of Howard Hill, who won 196 archery tournaments in a row in the first part of the 20th century. He was the guy Hollywood hired to do stunts like splitting one arrow with another in Robin Hood films. Amazing stuff. Mr. Ziglar claimed he was such a talented instructor, he could teach anyone to hit a target with more proficiency than Howard Hill – provided Mr. Hill was blindfolded and spun around a few times.

“Ridiculous! How can someone hit a target they can’t see?” To which Mr. Ziglar responded “That’s very true. Even worse, how can you hit a target you don’t even have?”

It seems so incredibly obvious. Have a target, hit a target. Have a goal, reach a goal.  Duh.  Yet how many community associations have clear, measurable goals, much less a plan to achieve them? Shockingly few.

THERE’S YOUR SIGN…

Comedian Bill Engvall made this tag line famous. If you are not familiar, Google it. He will make you laugh. But some signs can make you cry. Does any of this sound familiar?:

– “Surprise” major expenses resulting in special assessments, steep fee increases, loans, or any combination thereof

– Members disenchanted with their community association

– Endless debate on how the association should spend its money

– Crisis management becoming standard operating procedure

– Regrettable history repeating itself over and over again

– All these may be signs that long term planning is lacking.

HOW DID WE GET HERE?

If it so clear that community associations need goals and a planning process, why doesn’t it happen?Through the years, I’ve heard plenty of reasons, none of them good.

– “Our meetings are already 3 hours long. Our agenda is full.”

– “Why should we plan for things that won’t happen until after we are long gone from here?”

– “I’ve been through strategic planning sessions at work. Everybody has great ideas, but nothing ever comes of it. It’s a waste of time.”

– “We are all volunteers here. We just don’t have time.”

– “We have a budget and a reserve study. That’s our plan.”

– “We can deal with it later.”

Failing to plan is absolutely a plan to fail. Ted Ross, a board member for the Washington Metro Chapter of the Community Associations Institute and owner of TRC Engineering frequently preaches, “The longer you defer a capital project, the more costly the project becomes and fewer options are available.” The same principle is true for any facet of the operation where necessary change is deferred. Waiting for projects or situations to become emergencies is never a good idea. Planning for the future is an investment in time, energy, and money.

This is Part 1 of a 6 part series. Part 2 will outline the 5 basic steps of long range planning. Stay tuned!