REMI Network prepared an excellent article on the true functions of a reserve fund study and how it should be interpreted. In general, there are three ways a study can be misinterpreted or misused.
- The life expectancy of components is a long-term estimate so the corporation can set aside money to fund future replacement ahead of time.
- It is not an annual 'to-do' list for capital replacement. It exists to ensure funds are available when replacement is needed — items should not be replaced until they fail or approach failure.
- The estimated cost for replacement is not going to be 100% accurate. An estimate made today is based on what's known today, so it's a rough estimate for something that may need replacement in ten years.
That's why it's a good idea to update or evaluate your reserve fund study more frequently than the 3-to-5-year required updates.