Supply Chain Issues and Rising Costs – Best Practices for Addressing Your Community’s Capital Planning Needs

We are often asked, “how can my association account for supply chain issues and rising costs when addressing our capital planning needs?” Unfortunately, this question often times arises when a community is in the thick of addressing urgent capital projects and the costs far exceed what was budgeted or expected. Fortunately, most communities have options to address recent supply chain issues and rising costs while not sacrificing the long-term physical and financial health of the property.

Below are several best practices that can help your community address its near-term capital planning needs.

Project Prioritization

Increased costs can lead to tough budgetary decisions. Communities should review near-term project needs and prioritize those of utmost importance. These would be projects that, if left unaddressed, could affect the structural integrity of your building as well as any other projects that when ignored, result in safety hazards. Items such as roof replacements, window sealants and exterior paint are a few common examples of projects to prioritize.

Repair in lieu of Replace

In some instances, prioritizing critical projects may not be enough. As of November 1st, 2021, our clients are paying on average, 10% more to replace asphalt shingle roofs compared to last year. Associations might consider conducting isolated repairs that would extend the remaining life of a particular component, thus resulting in a future replacement date when supply chain issues are in our rearview mirror.

Continue to Fund Reserves

With significant increases in costs, it is more important now than ever to maintain appropriate reserve funds. Insurance premiums and other association expenses are also on the rise and, as a result, it can be difficult to raise annual reserve contributions in addition to operating budget increases. Newer associations with no near-term major projects might feel compelled to freeze reserve contributions. What is not funded for today will ultimately need to be funded for later to avoid a future financial shortfall. Continuing to fund reserves to the appropriate levels minimizes the risk of future deficits and/or deferred maintenance.

Communicate to Owners

Good board governance requires effective communication and transparency. Boards should strive to keep owners informed of key decisions. Effective communication minimizes conflict and supports the board’s ability to manage the community. Having a clear understanding of board decisions instills confidence in owners that their best interests are being served.

How We’re Helping Our Clients

  • Complimentary Consultations – We can work directly with your board to provide guidance for which near-term projects take precedence and to discuss how your decisions might affect future planning. We help you make the most informed decisions for your community.
  • Reserve Study Updates – If your reserve study was performed shortly before The Pandemic began, supply chain issues and rising inflation can have a significant impact on previously recommended reserve fund needs. We can work with you to evaluate the merits of completing a reserve study update with site visit (Level II) or a reserve study update without a site visit (Level III).
  • Don’t Have a Reserve Study? A qualified reserve study firm can work with your board to tailor a plan that meet’s your community’s specific needs. A reserve study serves as a roadmap to maintaining adequate reserve funds while addressing all of the capital repair and replacement needs your community faces both near-and-long-term.

 

Contact us today to discuss your community’s specific capital planning needs.