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6.4 Financial Plans andSensitivity AnalysisThe capacity of an individual AHB to understand theeffect of various changes on its Business Plan is animportant contributor to its ability to manage the risksinherent within its business. The adopted Business Planmodel used by the AHB should therefore be capableof varying its assumptions and provide a series ofoutputs that can be used to test the plan’s abilityto withstand shocks.A typical minimum set of variables to be sensitivitytested would include:n Levels of inflationn Interest ratesn Void and bad debt lossn Management costs, including staffingn Development programmen Maintenance costsn Variations on market rent and their impact onPayment and Availability Agreementsn Changes in rental income from tenantsThe above list should not be taken as exhaustive. It is notappropriate for the Regulator to advise on the variablesfor testing as they are unique to each AHB based on thatorganisations’ activities and historic experience. It is theprime responsibility of any governing body to identifyand manage the risks of its own business.6.5 Sinking Fund & Stock Surveys –required by all AHB TiersIt is critical that AHBs maintain the housing stockappropriately to enhance the life of the housing assetand to ensure that it is in good lettable conditionthroughout its life. AHBs are aware of the importance ofregular repairs and maintenance, and AHBs incur regularexpenditure in this regard. However, a sinking fund isnot related to current expenditure. It is a fund requiredfor the longer term systematic repair and refurbishmentof housing stock e.g. roof replacement. Accordingly, it isnot expected that there would be frequent use of thesinking fund as it is designed to provide for major repairsand longer term expenditure items only.The sinking fund should not be provided for on the basisof a percentage of rents as this does not ensure that thefund is sufficient or adequate for its needs. Rather, thelevel of provision in the sinking fund should relate to thecondition and required works of the stock. The adequacyof the sinking fund provision can only be judged by theAHB through stock condition surveys. A stock conditionsurvey looks at all parts of a building to assess thecondition and state of repair and plan for immediateand long-term future works.The Regulation Office needs assurance that themethodology followed by the AHB in its stock conditionsurvey is appropriate and that the AHB adequatelyidentifies the investment required over the longer term.It is therefore necessary that there is external validationby an appropriately qualified and independent thirdparty of the methodology used, both in terms of thesample size used and in the quality and accuracy of itsassessment of stock.The Regulator is cognisant of the need for this regulatoryrequirement to be both practical and cost effective.However, the sinking fund provision is a vital componentof the Code as it safeguards the social housing assetand accordingly, the verification of the sinking fund isa critical issue for the Regulation Office. It is expectedthat stock condition surveys will be carried out on aregular basis.The Financial Standard and Assessment Framework17