Ballast RM - Financial And Risk Management Flashcards
Financial Management: 2 accountings
- General Ledger Accounting:
Basic track of money flow: operations, banking, taxes and auditing. Firm wide financial status. - Project Cost Accounting:
Revenue, expense, and profit by each project
Financial Terminology
Accounts payable/ receivable 应付/收帐款
Assets
Direct Labor vs Indirect L.
Direct personnel expense vs Discretionary Distribution
Gross Revenue vs Net Revenue(net operating revenue)
Overhead
Assets: current(cash in 1 year), fixed(equipment and property), and other(securities 有价证券 抵押物and copyrights)
Asset is anything a business owns that can be given a price.
Direct Labor: technical staff, principal and support staff chargeable to projects
Indirect Labor: administration, general office time, and marketing, professional
Direct personnel expense: salary plus payroll taxes and health insurance.
Discretionary Distribution: performance bonuses, profit sharing and incentive compensation to owner and non-owner
Overhead运营费用: salaries, rent, software lease, power and telephone, no matter revenue generated or not.
Net Revenue: Billing after deducting fees and expenses, reimbursable expense and non-reimbursable project-related expense.
Accounting Methods
Modified Accrual Basis Method for arch firm
Cash Accounting: receive cash/ pay a bill. Single person and small biz.
Accrual Accounting 权责发生制:
Revenue and expense recognized at the time earned or incurred. Invoice sent and money listed as revenue. Required by IRS for certain size.
Use double-entry bookkeeping 复式记账: list all transactions time-wise in journal and then grouped to ledger 总账 by accounts.
Modified Accrual Basis Method for arch firm:
Records fee revenue, expense billed and invoices by consultants
Accounting Statements
- Balance sheet: summarize all assets and liabilities. Total asset must = total liabilities + net worth(owners equity)
Equity 抵押资产的净值
- A profit and loss statement(income statement):
All income and expense for certain time - A cash flow statement:
Cash(money, check, anything else accepted by bank) + cash equivalents(short term certificates of deposit), payroll and pay bills monthly
Profit Planning and Financial Management: active planning, monitoring, and controlling of/acting on financial info
Reduce overhead: indirect labor
Increase revenue: more work/ fee
Project progress report: current hour and labor cost per phase, compared with estimate; plus direct cost(consultant, overhead allocations, and reimburse expenses)
Office earnings report: revenue and expenses, unbilled service, completion %, profit/loss to date
Aged accounts receivable report: all invoices paid and unpaid.
Invoice runs bt 60 and 75 days. 90 days means lending to client without charging interest.
Time analysis report: employee with hour(direct /indirect labor, vacation, sick/holidays. Chargeable ratio(utilization ratio)= direct labor/ total time(labor vacation holiday and sick leave)
65% is minimum. 75-85% for professional/technical
Indirect labor: marketing, professional development
Financial Ratios: Current ratio Net profit before tax Overhead rate Quick ratio Revenue per technical staff Revenue per total staff
Current ratio= current asset total/ total current liabilities. Higher is better. 1.0 minimum, >1.5 is healthy. Shown on balance sheet.
Net profit before tax: profit based on net rebenue( annual revenue total- consultant fee- reimbursable expense)
Overhead rate: total indirect expense/ total direct labor. Range: 1.3-1.5
Quick ratio: (current ratio including only cash/ cash equivalent, receivable accounts, revenue earned but not billed) / total current liabilities. Showing the most liquid assets; shown on balance sheet.
Revenue per technical staff: net operating revenue per techinical
Revenue per total staff: net operating revenue per all staff, including principal and parttime.
(From internet: Operating revenue is revenue generated from a company’s primary business activities. )
Setting Fees
- Billing rate: hourly rate per staff
“lump sum” is a single payment of money, as opposed to a series of payments made over time (such as an annuity).
Determined based on employees salary, plus employees fringe fee附加费用？, plus office overhead cost, plus profit allowance.
Net multiplier= net revenue/ direct labor cost
Between 2.7 - 3.0
Break-even rate= total operating cost/ direct labor cost, attributing overhead fee to employee.
Between 2.3 to 2.5, as Recommended overhead rate: 1.3 -1.5
Project budget= hourly fees+estimated non-reimbursable direct expense+ consultant fee if not billed separately+ contingency 应急
Managing Accounts Receivable
Verify clients billing procedures at beginning;
Use the personal approach in collecting fee instead of threatening letter;
Use accounting software;
Consider 1% or 2% discount for faster payment;
Require retainer 预付10% to 20% before work starts;
Contract allow for renegotiation for project> 1 year;
Beware of delaying tricks;
File a lien留置权.
Past due notice after 30 says
Controlling Overhead:
Reduce non-billable labor by time reporting;
Report all non-labor direct expenses;
Phone/ internet, rent, share continuing education cost with firms, insurance.
Non labor direct expense: progress prints, all copy machine reproduction; computer expenses charged by outside company; model supplies; postage and delivery; all local travel expense; presentation supplies.
Client/owner - Architect (Agency) - Contractor （vendors供应商）
A vendor supplies a specific product with fixed price; act primarily in their own interest.
Change Order 工程变更通知令
Change Orders must be signed by owners and architects.
From internet:
“In project management, a change order (or variation order) is a component of the change management process in which changes in the scope of work (or project brief) agreed to by the client, contractor and architect are implemented.
A change order is work that is added to or deleted from the original scope of work of a contract, which alters the original contract amount and/or completion date. A change order may force a new project to handle significant changes to the current project.
Change orders are common to most projects, and very common on large projects. After the original scope (or contract) is formed, complete with the total price to be paid and the specific work to be completed, a client may decide that the original plans do not best represent their definition for the finished project. Accordingly, the client will suggest an alternate approach.
Common causes for change orders to be created are:
The project’s work was incorrectly estimated.
The client or project team discover obstacles or possible efficiencies that require them to deviate from the original plan.
The client or project team are inefficient or incapable of completing their required deliverables within budget, and additional money, time, or resources must be added to the project
During the course of the project, additional features or options are perceived and requested.
The contractor looks for work items to add to the original scope of work at a later time in order to achieve the lowest possible base bid price, but then add work items and fee back on once they have been appointed. This is an exploitative practice.
A project manager then typically generates a change order that describes the new work to be done (or not done in some cases), and the price to be paid for this new work. Once this change order is submitted and approved it generally serves to alter the original contract such that the change order now becomes part of the contract.”
Duties
Contract written or oral;
Bldg codes and licensing laws;
Architect conduct (implied suites): Cooperate with contractors; not interfering with contractors work; giving relevant info to contractors; Assisting owner in coordination.
Liability and negligence
Standard of Care: generally accepted knowledge and practices/procedures
Defense of Claims:
Betterment
Statute of limitations 诉讼时效：3 to 10 years from substantial completion date
Statute of repose: time limit from the problem is discovered.
From the internet:
“Betterment is a legal concept that says, even if your plan is missing something, if the owner would have had to pay for that missing item anyhow, they cannot get money from you.”
If a safety problem is observed, the architect should notify the general contractor instead of subcontractor.
COPYRIGHTS owned by architects
- Copyrights of drawings, specs, graphic representation;
- Graphic representation of the bldg, overall form, arrangement, composition of spaces and elements in design. Derivative works (substantially similar to or modifying original) are not made.
Owner cannot continue to make use of architects instruments of service without paying a licensing fee to the architect, or with architects grants.
The General Conditions of the Contract for Construction require the contractor’s insurance policy to cover:
Damages related to vehicles
Damages due to bodily injury from falling material on site
Bodily injury or property damage after the contractor has left the site
Workers’ compensation
No covering the damages from negligence(??? architect’s insurance???).
