Finances, Risk and Development of Practice Flashcards
Ledger Accounting
basic accounting that shows the overall financial status of the business
Project Cost Accounting
tracks the revenue, expenses and profit of specific projects
Accounts Payable
$ owed to suppliers of goods/ services
Accounts Recievable
$ owed to the business (invoices)
Assets
Tangible and Intangible resources measured monitarily
Chart of Accounts
list of various accounts with corresponding account #s
Current Assets
resources that will be converted to cash within a year
Direct Labor
labor directly chargeable to projects
Direct Personnel expense
salaries plus expenses and benefits
Discretionary Distribution
Voluntary distribution of profits (bonuses and profit sharing)
Fixed Assets
resources used and retained for a long time (i.e. computers, plotters)
Gross Revenue
all revenue within a set time period
Indirect Labor
labor that is not billable to specific project (Admin, Marketing etc)
Liabilities
claims by people outside of the business or by the owners against business assets
Net Operating Revenue
money remaining after deducting fees and expenses
Other assets
miscellaneous resources like copyrights and securities
Overhead
expenses to keep the business running, regardless of revenue (rent, power, phone etc.)
cash accounting
revenue and expenses are recognized at the time the cash is received/bill is paid. gives accurate account of cash flow.
accrual accounting
revenue and expenses are recognized at the time they are incurred/earned regardless of if the money has changed hands. gives the best long term picture. required by IRS for larger businesses
modified accrual
does not included the fees earned but not yet billed
balance sheet
summarizes all assets and liabilities
net worth
= (total assets - total liabilities)
owners equity
amount invested by owners
income statement
all income and expenses over a set time period
cash flow statement
actual inflow/outflow of cash or cash equivalents over a set time period
Profit
= revenue - expenses
controlling exxpenses
reducing overhead. highest overhead is indirect labor
project progress report
shows the hours & labor cost of each phase of project,
for the current reporting period and total,
and compares to estimated hours and cost.
also includes direct costs (consultants), overhead, and reimbursables.
office earnings report
summarizes a project in terms of revenue generated, expenses incurred, unbilled service, percentage complete, and profit/loss to date.
aged accounts receivable report
shows the status of ALL invoices and their “age”,
shows time of invoice to payment/current date if unpaid.
typ: 60-75 days is collection period, 60 days needs attention, 90+ days is essentially a loan w/o interest
time analysis report
analysis of each employee with time spent on direct, indirect, PTO, holiday, etc.
utilization rate
= direct labor / total time
65% firm wide is roughly break even
75%-85% is a typical technical staff goal
current ratio
= current assets / current liabilities
measures your ability to meet CURRENT obligations
1.5 healthy, 1.0 is barely making it
Net profit before tax
= net revenue - consultant fees - reimbursables
overhead rate
= total overhead / total direct labor
1.3 to 1.5 target. used for setting fees.
quick ratio
current ratio, but only using the most liquid assets.
cash, cash equiv., accounts receivable, earned unbilled revenue
revenue per technical staff
= net revenue/ technical staff
used to estimate required net operating revenue for future budgets
revenue per total staff
= net operating revenue / total staff
billing rate
hourly rate determined by cost of:
salary + benefits + overhead + profit margin
net multiplier
accounts for benefits, overhead, and profit margin in billing rate calculation.
typically 2.7 -3.0
hourly pay x net multiplier = billing rate
break even rate
= operating cost / direct labor cost
should be 2.3 - 2.5
minimum billing rate
employee salary x break even rate
Direct Personal Expense (DPE)
includes taxes and benefits with salary, so multiplier is smaller and only accounts for indirect labor and profit
setting fees
- set billing rates
- estimate hours to complete work
- determine staffing
- multiply hours by billing rates
- account for consultant fees, non-reimbursables, and a contingency if including one.
Managing accounts recievable
1) contract terms:
- clear fee collection terms in contract
-basis for fee, when and how invoices are sent,
payment due, penalties for non payment
2) timely billing
- send invoices ASAP. One month max billing
period.
3) complete invoices
- client name and address, project name and
number, reference to contract, breakdown of
work and associated billing.
4) follow up on invoices
controlling overhead
charge all legitimate billable time
report non labor direct expenses (travel, prints, copies, presentation supplies, model supplies)
shop around for best prices (rent/internet etc)
Agency
one person (agent) acting on behalf of another (principal) with another (third party)
A is agent of O with C
Standard Forms of Agreement
A101 - O&C
B101 - O&A
C401 - A&E or O&E
Duties
What one person owes to another
Establishing Architects Duties
1) contract terms - the B101 outlines specific duties
2) legislative enactment - codes/regulations
3) implied duties - cooperating with contractor, not interfering with contractors work, providing relevant information, assisting owner in coordination
Liability
not finance
legal responsibility for harm to another person or property
Negligence
failure to use due care to avoid harm to another person or property
1) legal duty exists
2) architect has breached that duty
3) breach of duty was the cause of harm
4) actual harm was done
Defense of Claims
1) Betterment
2) Statute of Limitations
3) Statute of Repose
Betterment
applies to claims of omission by architect
ex) client asked for tiled wall. Architect left that out of drawings. Wall was painted. Client wants architect to pay for full cost of change. Architect says that client would have paid for cost of tile anyway, so they should only pay for anything beyond what would have been original charges in design.
Statute of Limitations
limits the time within which a claim can be made
typically 2-3 years, but time frame may begin within when the defect was discovered. A breach of contract may be an entirely different limit.
Statute of Repose
much longer than the statute of limitations (typ 5-10 years) and begins with substantial completion
Risk Management
- know the client
- use and follow well written contracts
- make sure right staff is on the project
- maintain active QC program
- maintain thorough documentation
- be very cautious about last minute changes
- carry liability insurance
Conflict resolution
If conflict is:
- broad office issue = Principals job
- project team issue = Project Managers job
- contractor issue = PM/ Construction Admin’s job
Privity
Architect’s are protected from claims by parties they have no contractual relationship with…
BUT courts won’t always enforce this, if the A’s instructions or lack there-of were the cause of harm.
Reducing Exposure to third party claims
- don’t include language that implies responsibility to provide management/supervision/coordination of construction unless you are specifically providing those services
- don’t give means and methods directions
- point out obvious safety concerns to the CONTRACTOR. follow up with O and C in writing.
Architect’s Copyright
1) Construction Documents/ graphic representations of architect’s work
2) the building itself, if built after 1990. Architectural Works Copyright Protection Act. (for overall form, composition of spaces, design elements)
3) derivative works - buildings designed after the original that are substantially similar
Unless they specifically assign it to the owner, Architect owns the copyright. This will be stated in the O-A agreement. Though no technically required, it is best to register the work with the copyright office.
B101 - Architect’s insurance
B101 requires architects to carry professional liability, general liability, automobile liability, workers compensation, and employers liability insurance.
If an owner requires more than what the architect would typically carry, they must pay the difference.
Professional Liability Insurance
“errors and omissions” / “malpractice”
for injury/damages caused by architect’s actions in their professional duties
-excludes wrongful acts, claims for exceeding cost estimates, and claims from express warranties.
- allows for continued practice during defense against claim. covers damages and legal fees, and losses for injured parties.
Project Professional Liability Insurance
project specific, and paid by owner
General Liability Insurance
covers architect’s actions in nonprofessional acts of practice.
Property insurance
building and it’s contents against theft/fire/flood
Personal Injury Protection Insurance
libel, slander, defamation of character, misrepresentation and other torts (civil law claims)
Employement Practices Liability Insurance
for claims by employees (harrassment, discrimination etc)
WILL NOT PROTECT SOMEONE WORKING FROM HOME - THIS IS SEPARATE INSURANCE.
Other Insurance
- workers comp
- contractual liability
- intellectual property insurance
- copyright/trademark/patent infringement
- technology liability (for data breeches)
- auto insurance
- umbrella insurance (excess liability)
A101 - Owners Insurance
liability and property insurance for full value of the work, must be “all risk” type
optional:
- existing structure insurance
- loss of use/business interuption
- ordinance/law insurance
- expediting cost insurance
- civil authority insurance
- extra cost insurance
- ingress/egress insurance
- soft cost insurance
- cyber security insurance
A101 - Contractors Insurance
commercial general liability
automobile liability
workers comp
employers liability
additional possibilities:
Jones Act/Longshore Harbor Workers Comp Act
professional liability
pollution liability
maritime liability
manned/unmanned aircraft
property
railroad protective liability
asbestos abatement liability
physical property damage while stored/in transit
property insurance for items owned by C used on site
