Finances, Risk, & Develop of Practice (PcM)

Question 1

What is the principal advantage to using a corporation as the business model for an architect’s office.

Answer 1

This type of business structure does not put the personal assets of the stockholders at risk.

Question 2

What, if any, insurance is the owner obligated to have according to the American Institue of Architects Document A201, General Conditions of the Contract for Construction?

Answer 2

• Liability insurance
• Property insurance
  *

Question 3

What would be the situation if the cash flow of a firm did not equal or exceed its liabilities?

Answer 3

The firm would not be able to meet payrool and pay its bills if the cash flow is not at least equivalent to its liabilities.

Question 4

What is an overhead rate?

Answer 4

the costs of running a business that are not directly related to producing a good or service.
The ratio of total office overhead to total direct labor determines the financial strength of an office.

Question 5

What does it imply if a firm is carrying a bill for longer than 90 days?

Answer 5

The firm is effectively laoning money interest-free if this is happening.

Question 6

What type of assurance is represented in a cost estimate prepared by the architect?

Answer 6

This document represents the architect’s best professional judgment, but it is not considered to be a guarantee to the owner of actual construction costs.

Question 7

What is the accounting term for a bill to the firm for office supplies?

Answer 7

Liability

Question 8

What are the two types of accounting used in an architecture firm?

Answer 8

• General ledger
• Project cost

Question 9

Balance sheets are used to show what elements of the financial condition of a firm?

Answer 9

Summaries of all assets and liabilities in an office.

Question 10

What are the implied duties of an architect?

Answer 10

Duties of an architect
* Cooperating with contractors
* Assisting the owner in coordinating the work
* Not interfering with the contractor’s work
* Giving relevant information to contractors

Question 11

If a firm pays an employee $50.00 per hour and the net multiplier of that firm is 3, what is the billing rate for that employee.

Answer 11

Billing rate would be 150

Question 12

A client has replicated a building designed for them. What is the legislation that prohibits this?

Answer 12

The Architectural Works Copyright Protection Act makes it illegal for an owner to do this for buildings designed after December 1, 1990.

Question 13

What are the four steps to making sure the firm’s accounts receivable are being paid in a timely manner?

Answer 13

• Contract Terms
• Timely billing
• Complete invoices
• Regular procedures for tracking accounts

Question 14

What are the other names for professional liability insurance?

Answer 14

• Malpractice insurance
• Errors and omissions

Question 15

Risk management in a firm includes several items: which one relates to the clients?

Answer 15

Simply knowing the client (or their reputation) avoids many problems related to this area of risk management.

Question 16

What is the concept of privity?

Answer 16

As defined in the American Institute of Architects Document A201, General conditions of the contract for construction, this is the term that holds architects harmless from claims by parties with whom they have no direct contract.

Question 17

The owner of an architecture firm might manage firm overhead by controlling what specific costs?

Answer 17

• Non-billable labor
• Non-labor direct expenses
• Outsourced expenses
• Postage and delivery
• Local travel expenses
• Presentation materials

Question 18

What does the net profit before tax include?

Answer 18

Total annual revenue minus consultant fees and reimbursable expenses are part of this number.

Question 19

What are the three commonly used, viable defenses when an architect is sued for liability and/or negligence?

Answer 19

The three commonly used defenses for liability and/or negligence by an architect are
* Betterment
* Statute of limitations
* Statute of repose