Financial Management Flashcards
Architect’s role as the owner’s agent
working for the owner in certain designated areas where the architect has been given authoriy to act on the owner’s behalf. Not taking on responsibilities for which the owner is normally responible!
Which type of fee is preferable when the client does not yet have a program?
Cost plus fee based on multiple of direct expense.
A common way to evaluate staff productivity is to examine ___
Net multiplier
Net multiplier
Net revenues/ Direct Salary Expenses
In case fee expenditures exceed the budget, what is the first step: to notify the client or to try to solve the problem within the firm?
Solve the problem
Monitoring architectural fees and the project completions is most often done___
Weekly
Cost plus fee
Compensates the architect for the actual cost of doing the work plus a fee for profit.
Fees are generally billed at hourly rates, which are determined as a multiple of an employee’s salary or salary plus benefits. The multiplier is adjusted based om overhead the firm must pay and profit levels the firm wishes to achieve. Calculations of appropriate billing rates must consider the employee’s base salary, any benefits offered to the employee, and taxes.
Net multiplier range
2 to 3.5
Fixed fee
Stipulated sum of money that the client will pay the achitect for services.The services are agreed upon in advance, and changes in services generally warrant additional compensation for the architect. The fees are determined by creating a list of tasks necessary to complete the project, assigning hours and personnel to each task, and multiplying the number of hours expected to complete the task by each person’s hourly billing rate. The result is based on the personnel selected and the time the estimator thinks that it will take to complete the project. The estimate then can be adjusted to make a profit.
Percentage of construction cost
Not commonly used. The architect’s fee is a percentage of cost of project construction. With this method, the owner may wonder if the architect will design a more expensive project to increase the design fee; the inexpensive project may not cover the architect’s expenses.
Unit cost method
Based on some unit (square footage)
When deciding on what to charge a developer on an hourly rate agreement, an architect should verify
Net multiplier.
Quick ratio
Current assets/Current liabilities
What should an architectural firm do to ensure it has clear copyright claims to all of its worl?
Develop a standard copyright notice that is printed on every drawing and project manual. Register all works with the U.S. Copyright Office.
Is printed material of the architect’s work automatically considered to have copyright protection when it is published?
Yes, but the architect still should protect himself by registering the work with the U.S. Copyright Office.
Balance sheet
Shows all assets and liabilities of a firm and gives an overall view of the financial health of a firm, including its net worth. It can be used to evaluate a firm’s condition at any time.
Profit and loss statement
Lists the income and expenses of a firm for a given period of time
Current ratio
Current assets/Current liabilities
Current ratio minimum
1.0 to 1.5, the higher the better
Overhead rate
Ratio of indirect expenses to direct labor
Break even rate
Overhead rate plus 1
Hourly billing rate
Charged to a client for one hour of work
Current earnings
Revenue after distributions and taxes
What is cash basis reporting used for?
Annual tax liability
What is the connection between two reports?
Distribution of net profit is based on cash on hand
Net multiplier range
28-30%
Eventual distribution is a result from
Profit
Overhead rate is used for
Multiplying an hourly salary
Overhead rate
The cost of indirect expenses for direct labor
Net multiplier
Dollars earned on 1 hour of direct labour
P-L statement
Shows revenue, direct labor, expenses,profit for a period -month to year to date
Balance sheet
Shows assets, liabilities, equity
Balance sheet
Instant snapshot of the firm’s financial condition
On average financial reports are reviewed how often?
Monthly
When is it advisable to create the annual budget?
Fourth quater if preceding year
After the annual budger has been approved, can it be altered?
No. Or separate document will need to be created to reflect changes.
How is the document created instead of the previous annual budget called?
Forecast plan
Backlog
Project revenue not yet invoiced or earned
What review is required for the profit plan?
Performance in previous three years
What is the most challenging to estimate in the profit plan?
Indirect expenses(many variables)
Claims-made policy
The date the claim is made is a triggering event for coverage
Idemnification
Hold harmless provision
