PCM - Practice Management Flashcards
Arbitration is administered by which entity?
American Arbitration Association, unless agreed to another party.
How many days notice does an architect need to give to an owner to suspend a project due to non-payment
7 days
What are the standard % of total fee typical to each phase
Schematic Design: 15% of Architectural Fees (Range 10% – 25%)
Design Development: 20% of Architectural Fees (Range 10% – 25%) Construction Documents: 40% of Architectural Fees (Range 35% – 50%) Bidding: 5% of Architectural Fees (Range slightly off from 5%)
SD X%
DD X%
CD X%
Procurement X %
Construction Admin X %
Name the (5) required types of insurance that an architect must carry per B101.
-Commercial General Liability
-Automobile Liability
-Workers Comp.
-Professional Liability
-Employers Liability
Name the title to AIA B101 Document
Owner Architect Agreement
Name the types of payment methods common to Architects
-Stipulated Sum
-Cost Plus Fixed Fee
-Hourly
-ADD More
Define ABI Scores
an economic indicator that offers a nine- to 12-month glimpse into the spending and demand for non-residential construction activity.
If an architect has a chance to receive commission by recommending a product, is that allowed?
No, this violates the ethics standards and is not allowed.
New AIA documents are released every how many years?
10
Which phase of a project requires most of the architect’s time
CD’s
Starting a firm, young architect, decides to showcase projects used from another firm that she participated in. Is this ok?
Yes, but she must disclose the scope of her responsibility for each project.
When does the Statute of Repose begin
At the end of construction, or whenever services were last provided
What is the statute of Repose?
There is some mistake or flaw that is in repose (asleep) waiting to be discovered after construction has been completed. If it’s not found in time then the architect and contractor cannot be held liable for it.
Specifically, the Massachusetts statute of repose, in part, places an absolute six-year time limitation on “[a]ctions of tort for damages arising out of any deficiency or neglect in the design, planning, construction, or general administration of an improvement to real property
What is a Statute of Limitation
When a mistake or flaw is discovered, a party has a limited time to report the damage and file a claim.
Which insurance covers Defamation, Libel, and Slander?
Personal Injury Protection
Name the (4) economic phases and their ABI (Architectural Billings Index) score ranges
Contraction:40-45
Late contraction: 45-50
Late expansion: 50-55
Early phase recovery: 55-65
Which taxes do a (3) partnered firm pay
-Federal and State income tax
-Personal Property tax on Furniture used by the business.
-Self-Employment tax
What is AIA A701?
Instructions to Bidders
What is AIA A101?
Standard Form of Agreement Between Owner and Contractor where the basis of payment is a Stipulated Sum
What is A201?
General Conditions of the Contract for Construction
What is B101?
Standard Form of Agreement Between Owner and Architect
What is C401?
Standard Form of Agreement Between Architect and Consultant
What is A305?
Contractor’s Qualification Statement
What is G701?
Change Order
What is G702?
Application and Certificate for Payment
What is G703?
Continuation Sheet
What is G704?
Certificate of Substantial Completion
Define Liaise
establish a working relationship, typically in order to cooperate on a matter of mutual concern.
For ADR (Alternate Dispute Resolution) What is the order of (4) legal dispute resolution methods
remember IMAL. Initial Decision Maker (IDM) / Mediation / Arbitration / Litigation
Unconstitutional contracts are void, T or f?
True
Name (4) laws that regulate employer-employee relationships for small and large firms
The National Labor Relations Act (the Wagner Act), the Wages and Fair Labor Standards Act (FLSA), the Employee Retirement Income Security Act (ERISA), and the Occupational Safety and Health Act of 1970 (OSHA)
The American legal system has 2 types of cases. What are they?
Criminal, Civil
Which type of project is an R4 Project?
A project Zoned for Residential
Project Cost Accounting
Define Statute
A written law passed by a legislative body
For an agency to occur, there must be how many parties, and what are they?
3 parties: principal, agent, and a third party.
Define an S corporation, and when it would be useful.
When tax rates favor the individual over the corporation, it is beneficial to form an S corporation. It also avoids the tax on corporate income. The profits and losses of the business are instead passed through the business and noted on the owners’ personal tax returns.
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
Be a domestic corporation
Have only allowable shareholders
May be individuals, certain trusts, and estates and
May not be partnerships, corporations or non-resident alien shareholders
Have no more than 100 shareholders
Have only one class of stock
Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
Name (4) legal phrases to avoid in a contract
As required
As Necessary
Hold Harmless
Indemnification
___ and ___ are two terms are ways that another party can make you responsible for anything it may be liable for otherwise.
Hold Harmless and Indemnification
Which type of insurance covers your projects after you retire?
Tail Insurance
What is one of the biggest risks for a practice?
Automobile accidents
Automobile accidents are among the biggest risks for a practice. The owner may require the firm to have automobile liability insurance covering the architect’s personal car or taxi so that the owner does not get dragged into a lawsuit involving a collision.
___ is a basic insurance that covers property damage and injury claims against the firm, usually with dollar limits on claims or an aggregate limit. It is sometimes required by the landlord and covers both legitimate and fraudulent claims.
General liability insurance
___ is an errors and omissions insurance, which provides protection if someone accuses you of not doing your job correctly.
Professional liability insurance
___ covers a worker who is injured on the job. It provides wage replacement and medical care cost in exchange for the employee waiving his right to sue the firm.
Workers compensation insurance
___ pays the architect for expenses and loss of profits if work is interrupted by something like a fire or flood.
Business interruption insurance
___ covers an architect if someone else claims copyright infringement.
Intellectual property insurance
Contractual liability is normally covered under which insurance
General liability insurnace
Which insurance covers violations for ADA, OSHA, and the fair housing act?
Disciplinary, regulatory, or administrative expense liability insurance
DRA: ADA, OSHA, FHA
A ___ is the first portion needed to be paid before the insurance “kicks in” and pays the remainder of the settlement
Deductible
What is an insurance premium?
What you pay every month or every six months as a bill to be insured
What is an aggregate limit?
the maximum amount paid by the insurance company per policy.
what is an insurance claim?
a demand made by the insured for the insurance company to pay out.
What is the formula to calculate FAR
(Number of stories x Floor area per story) / Lot Area
What is grossing factor formula?
rentable area divided by the usable area. Should be a number above 1 The higher the grossing factor, the less efficient the space.
What is a typical grossing factor for the following program
Locker room 1.1
classroom 1.5
Hospital 1.75
What is the Formula for Indirect Salary?
Base Salary - Direct Salary
What is the formula for Billable Revenue?
Direct Salary * Direct Salary Expense Multiplier
What is the formula for Direct Salary?
Base Salary * Chargeable Rate Percentage
What is the formula for Chargeable Hours?
Hours per year x Chargeable Rate Percentage
What is the formula for Chargeable Rate Percentage?
Chargeable hours/ Hours/ year
What is the formula for Hourly Rate?
Base Salary / Hours/ Year
What is the formula for Hours/ Year?
Base Salary / Hourly Rate
What is the formula for Base Salary?
Hours/ Year x Hourly Rate
What is the formula to calculate Overhead Multiplier?
Total Overhead Expenses/ Total direct salary expenses = overhead multiplier
Indirect Sal+ Bennies + Overhead
What is the formula to calculate Break-Even Multiplier?
(Total Overhead + Total Direct Salary) / Total Direct Salary
What is the formula for overhead rate?
Hourly Rate X Overhead Multiplier
What (4) values add up to the total target revenue?
Total Direct + Indirect Salary Expenses + Total Overhead + Total Profit
What is the formula for Direct Salary Expense Multiplier?
Target revenue/ Total Direct Salary
What is the formula for overhead?
Total Indirect Salary + Total Employee Benefits + All other overhead expenses
What is the formula for utilization rate?
Total direct salary expenses/ total base salaries
What is the formula for revenue factor?
Utilization Rate x Direct Salary Expense Multiplier = Revenue Factor
Negotiated select team is a subset of which project delivery method?
Design-Bid-Build
Define a Partnership
Two entities sharing profits, losses, and everything. The two companies act as a single entity.
Define a Joint Venture
WHen two entities come together to create a third company that is owned by the two parent companies.
What are Dividends
a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves).
What is the formula for SPI Schedule Performance Index?
Earned value (Amount you have been paid) divided by the planned value (Amount that theoretically should have been paid commensurate with the amount of work completed)
What is the formula for Net Operating Revenue (NOR)?
Found in AHPP
Money you have to actually run your firm
What you have after subtracting the following:
-Consultant Fees
-Reimbursables
-(Project related expenses, cannot get reimbursed for) Lease, everything you need to keep the lights on.
What is the formula for Direct Labor?
If you are working on a project, and its billable, its direct labor
Time and hours or dollars charged to a project, invoiced or not, total compensation for an employee.
What is the formula for Indirect Labor?
Time spent not working on projects
What is the formula for Utilization Rate?
AHPP:
Formula: direct labor hours ÷ total labor hours × 100 (as a %)
Example: 32 hours ÷ 40 hours = 80%
Utilization rate: Measures the overall effi ciency and effective use of labor, not a measure of productivity. This also is not a measure of the number of hours billed, only hours
charged to projects.
Hyperfine:
Ratio of direct hours charged to a project to the total hours reported
Time worked on project divided by How much time altogether
What is the formula for Overhead rate?
AHPP
Formula: total indirect expenses ÷ total direct labor
(in $$$)
Example: $308,241 ÷ $200,914 = 1.53 (for an hourly
salary of $10/hr., the overhead cost would be
1.53 × $10 = $15.30)
Overhead rate: Measures the cost of operations not directly attributed to projects.
HF:
Ratio of indirect expenses to total direct labor
The cost of doing business. For every $ that you pay your employees how much do you need to pay to keep the lights on?
What is the formula for Break Even Rate?
AHPP:
Formula: overhead rate + 1.00 (represents the unit of cost for an hour of salary)
Example: 1.53 + 1.00 = 2.53 (for an hourly salary of
$10, the break-even cost would be 2.53 × $10 = $25.30)
Break-even rate: Measures the total cost of operations for
every dollar spent on direct labor.
HF:
Overhead rate + unit cost of 1.00/ hour of salary
What is the formula for Net Multiplier?
AHPP:
Formula: net operating revenue ÷ total direct labor
(in $$$)
Example: $622,207 ÷ 200,914 = 3.1
Target: Greater than break-even rate (industry
benchmark: 3.0+)
Net multiplier: Measures the revenue generated for every
dollar spent on direct labor. This indicator must be greater
than break-even rate for a net profi t to be realized.
What are the (7) Key indicators of financial performance in an Arch. Firm?
UR: Utilization Rate
OR: Overhead Rate
BER: Break Even Rate
NM: Net Multiplier
PER: Profit-to Earnings Ratio
NRE: Net Revenue Per Employee
AAR: Aged Accounts Receivable
(AHPP) Define Accrual-Basis Accounting
Revenue earned and
billed from fees and expenses, including outside project
consultant fees and expenses, plus all other direct and
indirect expenses incurred. This means revenue is based
only on invoiced fee and expense amounts sent and/or
received. Most fi rms use this modifi ed accrual-basis for
their profi t-loss statement and balance sheet development.
(AHPP) Define Cash-Basis Accounting
Income received and all salaries
and expenses paid (a checkbook approach). This is the
basis most commonly used for fi ling and paying
quarterly and year-end taxes.
(AHPP) Define Net Operating Revenue (NOR)
Represents the net dollars remaining after deducting the
invoiced consultant’s fees and expenses, and all
reimbursable and non-reimbursable project-related
expenses.
(AHPP) Define Direct Labor
Same as direct salary. Represents time
charged to projects, whether invoiced or not (by
everyone, including principals).
(AHPP) Define Indirect Labor
Same as indirect salary. Time charged to
non-project-related activities (by everyone, including
principals). Note: Indirect labor is included in the
calculation of total indirect expenses.
(AHPP) Define Reimbursable Expenses
Project-related expenses that
are invoiced to the client in addition to fees. These
would also include a markup percentage on those
expenses. The markup dollars are a form of revenue
and are included in net operating revenue.
(AHPP) Define Direct Expense
Project-related expenses for a fi rm and
its outside consultants that are not reimbursable, plus
project-related expenses included in all lump sum fee
contracts.
(AHPP) Define Indirect Expense
General and administrative non-
project-related operating expenses (total indirect
expenses includes indirect labor).
(AHPP) Define Overhead Rate
The ratio of total indirect expenses to
total direct labor.
(AHPP) Define Break-Even Rate:
The overhead rate plus the unit cost of
1.00 for an hour of salary (example: overhead rate of
1.30 + 1.00 = break-even rate of 2.30). This means for
every $1.00 of salary the fi rm must recapture $2.30
just to break even.
(AHPP) Define Utilization Rate
Direct labor expressed as a percentage
of total labor. (For individual rates, use hours; for a fi rm
rate, use dollars.)
(AHPP) Define Hourly Billing rate
The dollar amount charged to a
client relative to one hour of direct labor.
(AHPP) Define Net Multiplier
The net multiplier is the ratio of net
operating revenue (NOR) to total direct labor. The
measure of return on every dollar of direct labor.
(AHPP) Define Net Profit
The dollars remaining after deducting all
direct and indirect labor and indirect expenses, before
any distributions are made or tax is paid.
(AHPP) Define Current Earnings
The net dollar amount after all
distributions are made and all applicable taxes have
been deducted.
(AHPP) What are the two forms of accounting reports
Cash Basis Report + (Modified) Accrual-Basis Report (C&A Reports)
Define Net Cash
The Cash that remains after all liabilities are subtracted
(AHPP) What is the formula for Profit-to-Earnings Ratio?
AHPP
Formula: net profi t (before distributions and tax) ÷ net operating revenue
Example: $108,817 ÷ $622,207 = 17.49%
Measures the fi rm’s effectiveness
in generating a net profi t (as a %).
(AHPP) What is the formula for Net Revenue per employee?
AHPP
Formula: annual net operating revenue ÷ total number of
employees
Example: $622,207 ÷ 6 employees = $103,701 per
employee
Net revenue per employee: Measures the revenue
earnings for each employee. Based on targeted net profit, this indicator contributes to the establishing of the net operating revenue in the coming year’s annual budget.
(AHPP) What is the formula for Aged Accounts Receivable?
AHPP
Formula: average annual accounts receivable ÷ (net operating revenue ÷ 365 days) = calendar days before pay-ment is received
Example: $245,090 ÷ ($622,207 ÷ 365 = 1,705) = 144
calendar days
Aged accounts receivable: Measures the average time interval in days between the date of outstanding invoices and the date payment is received.
What average utilization % do high performing firms have?
60%
Principals and Architects should be at 75%
How many work hours are in one year?
2,080: Yes, you will need to know this!
Define Accounts Receivable
HF:
The money due to the firm for its delivered services but not yet paid by clients.
Define Aged Accounts Receivable:
HF:
A report that shows a company’s accounts receivable according to how long an invoice has been outstanding (typically in 30 day segments).
Define Backlog
HF:
The list of current projects that will carry over to the following year, as well as the dollar value of anticipated revenues from projects contracted but as yet unearned.
Define Break-Even Rate:
HF:
Measures the total cost of operations for each dollar spent on direct labor.
Define Current Assets
HF:
Cash and other resources that are reasonably expected to be realized in cash or sold/consumed in the business within one year of the balance sheet date or the firm’s operating cycle, whichever is longer.
Define Current Earnings
HF:
The difference between all revenues and expenses on the income statement for the current year (after distributions and taxes have been deducted).
Define Current Liabilities:
HF:
A debt that can be reasonably expected to be paid from existing current assets or the creation of other current liabilities within one year or the operating cycle.
Define Direct Expenses:
HF:
Project-related expenses that are not reimbursable and project-related expenses included in all lump sum fee contracts.
Define Direct Labor (Direct Salary):
HF:
Wages or salaries billable to a specific project and client.
Define Equity:
HF:
The amount of money invested by the owner in the business minus any money taken out by the owner of the business.
Define Indirect Expenses
HF:
General and administrative non-project related expenses.
Define Indirect Labor
HF:
Wages that are not billable to a specific project.
Define Leverage
HF:
Measures a firm’s ability to manage debt effectively.
Define: LIQUIDITY (QUICK RATIO OR CURRENT RATIO):
HF:
Measures a firm’s ability to pay obligations that are expected to become due within the next year
Define Long termLiabilities
HF:
Obligations expected to be paid after one year or an operating cycle, whichever is longer.
Define Net Multiplier:
HF:
Shows the revenue generated by the firm expressed as a percentage (or multiple) of total direct labor.
Define Net Operating Revenue:
HF:
Net revenue after deducting consultant fees and expenses, all reimbursable and non-reimbursable project expenses.
NOR = Gross Revenue - Consultant Fees - Project Related expenses
Define Net Profit (or Net Income)
HF:
The excess of revenues over expenses and is a key indicator of profitability.
Define Net revenue per Employee
HF:
Measures roughly how much money each employee generates for the firm.
Define Overhead Rate:
HF:
Measures the cost of operations not directly billable to a project.
Define Profit-to-Earnings Ratio
Measures the firm’s effectiveness in generating profit.
Define Return on Equity
HF:
Measures the profitability from the stockholders’ viewpoint (Net Income / Avg. Stockholders’ Equity)
Define Return on Overhead (ROOH)
HF:
A method used to calculate firm sales and profit goals
Define Revenue Factor
HF:
Used to check the balance between revenue and labor, and shows how well a firm is generating revenue from its total labor investment.
Define Total Expenses
HF:
The sum of total gross cash expenditures of the firm during the accounting period.
Define Total Labor
HF:
The sum of direct labor and indirect labor (in time). If measured in dollars, it is also called total salary.
Define Utilization Rate
HF:
Measures the overall efficiency and effective use of labor.
Define Commercial General Liability Insurance
HF:
Protects against events that cause harm.
Define Automobile Insurance
HF:
Care Insurance a company provides for vehicles used for work trips even if they don’t own a vehicle.
Define Workers Comp
HF:
Protects employees wo get injured while on the job
Define Employers Liability
HF:
Protects the company against claims made by employees
Define Professional Liability Insurance
HF:
Also known as E&O, this is the big one protecting against things that go wrong because of your drawings and specifications.
What are the tiers of the AIA Code of Ethics?
Canons, Standards and Rules of Conduct.
Canons are general guiding principles. These list the stakeholders to which architects have an obligation. Standards are specific goals for the profession. Rules of Conduct are actual rules you have to follow. I think you are most likely to encounter the Rules of Conduct on an exam. See AHPP pg 4 for all this stuff.
What are the six Canons?
General Obligations
Obligations to the Public
Obligations to the Client
Obligations to the Profession
Obligations to Colleagues
Obligations to the Environment
What are the five Model Rules of Conduct?
Competence
Conflict of Interest
Full Disclosure
Compliance with Laws
Signing and Sealing Documents
What is the formula for Overhead Multiplier?
AMBER
Overhead Multiplier = Total Overhead Expenses/ Total direct salary expenses
For every dollar the firm pays its employees doing billable work, there is an additional X amount in expenses for the firm
What is the formula for overhead Rate?
AMBER
Overhead rate = Hourly Rate X Overhead Multiplier
What is the formula for Break-Even Multiplier?
AMBER
(Total Overhead + Total Direct Salary) / Total Direct Salary
what would be the multiplier for the hourly rate would be so that the money charged to the client will equal the cost to the firm (overhead and salaries)
What is the formula for Revenue Factor?
AMBER
Utilization Rate X Direct Salary Expense Multiplier
What is the formula for utilization rate?
AMBER
Total Direct Salary Expenses / Total Base Salaries
What is the formula for Aged Accounts Receivable?
HF:
Aged accounts receivable = average annual accounts receivable / (net operating revenue / 365 days)
What is the formula for return on overhead?
Return on Overhead = Net Profit / Indirect Expenses
WHich type of accounting do small firms use
Cash Based
Cash-basis tracks actual cash in and cash out. Because money isn’t usually received at the same time money is paid (salaries, etc) there is no time component to this method.
Which type of accounting do large firms use
Accrual Based
Name some of the differences between MAL
Mediation
Arbitration
Litigation
Mediation
-is a form of refereed settlement
-Required First step
-A mediator does not make a decision or judgement about the issue.
-The goal of mediation is to facilitate a conversation between the parties and have them come to an agreement themselves.
-
Arbitration
-No Right to Discovery
-Result is Binding
-Faster than Litigation
-once the arbitrator decides the dispute, the parties cannot go to court and litigate it or have it decided by another arbitrator.
-No Right to Appeal
-
Litigation
-Right to Discovery
-Result is Binding
-Decision rendered by Jury, who likely have no experience with the subject.
-
Define Joinder
the joining together of several lawsuits or several parties all in one lawsuit, provided that the legal issues and the factual situation are the same for all plaintiffs and defendants.
When there is a legal dispute, a joinder consolidates the parties together in one proceeding.
Define Proforma
This malleable document calculates all the variables that go into putting a deal together with the intent of giving you the ability to make informed decisions regarding the project’s expected financial performance
Which project delivery type is also considered a project alliance?
IPD
which (3) types of business orgs. limit the individual’s liability to the amount that an individual has invested in the company
Corporation, LLC, & LLP
Limited liability company, limited liability partnership
Name the (3) terms are required to prove negligance?
Breech, Damage, Duty
T or F, An architects instruments of service are copyright by the Architects copyright.
True! No need to register with any patent agency or anything.
___ is indirect liability imposed on a party resulting from the acts or omissions of another person for whom the party is responsible is known as
Vicarious Liability
Which legal period is longer, the statute of repose or the statute of limitations?
statute of repose.
A statute of repose extends beyond a statute of limitations
Define the statute of limitations
The statute of limitations is a deadline for filing a claim once the cause for the claim is discovered.
Owners will choose Design Bid Build Method when which is the primary concern: cost or risk
Owners will select this method if cost is the primary factor in their decision.
Owners will choose Design Build Method when which is the primary concern: cost or risk
Owners will select this method if risk is the primary concern.
Describe the CM as advisor role and responsibilities.
acts only as a constructability and cost management
consultant to the owner during the design and construction process, but will not
build the building. CM-adviser projects can be delivered under any of the methods
previously described.
Describe the CM as Agent role and responsibilities
The CM as agent provides early consulting and may act on
behalf of the owner in assembling and coordinating the construction trades prior to
and during construction. CM-agents typically provide their services for a fixed fee and assume no risk for the actual construction costs themselves but pass on both
savings and overruns directly to the owner.
