Practice Management Flashcards
Named-peril Insurance policy vs All-risk policy
Named peril insurance covers against a specific scenario while all risk insurance covers any potential problems
Claims-made policy vs Occurrence-based policy
Claims made and occurrence based insurance describes what claims will be covered. A claims made policy covers incidents that are reported at the time of the coverage. Occurrence based policies cover incidents that occur at the time of the coverage but may only be reported after the policy expires.
Policy Limit
The policy limit is the maximum amount a policy will cover. If the policy limit is exceeded, the firm or individual is responsible for the rest of the claim. Insurance premiums are directly related to policy limits.
Advantage of hiring an insurance broker
An insurance broker has specialized knowledge of insurance and can help recommend and manage a firm’s insurance plan. When choosing a broker consider whether they have experience with architects and ask them about their experience and previous clients.
Insurance Deductable, how does it affect when you should file an insurance claim?
A deductible is the portion of a claim a client must pay before the insurance coverage is used. If the claim is only slightly more than the deductible it may be preferable to pay the entire claim to avoid raising premiums.
Betterment
Betterment is a defense against claims of omissions. Instead of paying the full cost of an omission an architect is only responsible for the amount the owner has lost due to the omission, but not the material cost of the items omitted
Waiver of Subrogation
A Waiver of Subrogation is a clause included in some contracts with the client that protects the architect or contractor from claims related to property damage of their previous projects
Professional Liability Insurance coverage?
Professional Liability Insurance covers claims of errors or omissions within the Standard of Care. Does not gross negligence or guarantees that exceed the standard of care.
Statute of Repose and Statute of Limitations
Statutes of limitations and repose are time periods set by the jurisdiction in which a claim can be filed. Statute of Repose is the amount of time after the error or incident occurred that a claim can be filed. A Statute of Limitations is the amount of time after the error or incident occurred that a claim can be filed.
Commercial General Liability Insurance coverage
Commercial General Liability Insurance covers incidents not directly related to professional work and property damage by employees.
Workers Compensation insurance coverage
Workers Compensation Insurance covers injury to workers during their time of employment
Umbrella Coverage Insurance coverage
Umbrella Coverage Insurance provides additional coverage on other insurance types up to a certain amount. Professional Liability Insurance is usually excluded.
Difference between an employee and an independent contractor
Employees pay taxes primarily through paycheck deductions while independent contractors pay directly to the IRS. In general, employers provide benefits and have closer control of employee work, while independent contractors are simply payed to complete specific tasks.
Employment contract
An employment contract is a legally binding agreement for an employee to work for an employer for a specific period of time. It is typically only used for high level positions.
AIA code of ethics structure
The AIA code of ethics is a ethical framework for the practice of AIA members. It is structured in sections (canons) that contain ethical standards and rules. Violation of rules can be punished by termination of AIA membership.
NCARB Model Rules of Conduct
The NCARB Model Rules of Conduct are 5 rules governing architecture practice (competence, conflict of interest, full disclosure, compliance with laws, signing and sealing documents). The purpose of the rules is to ensure architects practice ethically, responsibly, and lawfully. Violation of rules can result in revocation of license.
NCARB Model Law and Regulations
The NCARB Model Law and Regulations is a framework for Architecture Licensure Requirements. The Model law describes the licensing boards responsibilities, while the Model Regulations are proposed rules for the board to consider implementing
Standard of Care?
The Standard of Care is an objective legal standard that forms the basis of legal contracts, insurance, and litigation. It states that an architect will perform the work with a diligence typical of other architects practicing in the same locality under the same circumstances
Why should you not modify the Standard of Care?
The Standard of Care should not be modified because this could lead to loss of insurance and make the architect vulnerable to litigation.
Spearin Gap?
The Spearin Gap is a situation in which failure occurs due to unprecedented circumstances despite both the architect and the contractor performing their work to the standard of care. In these circumstances, the owner is responsible for the repair of any damages.
Efficiency Based Firm Structure
An Efficiency Based firm focusses on producing work efficiently at below market rate. To accomplish this, the firm takes work that is low complexity and consists of more less qualified staff to perform routine tasks
Expertise Based Firm Structure
An Expertise Based firm focusses on producing work that requires unique design solutions. The firm consists of more higher qualified staff since a greater portion of the work is advanced problem solving
Experience Based Firm Structure
An Experience Based Firm Structure relies on the experience of its members to accomplish a range of work. Generally it is somewhere between efficiency based and experience based firms in terms of staffing, pricing, and project complexity and type
Financial Reports relation to Financial Management System
Financial Reports (Profit Loss Statement and Balance Sheet) record a firms current financial situation compared with the Financial Management System (Annual Budget and Profit Plan) which is the firms financial plan.
Profit Loss Statement
The Profit Loss Statement is a record of the firm’s financial health over a specific time (usually a month). It records Revenue, Direct Expenses (value adding), Indirect Expenses (overhead), and other miscellaneous expenses and revenue. All the revenue and expenses are added to find the Net Profit.
Balance Sheet
The Balance Sheet records the company’s current worth (equity). The assets of the firm include current assets (cash in hand or to be paid) and fixed assets (company property, etc). The liabilities of the firm include current liabilities (expenses the company owes) and long term liabilities (loans, etc). The equity is the sum of the firm’s total assets and total liabilities.
Annual Budget
The Annual Budget is the firm’s plan for the Revenue, Expenses, and Profit for the year. It is broken down by month and can be compared to a monthly Profit Loss Statement.
Profit Plan
The Profit Plan provides projections for the Annual Budget. It uses Utilization Rate and Salaries to forecast the firm’s revenue.
Utilization Rate
Utilization Rate is Direct Labor/Total Labor. Direct Labor is labor that is billable to the client. Utilization Rate for an entire firm is typically around 60-65% and must account for admin staff that have a Utilization Rate close to zero
Net Multiplier
The Net Multiplier is the amount the client pays compared to what the firm pays for direct labor in order for the firm to be profitable. A net multiplier of around 3 is typical
Overhead Rate
Overhead Rate is the amount paid in overhead compared to the amount paid for direct labor. Overhead includes indirect labor and operating costs of the firm. Typical overhead rate is 1.3-1.5
Break Even Rate
Breakeven Rate is Direct Labor plus Overhead costs compared to Direct Labor, and it is the net multiplier at which a firm will neither gain nor lose value. Typical is 2.3-2.5
Profit-to-Earnings Ratio
Profit to Earnings Ration is the Net Profit divided by the Net Operating Revenue (total earnings). It is the percentage of the value generated by the firm that is profit. 20% or higher is a good target
Net Revenue per Employee
Net Revenue per Employee is exactly what it sounds like and is the Net Operating Revenue divided by the number of employees
Aged Accounts Receivable
Aged Accounts Receivable is the average time for clients to pay invoices. It is calculated by the amount in accounts receivable divided by the net operating revenue times 365 days. A good Aged Accounts Receivable is 60 – 90 days. A higher Aged Accounts Receivable indicates the clients are not paying for work on time.
Current Ratio
The Current Ratio is the firms ratio of total assets to total liabilities. A good ratio is around 1.5
Quick Ratio
The Quick Ratio is a measure of the firms liquidity or ability to immediately pay debts. It is calculated by the firms cash + accounts receivable + WIP / total liabilities. Anything over 1.0 is financially healthy.
Debt-to-Equity Ratio
Equity is the total assets minus the total liabilities. Debt to Equity Ratio is the Debt divided by the Total Equity. Firms should aim for a ratio below 35%.
