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PcM Financial and Risk Management Flashcards

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1
Q

What are accounts payable?

A

amounts owed to the suppliers of goods or services

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2
Q

What are accounts recievable?

A

Money that others owe to the business through invoices for services

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3
Q

What are assets?

A

Any type of tangible or intangible resource that can be measured in monetary terms

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4
Q

what is a chart of accounts?

A

A list of the accounts a business uses to keep track of money, along with correspoonding account numbers used for data processing

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5
Q

what are current assets?

A

Resources of a business that are converted into cash within one year

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6
Q

what is direct labor?

A

all labor of technical staff, principles, and support staff that is directly chargable to projects

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7
Q

what is direct personnel expense?

A

the expense of employee salaries and mandatory and discretional expenses and benefits

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8
Q

what are fixed assets?

A

resources that the firm uses and retains for a long period of time, such as equipment and property

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9
Q

what is discretionary distribution?

A

Voluntary distribution of profits to owners and nonowners, such as bonuses, profit sharing, and incentive compensation

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10
Q

what is gross revenue?

A

All the revenue generated by a business during a stated period of time

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11
Q

what is indirect labor?

A

All labor not charged to a specific project or revenue producing account

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12
Q

what are liabilities?

A

claims by people outside the business and claims by the owners of the business against the total assets of the business

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13
Q

what is net revenue (net operating revenue)?

A

The money that remains from billing after deducting fees and expenses

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14
Q

What is overhead?

A

Expenses incurred to keep a business operating whether or not any revenue is being generated such as rent, software leases, and utilities

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15
Q

What are the different accounting methods and what is the difference?

A

Cash accounting - revenue and expenses are recognized at the time the business receives cash or makes a payment

Accrual accounting - revenue and expenses are recognized at the time they are earned or incurred

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16
Q

what type of accounting method is required for businesses above a certain size?

A

Accrual accounting

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17
Q

What is double entry bookkeepinig?

A

All transactions are listed in two places-
1. In a Journal listed chronologically
2. in a ledger grouped into individual accounts

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18
Q

how does one calculate a net multiplier?

A

net revenue of the firm divided by the cost of direct labor

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19
Q

what is the difference between a profit and loss statement and a cash flow statement?

A

The Profit and Loss Statement tells you if a business is profitable.

The Cash Flow Statement tells you if a business has enough cash to function in the short term.

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20
Q

what is the fundamental equation for financial planning?

A

profit + expenses = revenue
or
revenue - expenses = profit

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21
Q

what does a project progress report show?

A

Compares hours/labor costs and expenses for each phase of a project with estimated hours/labor and expenses

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22
Q

what is an office earnings report and what does it help with?

A

summarizes each project in terms of revenue, expenses, unbilled services, percentage of completion, and profit and loss.

This report helps identify projects that are not keeping up with planned profitability

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23
Q

what is an aged accounts receivable report?

A

shows all invoices and whether or not they have been paid, as well as the age of the invoice, which is the time from the invoice date to the payment date

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24
Q

what is the average collection period for invoices for architectural firms, and what is the point at which the firm is in effect lending money to the client?

A

60 to 75 days is the average collection period

an invoice older than 90 days is in effect money loaned to the client

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25
What does the time analysis report show?
It shows the amount of time each employee has spent on direct labor, indirect labor, vacation, and sick leave, and holidays
26
What is the chargeable ratio / utilization rate?
The percentage of time spent on direct labor divided by the total time spent on direct and indirect labor, vacation, holiday, and sick leave.
27
What is the chargeable ratio that is generally thought to be the break-even point/minimum
65%
28
What is the current ratio? What is the minimum acceptable current ratio?
total assets divided by total current liabilities. The minimum acceptable ratio is 1.
29
how is net profit tax calculated?
The total annual revenue minus consultants' fees and reimbursable expenses
30
what is overhead rate? what is a healthy value ?
Total office indirect expense divided by total direct labor. A good ratio is 1.3 to 1.5
31
what is the quick ratio in comparison to the current ratio?
The quick ratio is a more conservative measure because it includes only the most liquid assets
32
what is the revenue per technical staff ratio useful for?
estimate the required net operating revenue for future budgets, useful to estimate staffing levels
33
how is a net multiplier used?
the net multiplier is multiplied by the employee's salary to get the billing rate
34
what is the average net multiplier for an architectural firm?
2.7 to 3.0
35
what is the break even rate
Total cost of operations divided by the total money spent on direct labor
36
How is the break even rate used?
the break even rate is multiplied by the employee's base salary to determine the minimum hourly fee that must be charged to the client
37
What is the direct personnel expense? (DPE)
similar to the net multiplier, but includes costs of providing taxes, benefits, etc. in addition to the employee's base salary as part of the cost of direct labor
38
How is a project fee determined?
Determining employee hours required, Multiplying employee hours by billing rate, adding costs for estimated non-reimbursables, consultants' fees, and contingency. Additionally, using benchmark fees from past projects
39
When should invoices be sent?
on a billing cycle of a month, if possible
40
what information should a complete invoice include?
- client and project info - reference to a contract - detailed breakdown of work performed and associated billing - reimbursable expenses with documentation - any past due amount
41
how can a personal approach be added to collecting fees?
- adding a cover letter explaining progress on the job - having the project architect or project manager sign the invoices - phone call or in-person visit when problems arrise
42
what is the largest overhead expense?
non-billable labor
43
what are examples of non-labor expenses that should be billed to the client?
- progress prints - copy machine reproduction - computer expenses? - postage and delivery - local and non-local travel expenses - presentation supplies when used for a project
44
Aside from labor and direct expenses, where else can a firm look to reduce overhead?
- cheaper pricing for telephone, internet, etc. - finding cheaper office space - sharing costs of continuing ed with other firms - insurance: look for overlapping coverage, shop around, lower base coverage and bill supplemental project insurance to the client
45
Based on the concept of agency, what are the roles of the architect, owner/client, and contractor?
architect = agent owner = principal third party = contractor
46
what is liability?
the legal responsibility for injury to another person or damage to property
47
What three conditions must be met for an architect to be found negligent
1- there must be a legal duty established 2- evidence that the architect breached that duty 3- evidence that the breach of duty was the cause of the damage or injury
48
What does the concept of Betterment mean in the context of claims against an architect?
If an architect mistakenly included incorrect information in a drawing set, the architect is not responsible for the entire cost of the change to correct the error, but only the cost above what the original cost would have been
49
What is the statute of limitations for construction claims?
Varies by state, generally between three and 10 years from the date of substantial completion
50
What is a statue of repose?
The limit of time that can pass between discovery of a problem and a claim being filed. Generally much shorter time frame than a statute of limitations
51
What are some strategies for risk management for an architecture firm?
- careful client selection - good contract- either the standard AIA or attorney reviewed - appropriate staffing to projects - quality control program - thorough documentation of decisions, meetings, observations - be careful of last minute changes and substitutions - carry liability insurance
52
what is an indemnification clause?
a clause in the contract that holds harmless both owners and architects from damages, claims, or losses from parties with whom the architect has no contractual relationship (ie the contractor)
53
why might a court not support the enforcement of an indemnification clause?
If the instructions the architect gave or failed to give were the primary cause of the damage or injury
54
How can architects minimize risk of third party claims?
- don't include language in the contract that states or implies responsibility to manage, supervise, coordinate, or plan construction - do not give directions concerning methods of construction - point out obvious construction safety problems to contractors noticed on job site, follow up in writing to contractors and owners
55
what are the two categories of copyright protections for architectural work?
1- copyright for drawings, specifications, and graphic representations of the architect's work 2- copyright of the building itself, including graphic representation, overall form, arrangement of spaces, elements of design
56
How does an architect establish copyright of a building?
- Should be established in the contract that the architect owns the copyright. - register the work with the U.S. Copyright office (not required)
57
what may the owner use the architects' instruments of service for without violating copyright law?
constructing, using, maintaining, altering, and adding to the project. If the owner terminates the project, they cannot continue to use the instruments of service without paying a licensing fee to the architect.
58
What are some examples of implied duties of an architect?
- cooperating with contractors - not interfering with contractor's work - giving relevant information to contractors - assisting the owner
59
What are the types of insurance that an architect is required to have per the AIA owner-architect agreement?
- professional liability - general liability - automobile liability - worker's compensation insurance
60
what is included in professional lability insurance and what is excluded?
covers: problems resulting from incorrect specifications mistakes in drawings, negligence does not cover: intentional wrongful acts, claims for cost estimates being exceeded, and claims arising from express warranties
61
what does general liability insurance protect against?
claims of property damage, liability, and personal injury caused by architects or other people hired by the architect
62
what does personal injury protection protect against?
charges of slander, libel, defamation of character, misrepresentation (non-criminal acts)
63
what is a tort?
a civil wrong, as opposed to a criminal act. Such as slander, defamation, etc.
64
where is workers' compensation required?
mandatory in all states
65
what types of insurance are the owners required to carry per AIA Document A201 General Conditions?
liability insurance and property insurance for the full insurable value of the work (must be "all-risk" insurance type) boiler and machinery insurance
66
What types of insurance is the contractor required to carry per AIA Document A201 General Conditions?
- worker's compensation - damages because of bodily injury to employees - damages because of bodily injury to non-employees - personal injury - damages to property other than the work - damages related to use of motor vehicles - bodily injury or property damage arising when an injury occurs after the job is complete - contractual liability insurance

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