ARE Practice and Business Content

  • 16 January, 2020

When taking the Architectural Registration Exam (ARE), I often wondered why it included content that I felt was more relevant to business and out of place on an exam for licensing architects.

Over time, it became clear to me that it all goes back to the architect’s duty to the health, safety, and welfare of the public through licensure.

The health of a business is crucial in any instance, but it is even more important to keep an architectural business healthy. Not to negate the work of other businesses and the importance of what they do, but an architect takes on some pretty hefty work. Architects shoulder a heavy responsibility, which is not always immediately apparent in schooling and training, and one that should not be taken lightly. The best explanation I have heard was by comparing architecture with medicine. The backstory was the question of why architects have to go through such rigorous schooling, training, licensure, and exams that are comparable with those of medical professionals. The response was that while a doctor is responsible for one person at a time, architects are responsible for potentially thousands of people at a time!

When an architect designs a building and/or supervises its construction, it must be secure for the health, safety, and welfare of the public, which is why it is imperative to have the necessary knowledge for licensure. Think of it this way: if an architectural firm goes belly-up in the middle of a job (which, unfortunately, is not uncommon), what happens? There could be restructuring and/or the owner may have to hire another firm to finish the work, which could lead to delays, changes in relationships, degradation of a site due to weather conditions and exposure, etc. Maybe the client does not have the funding for a new contract due to inflation or added costs of starting up work again (which could take years to solve), which could lead to choosing sub-par materials, sub-par contractors/subcontractors, and so on. During the interstitial time, codes could change, causing the proposed building to no longer be up to code. The job site could potentially be abandoned during this period and could have unauthorized occupants using the unfinished space. This might expose them to potentially dangerous conditions, or they might create dangerous conditions on that unfinished site, posing a threat to the larger public.

ARE Practice and Business Content

This is all purely conjecture, of course, and much more complicated than what is suggested here. But hopefully it illustrates the importance of the business content of the exams and why every licensed architect should have the tools to build and maintain a successful business—not just for themselves but for their duty to the public.

Posted by EduMind Inc - 07:18 AM

Practice Management: Top-Down and Bottom-Up Budgets

  • 14 January, 2020

Budgeting and contracts are nothing short of an artform when applying them to the practice of architecture. They are always trying to hit a moving target—you never know what the outcome will be.

With budgets, the moving target is the work needed to perform the services and allocating them in order to make a profit. In the following example, we are looking at the budgets for an architectural firm’s services.

Top-Down Budget

Referencing the example above, top-down budgets start with the estimated cost of construction and the allocation of the architect’s fee from a percentage of estimated construction costs (note that this assumes that the architect’s contract is based on a percentage of construction costs for their service fee). That gross fee then subtracts the consultant’s fees (per the B101-2017 contract, the architect’s services includes consultants: structural, mechanical, and electrical engineers) in order to produce a net service revenue. The net service revenue is the monies that should be allocated for the architect’s services. However, the direct expense budget and the contingency budget should also be considered. Direct expenses are billable to a specific project and should be set aside as there are always direct expenses for a project. Contingencies cover any expenses should there be design changes. Top-down budgets set aside a direct expense budget and a contingency budget to cover unexpected expenses as a safeguard, so they don’t come out of the service revenue—the monies needed for the actual services of the contract to be performed. If they are not used, they are considered profit. Those expense budgets subtracted from the net service revenue results in the project labor budget, which is then broken down per phase and service percentages (e.g., 5% may go to bidding and negotiation because that is the typical percentage breakdown of that service phase).

With bottom-up budgeting, services are broken out by how long the architect thinks it will take to perform the service per phase multiplied by an average service fee. A bottom-up budget is much more organic and relies on experience to be able to allocate the time per service.

What is important to remember is that, again, this is trying to hit a moving target. How do you know which method is right when, compared side by side, they can have a huge difference? What’s important is to recognize that difference in going through the exercise. It should be common practice to work with both budgets side by side and if differences are way off, more time may need to be added/ subtracted per phase (bottom-up) or a different percentage may be allocated (top-down). The point is to see if the budgets meet in the middle and how. However, it is also important to review this along with other business expenses to ensure that compensation is not only fair but attributes to the health of the business practice in other areas (covering benefits, payroll, overhead, etc.).

Posted by EduMind Inc - 07:04 AM