2/19 Firm Financials Workshop Follow-Up

Hello all,
This is a quick note to offer some clarifications to questions that arose during last Sunday’s PcM Firm Financials workshop.

There was some confusion on whether direct labor should be calculated as an hour or dollar amount. If calculating utilization rate ((direct labor hours / total labor hours) x 100) the direct labor is expressed in hours. For overhead rate (total indirect expenses / total direct labor in $$$) and net multiplier (net operating revenue / total direct labor in $$$) the direct labor would be a dollar amount. That dollar amount is calculated with the sum of the direct salaries per employee (salary x utilization rate).

There was also a typo on the worksheet that has since been updated with the net operating revenue to eliminate any future confusion.

For additional information on this topic I would highly recommend taking a look at the Architect’s Handbook of Professional Practice (in particular pages 410-418 (in the 15th edition)).

I also wanted to share a few other helpful links for anyone looking to get a little more practice with these calculations.
Calculation Utilization Rate, Overhead Rate, Break Even Rate, and Net Multiplier
Evaluating a Firm’s Financial Metrics [Exercise A]
Financial Study Material
PCM Practice Exam Question (from Form3)

I also shared the link to a previous ARE live on this topic of financial calculations in the chat during our workshop, but just in case anybody missed it you can find it at ARE Live

Hope this information was helpful!

  • Heidi