What is the difference between the net multiplier and the direct personnel expense? They both seem to account for total salary expenses to the firm as well as profit and overhead.
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Hi @Smith.Marks that’s a great question! Let’s see if one of our expert architects can help! @coachjasongolub do you mind explaining?
The net multiplier is the ratio of net operating revenue (NOR) to total direct labor. If you think of direct labor as an investment, the net multiplier is a measure of your return on that investment. It tells you how many dollars of revenue you are generating for every dollar you spend on direct labor.
Net revenue or net sales is the money you made from selling goods or services for the month, quarter or year. Operating income is the dollar amount left after you subtract expenses from net revenue .
Direct Personnel Expense means the portion of direct salaries and wages of all personnel of the A/E or any Consultants, as applicable, including professional, technical, management, administrative and clerical employees, and principals engaged on the Project related to their time devoted to the Project and the portion of the cost of their mandatory and customary contributions and benefits related thereto such as employment taxes and other statutory employee benefits, social security contributions, insurance, sick leave, holidays, vacations, pensions, profit sharing, and similar benefits related to their time devoted to the Project.
also from the web
Net operating revenue ( NOR ) is total firm revenue minus reimbursable (pass-through) expenses, such as project-related consultants and miscellaneous project-related expenses.
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Thanks for the definitions. I appreciate it, but it is still not quite clear to me. In these definitions, DPE is positioned in the context of an entire project and consultant team, while the net multiplier is focused specifically on an individual.
Where I am unclear is when you would choose to use one over the other for calculating a fee. They both seem to get you to the same place, as all items listed in the DPE definition are part of a firm’s labor cost, and thus would be included in the net multiplier…at least the way that I understand it.
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the net multiplier seems to be more of a key indicator of financial health more than a way to calculate fees. the dpe includes direct salaries and wages, and all else directly related to a specific project plus the portions (percentage) of benefits, etc. that the salaried also receive.
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I do not have a full grasp on these concepts yet either… But I do know that working through some examples (more than once) will help to understand
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@Smith.Marks
My understanding is that DPE is also known as payroll burden, includes overhead costs (such as vacation, sick leave, insurance, payroll taxes, pension , and other benefits) that you add to labor cost for project reporting purposes.
NM is the ratio of the net operating revenue (NOR) to total direct labor. If you think of direct labor as an investment, the net multiplier is a measure of your return on that investment. It tells you how many dollars of revenue you are generating for every dollar you spend on direct labor.
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First- its always important to take your practice questions with a grain of salt if they aren’t authored by NCARB or an officially approved test prep provider. Use the Arch’s Handbook of Prof Practice to look up any concepts that become confusing. I have found many mistakes throughout the various test prep resources which I’ve referenced.
My best guess for the question you’ve posted: because the architecture firm is using the “cost plus fee” method, the firm’s profit comes from the “plus fee.” In this particular scenario, the employee’s billing rate = the “cost” portion of the compensation method, which is the financial burden that the architecture firm faces to do business and pay their employees.
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Thank you @Smith.Marks for helping @liqi.yang with this question.
@coachjasongolub are you able to share your thoughts as well?
@liqi.yang
The question is asking only about the employee’s billing rate. It is not asking about profit or overhead. The answer ABDE is accurate. It takes into account the direct cost, office overhead and taxes. C would be part of the fee not the cost.
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