Net Operating Revenue

Practice Management
1

@coachchrishopstock @kiaragalicinao @coachpierceallston

Is the definition of Net Operating Revenue on p.410 of the AHPP correct?

Net Operating Revenue (AHPP p.410)

Represents the net dollars remaining after deducting the invoiced consultant’s fees and expenses, AND all reimbursable and non-reimbursable project-related expenses.

Reimbursable and non-reimbursable expenses should NOT be deducted from the gross revenue to find the net operating revenue.

Can anyone confirm this?

2

@Citrillion Net Operating Revenue is generally calculated by subtracting consultant fees, consultant expenses, and all project-related reimbursable and non-reimbursable expenses from the project’s gross revenue. The confusion may stem from the fact that reimbursable expenses are often billed back to the client, but if those costs are included in project revenue, they must also be deducted when calculating NOR.

For ARE purposes, I’d recommend relying on the AHPP definition, especially as it relates to these types of financial metrics. AHPP is one of NCARB’s primary references, and exam questions are generally based on the concepts and terminology presented there rather than on firm-specific accounting practices or unique real-world situations that may vary from office to office.

Hope this helps!

Kiara Galicinao, AIA, NCARB
Product Coordinator
Black Spectacles

3

@kiaragalicinao Thank you as always Kiara. I was confused about the reimbursable expenses. It’s not clear from the definition whether or not reimbursables are included in the gross revenue. I guess you have to assume that they are, given that the definition for the net operating revenue says that they should be deducted.

Reimbursable and non-reimbursable expenses SHOULD be deducted from the gross revenue to find the net operating revenue.

(The definition makes it seem like you are deducting all of those items from the net operating revenue.)

4

@Citrillion You’re welcome! I agree that the wording can be a little confusing. The definition is describing how Net Operating Revenue is derived, not what is being deducted from an already-calculated Net Operating Revenue.

In other words, start with Gross Revenue, then deduct consultant fees, consultant expenses, and project-related reimbursable and non-reimbursable expenses to arrive at Net Operating Revenue.