Important Financial Calculations for ARE 5 0 Exams

These are the most important financial calculations and terms you need to know for PcM and PjM. Learn these well and you have a good chance of success on the exams. There are a couple dozen terms it would be good to know, but if you start with these seven you'll be in good shape.
This video in blog form:
hyperfinearchitecture.com/7-financial-terms-you-should-know-for-pcm-and-pjm/
01:30 Net Operating Revenue
06:45 Direct Labor
10:10 Indirect Labor
12:44 Utilization Rate
17:44 Overhead Rate
20:58 Break Even Rate
26:50 Net Multiplier
My full PcM & PjM Study Course (including Financial Formulas Workbook)
hyperfine.teachable.com/p/pcm-pjm
More on Utilization Rate
hyperfinearchitecture.com/are-5-0-utilization-rate-for-pcm-and-pjm/
More on Overhead Rate and Break Even Rate
hyperfinearchitecture.com/are-5-0-overhead-rate-break-even-rate/
Hyperfine Backstory on Bryn Young’s Podcast
hyperfinearchitecture.com/podcast-becoming-an-architect-with-hyperfine/
Hyperfine Backstory on Katerina Burianova’s Podcast
hyperfinearchitecture.com/podcast-attaining-your-architecture-license-and-gaining-the-confidence-to-start-your-own-firm/

[@jeannetteblaquiere5590]

Your methods of demonstrating how these calculations work in a real-life scenario is what I appreciate most during your tutorials. It's not just a matter of rote-memorization of these calculations.

[@lisabowen5062]

I like how you teach the formulas to calculate them quickly with adding how to use them! So helpful!!

[@t113271190]

This was SUPER helpful Ben, thanks so much for making this available to all!

[@BenNorkinArchitecture]

You are very welcome!

[@ivanpatino9714]

Thank you for this content, it has really help me study for the PCM exam. PS: There are a couple of errors in the video that might be worth correcting if possible. The red text on the second exercise question reads the same question as the 1st exercise instead of the intended question, and at 26:47 time frame 60.75 is divided by 303. the result is incorrectly indicated to be 79.95 when it should actually be .20049505... that is equal to 20% profit.

[@BenNorkinArchitecture]

You are very welcome, and thank you for pointing out the corrections I should have made.

[@christiananthony1225]

Great video, right in time for my PCM exam next week

[@HyperfineArchitecture]

Thank you. Looking forward to hearing about a pass!

[@masterbuilder5752]

Do well

[@katielee2040]

At 2:59 u said the reimbursable will be subtracted, but in the following question, u just ignore the reimbursable permit fee. Also, in matrix format, reimbursable should be added to the fee billed and then subtract (consultant fee + un-project related expenses). I’m so confused here.

[@coracervantes7442]

Me too, these example problems are so confused! The extra information makes no sense! 😅

[@yrokospeina5828]

I don’t know if this explains it but I think what makes the difference is when you are paid for reimbursable. If the client gives you money ahead of time, you don’t count it as income because you will have to use it to pay for permits. However, since client is paying at the end of the project, you’re not seeing the money come in now, so it doesn’t count as part of revenue.

[@adrianairby9579]

I agree, very confusing question and explanation. But after reviewing my study materials with Amber book, I realized that Permitting is a fee paid directly by the owner, not the architect responsibility. Also, NOR is only related to project expenses, including consultants and reimbursable expenses such as mileage, gas, flights… expenses related to projects, therefore, Marketing is not included.

[@jmblkhair7827]

It's true that the client should be responsible for permitting fees. Remember that when the client tries to convince you otherwise. . . Oh, and no additional fees for renderings too.

[@nicholasjoscelyn6373]

Okay, so I am assuming from this example that we remove reimbursables from the list of things deducted from the gross revenue?

[@kpresnell45]

Great video. I have purchased your study guides as well. Can’t go wrong with a variety of different avenues to study from.

[@HyperfineArchitecture]

Thank you! Looking forward to having you in the course.

[@diegosanchezbalderas5269]

Great video! I hope your channel grows!

[@christopherschwalbe2072]

Thank you for this break down! Super helpful to see it all broken down in common terms and related to eachother

[@ezgikurban5363]

At 7:46 of the video. The question is "what is direct labor cost" You included payroll tax on your calculations, but according to AHPP, Table 7.1, Payroll Taxes are below the line item TDL, instead they are part of total indirect expenses calculations. Can you clarify? Thank you. Your videos are great insight for financial calculations.

[@Victorloyt]

For the utilization rate quesiton, if the client won't be billed for the project, why is it considered utilization rate? It would make sense if the question mentions that the firm "hasn't" invoiced the client, but it explicitly says that 8 hours won't be billed. Wouldn't this go to a non-billable portion of the project, hence reducing the utilization rate? Sort of similar to how preparing for RFPs or meetings with potential clients aren't considered towards the utilization rate (or are they, and I've misunderstood)?

[@libbys8678]

Please explain Hyperfine, I don't understand either

[@HyperfineArchitecture]

Hey Victor, I am not trying to create any trick questions here. I think you understand it all just fine, maybe just being too detailed! According to the AHPP, which is the source for the ARE, time spent working on a project is direct labor and counts toward your utilization rate, whether you decide to bill or not, whether the client pays or not, whether the job is profitable or not. Just remember that if you’re working on a project, it counts. RFP would not count toward utilization rate because you don’t have the project yet. That’s admin or marketing or overhead time, or whatever classification you want to put it in, but it’s not direct labor.

[@Victorloyt]

@@HyperfineArchitecture thanks for the reply - that makes it pretty clear! I know this is out of the question scope now, but out of curiosity, what kind of situation would work be done towards a project but not be billed?

[@nenyattak]

@@VictorloytI saw this in one of the Hyperfine videos (can't remember if it's here as well)... but if the contract says that the architect/designer will work 15 hours on a project but the architect/designer works 17 hours (2 hrs more), then you cannot bill for the full 17 hours. Only 15 hours since that's what was originally agreed on in the contract.

[@helamostafa1245]

Thanks , it is a very helpful video

[@niloofarmousavi3934]

Should we subtract the architecture contingency cost if we have it? And is this cost kind of overhead cost?

[@Bruno-w4h]

Are there any advantages representing percentages in decimal format (.30) during these calculations for the exam, as opposed to simply using the % symbol in the calculator? Is it a cultural matter or simply preference since it gives the same result?

[@HyperfineArchitecture]

Whatever works best for you is the best option. I like to have the full decimals written out so I can keep track of the variables and then make sure I round my answer at the end based on the instructions in the question.

[@olhapavlovska7136]

I am confused why you take a total of 4 projects for the cost of construction, but only 8% for design as for one project instead of 32%. Please help.

[@youthsoccerskills8917]

I am also confused and have sent Ben an email and asking for clarification. Just like you, I solved the problem using 32%, as the question specifically states 8% design fee for EACH project. Did you ever get a clarification on this question related to Net Operating Revenue? Please advise.

[@HyperfineArchitecture]

While it is not my strongest subject this should be fairly basic algebra. If “x” is the percentage, then the total fees for projects A, B, C and D is (A+B+C+D)(x) and not (A+B+C+D)(4x).

[@marijagorgievska]

Shouldn't PTO be subtracted from the total number of hours worked for employee B in order to calculate their utilization rate for that week?

[@stevenrodriguez7253]

Pro is non billable/ indirect expense