PCM 621-629 Quiz: A Common Starting Point in Budgeting Process

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Questions and Answers

In the example provided, what was the total amount earned when utilized?

$60,000.00

What phase was not part of the compensation in the owner-architect agreement but was used internally to recognize revenue for work completed prior to the initiation of actual Schematic Design?

Preliminary Design

What does the example demonstrate regarding direct expenses and contingencies?

They are withheld internally until project closeout.

What is the central element in establishing and updating accounting budgets?

Project work planning with proper level of task detail Signup and view all the answers

What is fundamental to a firm’s operations and the foundation for critical, high-level decisions such as staff adjustments and overhead budgeting?

Good revenue projections Signup and view all the answers

Who earns revenue by providing professional services according to the text?

Architects Signup and view all the answers

What does project work planning serve as, in addition to being a role expected of project managers?

An opportunity for project team-building and leadership Signup and view all the answers

What does the Design Project Management accrual method focus on?

Work in place and earning revenue based on it Signup and view all the answers

What is a characteristic of the Top-Down approach in project budgeting?

Based on historical data and similar project scopes, can be accurate Signup and view all the answers

What is a characteristic of the Bottom-Up approach in project budgeting?

Based on project work plan and scope, schedule, and tasks Signup and view all the answers

What is the best practice for creating a realistic plan in project budgeting?

Work with both top-down and bottom-up approaches Signup and view all the answers

What does the project leadership team need to consider when creating a feasible plan?

Scope, schedule, tasks, and resources Signup and view all the answers

What should coincide with initial project budgeting in a firm's accounting or project management system?

Client, consultant, and contract status documentation Signup and view all the answers

What needs to be verified during initial project budgeting?

Project contract is fully executed or a letter of understanding is signed Signup and view all the answers

What must be ensured during initial project budgeting?

Owner-architect agreement and consultant agreements are signed. Signup and view all the answers

What is the formula for Net Service Revenue (NSR) as per the given text?

$A - B$ Signup and view all the answers

What should be required by policy at a minimum, according to the text?

A signed letter of agreement Signup and view all the answers

What are contingencies typically not targeted for, according to the text?

'Extra' profit Signup and view all the answers

What sets up different amounts by phase between internal budgets and contractual fees billed to clients?

Revenue recognition Signup and view all the answers

What tool can be used for 'high-level' resource planning during the initial budgeting process, as per the text?

Table 10.7 Signup and view all the answers

What represents a tool that can be used for 'high-level' resource planning during the initial budgeting process?

Table 10.9 Signup and view all the answers

What is used to recognize work that was in place and complete, as per the text?

Earned revenue vs. billed fees Signup and view all the answers

What should firms establish guidelines for, based on past project data?

Contingencies Signup and view all the answers

What may most engineering disciplines do in early project phases?

Lag behind in actual percentages complete and catch up toward the end of Construction Documents. Signup and view all the answers

What is typically compensated for 15 percent of the contractual amount for Schematic Design?

The architect Signup and view all the answers

What does Table 10.8 exemplify according to the text?

Resource planning Signup and view all the answers

What does Table 10.10 represent according to the text?

'Earned Revenue vs. Billed Fees' Signup and view all the answers

What is the primary purpose of resource utilization ratios in project management?

To measure project chargeable time against total time worked for profitability and forecasting Signup and view all the answers

In a well-designed business plan, what is expected to be included regarding staff members?

Expected utilization ratios for all firm staff members Signup and view all the answers

When should project work plans be prepared according to the text?

Early in the marketing phase, starting with top-down budgets and simple project work plans Signup and view all the answers

Who should be involved in finalizing the project work plan according to the text?

The project team, including client and contractor input Signup and view all the answers

What is emphasized as essential for achieving project and firm profitability?

Project work planning Signup and view all the answers

What is the starting point for project budgeting according to the text?

"Determining the gross fee for the project, typically based on market rates" Signup and view all the answers

What are some common compensation options mentioned in the text?

Lump sum fixed fees, hourly billing rates, cost plus fixed fees, unit cost pricing, and percentage of actual construction cost Signup and view all the answers

What are two methods mentioned for revenue recognition in professional service firms?

Cash method or accrual method Signup and view all the answers

What is emphasized as a collaborative effort in project work planning according to the text?

Among project managers, key team members, and accounting staff with open communication and client involvement Signup and view all the answers

What is stressed as crucial for monitoring project progress according to the text?

Scheduling milestones Signup and view all the answers

What is mentioned as a more accurate representation of financial performance?

Accrual method for revenue recognition Signup and view all the answers

Study Notes

Resource utilization ratios, measuring project chargeable time against total time worked, are crucial for project profitability and future forecasting at the firm, market sector, discipline, and project levels.
A well-designed business plan includes expected utilization ratios for all firm staff members.
Project work planning is essential for achieving project and firm profitability, scheduling milestones, and monitoring project progress.
Project work plans should be prepared early in the marketing phase, starting with top-down budgets and simple project work plans, then refining with more detailed planning during contract discussions.
The project work plan must be finalized with the contracted scope of services and the project team, including client and contractor input.
Project work planning is a collaborative effort among project managers, key team members, and accounting staff, with open communication and client involvement.
Project budgeting starts with determining the gross fee for the project, typically based on market rates.
Common compensation options include lump sum fixed fees, hourly billing rates, cost plus fixed fees, unit cost pricing, and percentage of actual construction cost.
Revenue recognition in professional service firms can be based on the cash method or the accrual method, with the accrual method providing a more accurate representation of financial performance.

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