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Fee Calculation from first principles

Fee Calculation from first principles. Setting up Practice Income – outgoings=profit Aims of being in practice Design and manage good architecture Comply with the professional codes Satisfy your clients Make a profit An overview of the general principles. Derive Costs. Direct Costs

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Fee Calculation from first principles

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  1. Fee Calculation from first principles • Setting up Practice • Income – outgoings=profit • Aims of being in practice • Design and manage good architecture • Comply with the professional codes • Satisfy your clients • Make a profit • An overview of the general principles Design Management Practice CMcNeish PSA University of Strathclyde

  2. Derive Costs • Direct Costs • Direct costs are related to the no. of hours worked by staff on fee earningactivity • 52weeks x 5days=1820 hours (7hour day) • Less annual leave 20 • Statutory holidays 10 • CPD 5 • Sick days 4 • Admin. 1 • Total 40days 15% (44 weeks) • Professional staff 85%,associates 70%,partners 60%,40% • Relative fee earning capacity differs for each level of staff Design Management Practice CMcNeish PSA University of Strathclyde

  3. Derive Costs • Indirect Costs • Indirect costs are the inverse of these amounts: • Professional staff 15% • Associates 30% • Partner 1 40% • Partner 2 60% • Admin Staff 100% • NIC 12% • Pensions 6% Design Management Practice CMcNeish PSA University of Strathclyde

  4. Derive Costs • Fixed Costs (overheads) • Space: • heat/light/fri lease 45k • Telephones 5k • Vehicles/Travel Expenses 20k • Equipment: • Computers 25k • Consumables 4k • Renewals and repairs 10k • Invisible: • Depreciation 8k • Insurances (PII, Employers, Contents) 21k • Tax 6k • Professional fees (legal, accounting) 7k • Bank charges 6k • Petty cash 15k • CPD training 4k • Marketing 7k • Membership fees 4k Total £190,000 Design Management Practice CMcNeish PSA University of Strathclyde

  5. Derive Costs • FIXED COSTS (overheads) • Space: • Rent, Rates and FRI Lease 78k • heat/light 6k • Telephones 9k • Vehicles/Travel Expenses 22k • Equipment: • Computers 45k • Consumables 14k • Renewals and repairs (equip, fabric) 23k • Invisibles: • Depreciation 10k • Insurances (PII, Employers, Contents) 32k • Professional fees (legal, accounting) 12.6k • Bank charges 3k • Postage and Prints 13k • Petty cash/misc contingency 6k • CPD/Staff training 5k • Marketing 4k • Membership fees 2.4k Total £285,000 Design Management Practice CMcNeish PSA University of Strathclyde

  6. Derive Costs • Notes: • These fixed costs are what must be paid before you earn a penny! • The salary bill comes round relentlessly at the end of each month! • The VAT man is unyielding and must be paid (first) quarterly! • Total Costs before Profit=Direct +Indirect +Fixed Costs Design Management Practice CMcNeish PSA University of Strathclyde

  7. Charge out rates • The relative charge out rate for each member of staff can now be calculated • Cost to the practice/hour =salary/1820 • Multiply this figure by the mark-up index to account for costs • Charge out rate =1+(indirect cost+ fixed costs) direct costs • Should be in the range (2.4 – 3.5) • Derive charge out rate : salary x index 1820 (excl.profit) • Equates to: salary in £k x 0.18p =£/hour (incl. profit) 100 Design Management Practice CMcNeish PSA University of Strathclyde

  8. Job Resourcing • Audit the work in progress • Value/scale/complexity for each project – tasksize • Determine the sector/programme/procurement - type • Define the extent of the service required - appointment • Programme the works • For each project • For each stage of RIBA plan of work (A-L) • For the pre-contract stages A-G • For the contract duration H-L/M • Allocate the staff resources/hourly rates • To each project • For each stage • Total Cost to the practice for each job Design Management Practice CMcNeish PSA University of Strathclyde

  9. Fee calculation from first principles • Assignment No.2 Design Management Practice CMcNeish PSA University of Strathclyde

  10. Job Resourcing • Assess the risks • Quick uncomplicated job? • Which procurement route? • Initiated or ‘lay’ client? • What statutory delays might occur? • Is it a difficult site? • Are you likely to be paid on time - or even at all? • What risks of acting as ‘lead consultant’? • Check staff resources • Other current work load • Holidays • What if staff leave? • Add profit • Increase if there is a ‘fear factor’ • Reduce if there is room to manoeuvre Design Management Practice CMcNeish PSA University of Strathclyde

  11. Submit the fee offer • Check the % fee scale • Assess the income =check contract sum x %fee • Outline the invoice plan over the period of the job • Anticipate payment dates / likely delays • Add to the cash flow projection • Confirm the details in writing to the client • Outlining the client’s duties under the CDM Regulations • Enclosing all the appointment documents for signing • Clarify the programme and the next action required Design Management Practice CMcNeish PSA University of Strathclyde

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