Practice Management
Practice Management
Practice management covers how an architecture firm organizes, prices, and protects its work. Candidates should understand entity types (sole proprietorship, partnership, LLC, corporation), licensing and firm registration, ownership transition, marketing, fee proposals, and the economics of direct labor, overhead, and profit. Risk management is central: standard of care, professional liability insurance, contracts, indemnity, and documentation. Ethics rules on competence, conflict of interest, and truthful representation appear regularly.
A trap is treating professional liability insurance as a warranty of quality. It covers negligent errors, not business losses, unpaid fees, or intentional acts. Another trap is confusing the standard of care with perfection: the architect owes the skill of a reasonably prudent practitioner, not a guarantee that no error occurs. Questions also test whether a fee that is a percentage of construction cost still must cover overhead and profit, and whether an unlicensed person can provide architectural services.
Worked example: if an employee's direct salary is $40/hour, overhead is 80% of direct labor, and desired profit is 10%, the billing rate is $40 × 1.80 × 1.10 = $79.20/hour. Rule of thumb: track utilization (direct billable hours ÷ total hours), overhead rate, and net multiplier. A firm billing at 2.5–3.0 times direct labor is common, but the correct answer should follow the stated multipliers.