PjM Calculations  question for NCARB?
Hello I think this might be a question for an NCARB moderator. It has to do with adding percentage markups for profit. For example in the PjM slide show practice question # 9, we have to add 10% contractor's overhead and profit. In the answer, it says to take the total construction cost $108,810 and multiply by 110% to get the total including OH and profit, which comes out to $119,681. That means the contractor's OH and profit is $10,871.
But: if you took the final total of $119,681 and multiplied that by 10%, you'd get contractor's OH and profit = $11,968.
OR: if you took the construction cost $108,810 and divided that by 0.9 (the complement of 10% as per the method suggested in AHPP pg 415) then the total would be $120,900 leaving the GC with $12,090 OH and profit. In other words the construction cost is 90% of the final total and the OH/profit is 10% of the final total.
So I guess the question is: are we calculating 10% profit as 10% of the final total  which is how we'd normally figure net profit? Or as 110% of the construction cost? I know it's likely to be only one question on the exam but I'd like to know.
Thanks

Hi Kristen,
Pretty sure you're referencing two different types of calculations. Page 415 in the AHPP has to do with targeted profit margin for billable work by an employee,  so the AHPP is not suggesting that this applies to the way a contractor's overhead and profit is calculated from total construction cost.
On AHPP 415, the point is to come up with a number  an hourly billing rate for an employee  that when, after you pay for salary and overhead, a profit of 20% (in the example) still remains.
The 10% OH&P that the contractor gets paid is simply 10% of the total construction cost.

Hi Kurt, thanks for your comment. Yes, they are two different types of calculations but it occurred to me that maybe the basic premise  how do you make sure a certain % of profit is achieved, whether for a firm or for a GC  is the same. I'm kind of wondering if NCARB has any kind of official stance on this. If we don't hear from them, I'll assume as you do, that I should calculate the two forms of profit differently. Thanks again 

Hi Kurt, my question relates to the screenshot shown here from the ARE 5.0 Test Prep Video Series, for PjM. As to the math: I understand how it's calculated below as 110% of construction cost and have no issues with that. It's just that when we calculate profit for a firm as opposed to construction, we would work backwards from the final number to get a given % of the final amount, which yields different numbers. I don't really see why we'd use different approaches. Anyway I'll let this drop  I will just follow the method shown here if it comes up on the exam.
Thanks, Kirsten

Hi Kirsten,
This question has come up once before. Rather than paraphrasing, I'll redirect you to Nick's response here. Hope that helps!

Kirsten  I'm not giving up on you yet ;) (Edit: sorry, spelled your name wrong).
Thanks for posting that graphic. BTW  here's something interesting  take a look at the question as posted above  now look at the question the ARE5.0 Handbook version of the "same" question  the Youtube version says construction documents phase, while the Handbook says construction phase. I don't think the Youtube version actually makes any sense.
The official handbook was updated after that video was posted, so we need to assume that the current handbook question is correct, and that the question means construction phase.
Anyway, I think you know how to work the numbers, you're just looking at the examples in the wrong contextual framework.
The example for the firm is an internal projection for profit goal  i.e.  planning...."For us to make a profit of 20% on work billed hourly, then we need to charge X dollars per hour for any work that Employee Y performs." This is profit planning. In a sense, it is a plan to ensure the profitability of any hourly billable work that gets performed (and gets billed). (And paid!).
The other example is happening under the terms of an already agreedupon contract. The time for targeting profit is over. It's now a contract. And, under that contract, the contractor has already agreed that he accepts the level of profitability at an OH&P number of 10% of construction costs. In house at the contractors office, his internal calculations for targeted profitability were already projected and calculated, and he is comfortable under the terms of the contract.
Similarly  you can also think of this in terms of what happens if additional work needs to be performed by the Architect during construction. Under contract, the Architect adheres to contract terms  which might, like the Contractor, be some percentage of construction costs.
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