PjM Handbook Sample Item 2
hello everybody,
I have a couple questions from the ARE Handbook sample item.
Why do you divide by the company's utilization?
What is the difference between direct rate and hourly rate?
Thanks very much

Direct rate in this example in the table is the hourly rate without profit included in the rate. There are a couple different ways to tackle this calculation, but the simplest way is to first calculate the architects fee (70% of 300,000), and then divide that by the profit multiplier (3.0) to give the direct labor cost associated with the project. Once you have that number, it is pretty simple from there.
Architect Fee/Multiplier = Direct Labor Costs = (Principal Hours)(Principal Direct Rate) + (PM Hours)(PM Direct Rate) + (PA Hours)(PA Direct Rate) + (AD Hours)(AD Direct Rate)
You could do this a slightly different way where you multiply all the direct rates by 3.0 to get their billable rates, and then make sure it all adds up to 70% of 300,000 (total architects fee). You can rearrange the little equation I wrote above to:
Architect Fee = (Multiplier)(Direct Labor Costs) = (Multiplier)(Principal Hours)(Principal Direct Rate) + (Multiplier)(PM Hours)(PM Direct Rate) + (Multiplier)(PA Hours)(PA Direct Rate) +(Multiplier)(AD Hours)(AD Direct Rate)
However, I think this is a slightly more complicated way, given the information readily available on the table, allowing the first method to most likely be quicker.
One issue I have with this question in particular, and this is directed at NCARB, is the "16 weeks long at 40 hours per week." To me, knowing the way that you have to read each question on the ARE as literal and complete, this infers that the firm has dedicated 40 hours a week to this project as a firm, which would mean that the total amount of weekly hours for the team should add up to 40. However, this is not the case. I think it is necessary to fix this question to at least say "16 weeks long assuming a 40 hour workweek is full time" or something along those lines.
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