A Project Can Look Productive and Actually Be Losing Money - Project Cost Accounting Shows the Truth
Architecture firms earn revenue from professional fees; they incur costs primarily through the time of staff working on projects. A project is profitable when the revenue it generates (the fee) exceeds the cost of the time spent on it (hours × hourly cost rate), plus any direct project costs (reimbursables, subconsultant fees). Tracking this relationship - knowing at any point whether a project is on track to be profitable, consuming its contingency, or already over budget - requires project cost accounting. Most firms use project management software (Deltek Vision, Ajera, BQE Core) that tracks hours by project and phase, compares them to the fee budget, and calculates earned value metrics. Understanding these concepts is tested on the ARE PjM exam as a project financial management skill.
Project Budget and Phase Budgets
The total professional fee is divided into phase budgets - allocations to each phase of service (SD, DD, CD, Bidding, CA) that reflect the expected work effort. Phase budgets are the key project management tool because they allow the project manager to track whether the actual hours spent in each phase are within the budget for that phase, and to project whether the overall project fee will cover the total cost. If SD uses 30% of the total fee budget and produces SD deliverables, that may be acceptable or excessive depending on how much SD was projected to cost. If SD uses 50% of the total fee budget, the project is in serious trouble before CD production has begun.
Earned Value Concepts
Earned value analysis (EVA) is a project management technique that integrates scope, schedule, and cost to measure project performance. For architectural projects, the key metrics are: Budget at Completion (BAC): The total fee budget for the project or phase. Planned Value (PV): The budgeted cost of work scheduled to be complete by a given date - what should have been spent by now according to the project plan. Earned Value (EV): The budgeted cost of work actually completed - the value of the work that has actually been done. Actual Cost (AC): The actual cost incurred to complete the work performed - what was actually spent. Schedule Variance (SV) = EV - PV: Positive means ahead of schedule; negative means behind schedule. Cost Variance (CV) = EV - AC: Positive means under budget; negative means over budget.
Fee Utilization Rate
A simpler metric for daily project management: fee utilization rate = (hours spent × hourly cost) / phase fee budget. When this percentage reaches 100% and deliverables for that phase have not been completed, the phase is over budget - fees have been consumed without corresponding production. Project managers who track utilization rate weekly can catch overages before they become unmanageable, rather than discovering the problem at phase completion when it is too late to adjust.
Key Exam Points
- Project profitability: fee minus cost of hours worked (hours × hourly rate) minus direct project costs.
- Phase budgets: fee allocation by phase; tracked against actual hours to monitor utilization.
- Earned value: EV = budgeted cost of completed work; CV = EV - AC (positive = under budget); SV = EV - PV (positive = ahead of schedule).
- Fee utilization rate: actual fee consumed / phase fee budget; monitor weekly.
- Over-budget early warning: utilization near 100% before deliverables are complete = budget problem.
Study PjM on AREprep
AREprep’s PjM flashcards cover every concept on this exam with spaced repetition, and the practice exams mirror the real question formats so the actual test feels familiar.