CMA Financial Acumen for Architects 3 — Questions and Answers
Question 1: When preparing a project budget, 'soft costs' typically include all EXCEPT:
- Architectural and engineering fees
- Permit and inspection fees
- Structural steel and concrete (Correct answer)
- Furniture, fixtures, and equipment (FF&E)
Correct answer: Structural steel and concrete
Structural steel and concrete are hard construction costs; soft costs encompass professional fees, permits, FF&E, financing, and similar non-construction expenses.
Question 2: An architect negotiates a not-to-exceed (NTE) hourly fee contract. The project is completed under budget. Which statement is TRUE?
- The architect bills the full NTE amount regardless
- The architect bills only actual hours up to the NTE cap (Correct answer)
- The owner owes a bonus for coming in under budget
- The NTE converts to a fixed fee automatically
Correct answer: The architect bills only actual hours up to the NTE cap
Under an NTE contract, the architect invoices actual hours worked at agreed rates, but may never exceed the stated cap.
Question 3: Value engineering (VE) is most effectively applied during which project phase to yield the greatest cost savings?
- Bidding
- Construction Administration
- Schematic Design and Design Development (Correct answer)
- Closeout
Correct answer: Schematic Design and Design Development
VE opportunities are greatest early in design, when changes cost little; each subsequent phase exponentially increases the cost of implementing changes.
Question 4: A CM at-risk's Guaranteed Maximum Price (GMP) typically includes all EXCEPT:
- General conditions
- Contractor's contingency
- Design fees for the architect of record (Correct answer)
- Contractor's fee and overhead
Correct answer: Design fees for the architect of record
The GMP covers construction costs; the architect of record's design fees are a separate contract between the owner and architect, outside the GMP.
Question 5: Depreciation in real estate is primarily relevant to an architect's financial analysis because it:
- Lowers construction costs
- Provides tax benefits that affect owner ROI calculations (Correct answer)
- Reduces the architect's fee
- Eliminates the need for insurance
Correct answer: Provides tax benefits that affect owner ROI calculations
Depreciation allows owners to deduct building value over time, reducing taxable income and improving after-tax return on investment—a key metric in owner feasibility studies.
Question 6: A project's net present value (NPV) of expected cash flows is negative. This generally indicates:
- The project will be profitable over its lifetime
- The project will not recover the initial investment at the assumed discount rate (Correct answer)
- Construction costs are too low
- The architect should increase their fee
Correct answer: The project will not recover the initial investment at the assumed discount rate
A negative NPV means the present value of future cash inflows is less than the initial investment at the chosen discount rate, signaling the project may not be financially viable.
Question 7: An owner's total project cost (TPC) budget is $12M. Construction is estimated at $9M. What percentage represents hard construction costs?
- 55%
- 65%
- 75% (Correct answer)
- 85%
Correct answer: 75%
$9M ÷ $12M = 0.75, or 75%; the remaining 25% covers soft costs such as fees, permits, financing, and FF&E.
CMA Financial Acumen for Architects 3
When preparing a project budget, 'soft costs' typically include all EXCEPT: