Competency Standard 16

NCARB Competency Standard 16 Understand foundational business principles to operate a practice

June 01, 20253 min read

NCARB Competency Standard 16 Understand foundational business principles to operate a practice

At the point of initial licensure, architects with this competency can …

• Monitor the financial health of the business to ensure a proper level of service can be provided throughout a project.

• Assess and mitigate business risks (e.g., professional liability insurance).

• Allocate firm resources and staff to ensure adequate delivery of services to clients.

The 16th competency is something that new architectural professionals almost never get experience in.

You'll see on social media people complaining about how architects don't get education in business, and then they go into business and they fail. And what are they missing? Well, it's just an introduction to basic business foundational concepts, and the 16th competency standard is understand foundational business principles to operate a practice.

You can start right now learning about the Business of Architecture. It just takes study and talking to people who know about it to start building your knowledge.

Monitoring the financial health of the business to ensure a proper level of success can be provided throughout a project is basic finance. If you don't have the inflows of fees or your expenses for consultants or payroll are too high, you're going to run out of money very quickly. So financial health is all about tracking the money. Think about it like a checking account. You have money coming in, you have money going out. Ultimately, if there's more money going out, that checking account goes to zero, and when you go to use it, it says, "Card Declined".

An architecture business base the fees on how much is it going to cost to actually execute that project. Well, you're trying to predict something into the future. You just don't know what's going to happen throughout a project.

If you have your own business, you obviously want to keep track of your expenses and the income, but also your profit. The profit is key to growing the business. It's key to keeping it in shape, giving everybody raises, giving people bonuses. It just is part of the structure of a business.

The three financial components; the profit, the expenses, the income, those are tracked over time. Now, if a project takes a lot more time than you anticipated it would, you're going to run out of money. So keeping track of the time is really critical to staying on top of the project.

Assessing and mitigating business risks is really about professional liability. When you're a licensed professional, you are personally responsible. Your name, your stamp, your signature, are on the drawings and if there's a design mistake, you could be held responsible, especially with financial loss to the client, or loss of life or injury to occupants. Study the impact of having liability insurance or not having liability insurance. What's the risk that's involved, and do you want to take that risk? Liability insurance is very expensive, one of the biggest expenses a firm has in all the any one thing that the firm has that they're paying for. A lot of architects, especially sole practitioners, may skip over and take that risk.

Allocating firm resources and staff to ensure adequately delivery of services to clients is understanding the relationship between the work required to execute a project and having enough people working on a project to actually get the work done by the deadline.

Start looking at the strengths of your team, the people around you. You will need people who are very tech oriented can get the drawings done; people who are very construction oriented, or know how things go together; communicators - people who are social and build relationships with the client and consultants; people who can really think through the logistics of all that needs to be done, and keep track of it. Those are strengths that every individual has in different ways.

Experierienced Architect & Founder of Architects' Accelerator

David Clarke

Experierienced Architect & Founder of Architects' Accelerator

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