Glossary of Terms

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AVAILABLE HOURS – Total hours paid less benefit hours for paid-time off.

AVERAGE DIRECT LABOR RATE – Total direct labor dollars divided by total direct labor hours.

BACKLOG – Dollar value of anticipated revenues from projects contracted but as yet unearned (i.e. the work is contracted but not performed). Backlog is reduced by the value of revenue earned and increased by the value of new commissions acquired in a period.

BENEFIT HOURS – Paid holiday, vacation , and personal-time-off hours.

BENEFITS FACTOR – The total cost of benefits (mandatory and customary, plus paid-time-off) divided by the value of total payroll (direct plus indirect salary expense) excluding paid-time-off. Individual salary rates are multiplied by this factor to determine direct personnel expense (DPE).

CHARGEABLE RATIO (also UTILIZATION RATE) – The percentage of total staff time or dollars charged to projects, determined either in hours or dollars.  Dollars is preferred to hours.  Direct raw labor dollars divided by total raw labor dollars (times 100 to convert it to a percentage). Total raw labor is the total amount the firm paid in salaries to staff for labor. Direct raw labor is the dollar amount of raw labor that was charged to projects.

CASH BONUS – Discretionary distribution of profits to owners and employees that is shown after net profit from operations.

DIRECT CONSULTANTS (OUTSIDE SERVICES EXPENSE) – Professional services for specific projects rendered to the firm by independent service contractors or professional consultants, if not reimbursable. The fee for outside services is included in the lump sum fee of the firm rather than being reimbursed by the client to the firm as a specific charge on billing invoice.

DIRECT EXPENSE – All expense chargeable to a specific project.

  – A part of Direct Personnel Expense (DPE). Principals’ and employees’ gross pay (excluding direct benefits, bonuses, profit sharing and retirement plan contributions) chargeable to projects.

DIRECT PERSONNEL EXPENSE – The direct salaries of all personnel (including professional, technical and clerical) engaged on a specific project, and the portion of the cost of their mandatory and customary benefits related thereto.

EFFECTIVE MULTIPLIER (also NET MULTIPLIER) – Net revenue divided by direct labor.

FULL-TIME-EQUIVALENTS (FTE) (also STANDARD HOURS) – Usually 40 hours per week time 52 weeks per year or 2080 hours per year. One full-time-equivalent is 2080 hours per year.

INDIRECT EXPENSE (also OVERHEAD) – Operating expenses that cannot be assigned to a specific project.

INDIRECT LABOR (INDIRECT SALARY EXPENSE) – The sum of indirect (non-project-related) salary expense and indirect (non-project-related) benefits expense for paid-time-off, also a part of Direct Personnel Expense (DPE). All labor not charged to projects at raw salary cost.

LUMP SUM FEE (also STIPULATED SUM) – A fixed fee based on estimated number of hours required to produce a project at a profit which may also include estimates for outside consultant fees and project related travel, delivery, printing and reproduction, etc.

MULTIPLE OF DIRECT SALARY EXPENSE (NET MULTIPLIER) – Net revenue divided by direct labor. Synonymous with net multiplier or effective multiplier.

NET PROFIT FROM OPERATIONS – Net revenue less direct labor and overhead expenses before discretionary bonuses and retirement plan contributions and before other non-operating income such as interest income, etc.

NET REVENUE – Total revenue less other direct expenses except direct labor. Revenue earned from the time and effort of the firm’s employees (excludes pass through revenue for reimbursable expense and revenue paid to outside consultants).

NON-TECHNICAL HOURS – Hours spent working by personnel not involved in the direct production of a project such as bookkeepers, accountants, secretaries, programmers and other administrative support personnel.

OPERATING PROFIT TARGET – Includes bonuses, retirement plan contribution, increase in net worth and income taxes less other non-operating revenue such as interest and gain/loss on sale of assets.

OTHER DIRECT EXPENSE – Non-reimbursable direct project related expenses, except for personnel and direct consultants (outside services) expense. It can include reproduction of drawings and specifications for in-house use, travel expenses, long distance communications, and items paid for on the client’s behalf, if not reimbursed.

OVERHEAD (also Indirect Expense) – Operating expenses that cannot be assigned to a specific project.

OVERHEAD RATE – Total indirect or overhead expense expressed as a percent of direct labor (not as a percent of direct personnel expense).

PAID-TIME-OFF – Benefit salaries and wages paid to principals and employees for holiday, vacation and personal time off.

PERCENT COMPLETE – The estimate by the project manager of the degree of completion of a project, expressed as a percentage of particular phases or services or of the total scope of services to be rendered.

PAY LEVEL – Staff classification by pay rate. Typical classifications are Principal, Supervisory, Technical I, Technical II, Technical III. This version of S3PS uses two pay levels: Principal and Employee.

PROJECT BUDGET – A financial plan showing the dollars and hours allotted various phases, disciplines, services and personnel categories. Usually includes the dollar amounts planned for reimbursable expenses; outside engineering and other consultants; other direct expenses; allowance for pro- rata share of indirect expense; and profit.

REIMBURSABLE EXPENSE – Project related, non labor expense paid by the client above and beyond the project fee.

REVENUE FACTOR – calculated by multiplying the net multiplier by utilization rate (chargeability), or by dividing net revenue by total labor. The higher the revenue factor, the better a firm is at squeezing more revenue out of less labor.

RETIREMENT PLAN CONTRIBUTION – Discretionary distribution of profits to owners and employees that is shown after net profit from operations.

STANDARD HOURS (ALSO FULL-TIME-EQUIVALENT) – Usually 40 hours per week times 52 weeks or 2080 hours per year.

TOTAL REVENUE (SOMETIMES CALLED ‘GROSS REVENUE’)- Compensation earned from projects before other non operating income.  Includes pass through expenses billed for outside consultants and reimbursable or direct project expenses.

UTILIZATION RATE (ALSO CHARGEABLE RATIO) – The percentage of total staff time or dollars charged to projects, determined either in hours or dollars.

UNBILLED REVENUE – Revenue that has been earned but for which the client has not been given an invoice.

UNEARNED REVENUE – Backlog. Revenue for which there is a signed commitment for the firm to render the agreed services but for which the firm has not yet rendered those services.

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