Point of Total Assumption
The point of total assumption (PTA) is a price determined by a fixed
price plus incentive fee contract (FPIF) above which the seller
bears all the loss of a cost overrun. It is also known as the "most
pessimistic cost" because it represents the highest point beyond which
costs are not expected to rise, given reasonable issues. If costs go beyond the
PTA, they are assumed to be due to mis-management rather than a worst-case set
of difficulties. The seller bears all of the cost risk at PTA and beyond. In
addition, once the costs on an FPIF contract reach PTA, the maximum amount the
buyer will pay is the ceiling price.
Any
FPIF contract specifies a target cost, a target profit, a target price, a
ceiling price, and one or more share ratios. The PTA is the difference between
the ceiling and target prices, divided by the buyer's portion of the share
ratio for that price range, plus the target cost.
PTA =
((Ceiling Price - Target Price)/buyer's Share Ratio) + Target Cost
Example:
Target Cost: 60,000
Target profit: 6000
Target Price: 63,000
Celing Price: 65,000
Share Ratio: 70% Buyer and 30% seller
PTA = (( 65000 - 63000 ) / 0.7 ) + 60000 = 62857
Source: Wikipedia.org
Point of Assumption
For cost reimbursable contract, Point of Total Assumption (also referred to as break point) is calculated by the following formula: PTA = [{(Ceiling Price - (Target Cost+Fixed fee))/Benefit Sharing} + Target Cost]
Example: target Cost = 1,000,000; Fixed Fee = 100,000; benefit/cost sharing = 80%/20%; Price ceiling = 1,200,000
PTA = {(1,200,000 - (1,000,000+100,000))/0.80}+1,000,000 = 1,125,000 Contributed by Dipanjan
The idea of a "Point of Total Assumption" is an extremely recent one, and even high-level government logistics specialists often don't know what the term means, or how to calculate it. In the government's efforts to cut cost overruns, however, the PTA is being introduced to FPIF contracts on an increasingly wide basis. Moreover, high-level professional examinations for industry certification, such as the Project Management Professional certification, are beginning to test applicants' knowledge of this concept and its application.
Source : Wikipedia.org
Hi experts, FPIP uses
Hi experts,
FPIP uses Buyer's Share ratio while Cost Reimbursable uses Benefit Sharing.
Are they the same meaning?
For FPIP, is it that even if its given that
Share Ratio: 70% Buyer and 30% seller
we Always only pluck in the buyer ratio of 70% ?
For Cost Reimbursable, if its given that
benefit/cost sharing = 80%/20% , which is the buyer's and which is the seller's ratio?
or is it that if there is a profit, the ratio to pluck in the formula is 80% while if there is a loss, the ratio to pluck in is 20% ?
Really hope to get clarification on the above doubts.
regards
J
More to PTA than shown here
The point of total assumption is not a "recent development" as it has been in use, and studied, by government and military personnel for a long time. However, it is a hot topic among PMP applicants because it recently (approximately 2007) appeared on the PMP certification exam.
Interested persons may visit www.trainingdhughes.com and click resources to find a carefully researched article which explains the concept and clarifies misunderstandings.
More on Point of Total Assumption (PTA)
Here's another article that you might find useful on PTA:
Interesting Facts about Point of Total Assumption (PTA)
Admin, it seems there is a
Admin, it seems there is a mistake in your example.
Target Price = Target Cost + Target Profit
So Target Profit here should be 3000, instead of 6000.
Cheers