Point Of Total Assumption Calculation

Target fee tf. Since target cost target fee target price.

How To Calculate Break Even Point Definition Assumptions

Let us first derive this formula.

Point of total assumption calculation. Therefore the pta is also a risk trigger. The seller bears all of the cost risk at pta and beyond due to a dollar for dollar decrease in profit beyond the costs at the pta. Formula vi point of total assumption formula.

If i calculate this with ceiling price target price buyer s share ration target cost i get. Anybody knows how to get to the correct answer. The point of total assumption is the point above which the cost is borne by the seller.

Here is the formula to calculate the point of total assumption. If the seller crosses the ceiling price it is assumed that this cost has overrun due to mismanagement by the seller and it is their responsibility to bear this cost overrun. Point of total assumption is that point during cost overrun where the ceiling price of a fixed price incentive fpi fpif contract has been reached.

In addition once the costs on an fpi contract reach pta the maximum amount the buyer will pay is the ceilin. Using pta in the contract needs some generosity from the buyer because they are expected to absorb some amount of cost overrun on seller s side. Which is the pta point of total assumption break point of the project.

Seller s share ratio sr. 1 we also know that the total price that the buyer pays at the pta is also known as the ceiling price. At this point the fpi contract converts to a firm fixed price ffp contract.

We will use the following abbreviations for the ensuing discussion. In other words when actual cost reaches pta buyer pays the ceiling price. 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.

Pta ceiling price target price buyer s share ratio target cost. Beyond the point of total assumption the seller s profitability decreases and their initiative and interest to complete the project may diminish too. 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.

Target cost tc. Actual cost ac. This concept is useful in fixed price incentive fee fpif type of contracts.

Target price tp. Pta 1 300 000 1 100 000 0 80 1 000 000 1 250 000. The point of total assumption is a point on the cost line of the profit cost curve determined by the contract elements associated with a fixed price plus incentive firm target contract above which the seller effectively bears all the costs of a cost overrun.

Buyer s price at pta target price pta target cost x bsr. 1 300 000 1 500 000 80 000 1 125 000 correct answer. 1 200 000 1 000 000 0 8 100 000 350 000.

Ceiling price cp. Pta definition point of total assumption can be defined as follows. Point of total assumption is part of project procurement management knowledge area of pmp capm exam.

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