Analysing Point of Total Assumption for Projects

Point of Total Assumption

Analysing Point of Total Assumption for Projects

 

Point of Total Assumption is a price determined by a Fixed Price contract 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 expected to rise, given reasonable issues.

 

If cost goes beyond Point of Total Assumption , they are assumed to be due to mismanagement rather than a worst case set of difficulties. The seller bears all the cost risks at PTA and beyond.

Point of Total Assumption

Any FPIF contract specifies a target cost, a target profit , a target price, a ceiling price and one or more share ratios. The Point of Total Assumption is the difference between the ceiling and the target prices,divided by the buyer’s portion of the share ratios for that price range, plus the target cost.

 

PTA= -(Ceiling Price + Target Price Price)  / Buyer Share Ratio ) + Target Cost

For example

Target cost : $56,000

Target Profit: $6,000

Target Price : $63,000

Share Ratio :70% buyer and 30% seller

 

PTA = (65,000-63,000)/ 0.7) +  60000 = $62,857

Adeniyi Salau PMP , CCNA R&S , CDMP, CEP, MOS, MCP, CSCU (Project 2016), Microsoft Certified Security and Networking Associate is a Google and Beingcert Certified Digital Marketer, Project Manager and SEO Expert of repute with about a decade of Blogging and online marketing experience. He is always ready to share his experience with others.

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