Point of Total Assumption (PTA) is the total cost on a Fixed Price Incentive Fee (FPIF) contract, above which seller bears all the costs of a cost overrun. In other words, any cost overrun above the PTA is not shared by the buyer and totally absorbed by the seller.
Formula to calculate PTA:
PTA = ((Ceiling Price - Target Price)/Buyer's Share Ratio) + Target Cost
(we'll also look at how this formula is derived, in a future post)
To start with, I'm throwing a few PTA related questions for PMP aspirants to ponder over and answer. We'll tally our notes after I see a certain number of responses.
- Is PTA always between Target Price and Ceiling Price?
- Can PTA be higher (or more) than the Ceiling Price?
- Can PTA be lower (or less) than the Target Price?
- Is PTA the same as the point of no profit / no loss for the seller?
- Who is more concerned about PTA - buyer or seller - and why?
- What is the buyer/seller share ratio for the cost overruns exceeding PTA?
- Can seller be already in losses (profit below zero) at PTA?
- What is the contract price when the actual costs exceed the PTA?
- At what point does a Fixed Price Incentive Fee (FPIF) contract become a Firm Fixed Price (FFP) contract?
- When does PTA assume more importance - in cost underruns or overruns?
Go ahead and post your responses. Anyone who makes a sincere attempt to answer these questions qualifies for a $10 Gift Certificate, which can used toward the purchase of PM Prepcast.
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11 comments:
Hello,
At which page in the PMBOK is PTA covered ? I didn't find it (or was too tired)
Thanks !
Hello Anonymous,
It's not mentioned in the PMBOK Guide, Fourth Edition, but often seen on the PMP exam.
All the best !
Hi Brain,
These are EXCELLENT questions!!! You forced me to go back to my textbooks and work through them.
Keep up the good work and let me see what I can come up with for answers.... Will be curious to compare notes with you....
BTW- despite the fact that I have done innumerable contracts for the US government over the past 45 years or so, I have NEVER worked on a contract of this type. So while I agree with you it often appears on the PMP exam, I have to question the relevance of this to most practitioners.....
BR,
Dr. PDG, Jakarta
http://www.getpmcertified.com
Hello Dr. PDG,
Thanks for your encouraging feedback. I'm waiting for some answers to be posted before I post mine. Yes, it will be interesting to compare notes with you. You always have a different perspective.
Surprisingly, no one has even tried to answer these questions yet. Either they are too difficult or simply irrelevant :)
Thanks !
Hi,
Can someone please help answer questions above...
To my understanding I am still confused over PTA - although very well explained on this blog... but I still have some doubts.
Regards,
Suniil
Hello Sunil,
I did a series of posts recently on PTA. You can find all the answers on these 2 posts:
1. PTA Formula
2. Point Behind PTA
Let me know if you still have any doubts.
Regards.
Hi Sir
Excellent questions! I am still waiting to see the answers.
Rahul
Hello Rahul,
Thanks for your feedback.
As I mentioned on my previous comment (on Oct 23, 2009), the answers are posted in the follow up posts. I also gave the links to those posts. If you go through those 2 posts, you can find all the answers. Let me know if you still have any questions.
Thanks !
PTA = (CP-TP)
-------- + TC
buyer/seller
1. no
2. yes
3. no
4. no
5. seller
6. buyer/seller = 0:100
7. no
8. PTA
9. at PTA
10. cost overruns
@ Anonymous:
Very good attempt. Most of your answers are correct, but not all. Let's see how you fared:
1. no (correct)
2. yes (correct)
3. no (correct)
4. no (correct)
5. seller (correct, but 'why?')
6. buyer/seller = 0:100 (correct)
7. no (wrong)
8. PTA (wrong)
9. at PTA (correct)
10. cost overruns (correct)
You got 8 out of 10 correct. I'll let you look into the two you didn't get right. Let me know if you need my help on them.
Thanks for posting your response.
Harry, below are my answers..
1. Yes
2. Yes
3. No
4. Yes
5. Seller, because cost overrun above the PTA is not shared by the buyer.
6. Buyer:Seller = 0:100
7. No
8. Target Price + Cost overrun.
9. Above PTA
10. Cost Overrun
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