What is point of total assumption in project management?

What is point of total assumption in project management?

The point of total assumption (PTA) 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 (FPI) contract above which the seller effectively bears all the costs of a cost overrun.

What is PTA contract?

When the project costs more than the target price, seller profit starts reducing. Though the buyer also shares the cost of overrun as per agreement ratio scenario 2 and 3. When the cost goes beyond Point of Total Assumption (PTA), buyer cost overrun sharing gets frozen.

What is ceiling price PMP?

The Ceiling Price is a dollar figure that is agreed upon by two parties engaging in a Fixed Price Incentive Fee contract (FPIF). All costs above the agreed upon Price Ceiling are the responsibility of the seller, who is obligated to complete the work (PMBOK Guide, 4th Edition, page 322).

How is cost plus incentive fee contract calculated?

The basic elements of a CPIF contract are: Target Cost: the estimated total contract costs….For example, assume a CPIF with:

1. Target Cost = 1,000.
2. Target Fee = 100.
3. Benefit/Cost Sharing Ratio for cost overruns = 80% Client / 20% Contractor.
4. Benefit/Cost Sharing Ratio for cost underruns = 60% Client / 40% Contractor.

What is free float and total float?

Total float, also called float or slack, is the amount of time an activity can be delayed without delaying the overall project duration. Free float is the amount of time an activity can be delayed without delaying the early start of any immediate successor activity.

Who is responsible for approving and rejecting the change request?

Who approves your project change requests? On one project, the sponsor tells the project manager to make the decisions. On other projects, the sponsor makes the decisions. And yet, in other cases, senior management gets involved.

What is the point of total assumption for the seller?

The point of total assumption (PTA) is the point above which the seller effectively bears all the costs of a cost overrun on a fixed price ‘incentive fee’ (FPIF or FPI) contract. The seller bears all of the cost risk at PTA and beyond, due to a dollar for dollar decrease in its profits for costs in excess of the PTA.

Which type of contract has the highest risk for the seller?

The greatest risk to the seller is the firm fixed price contract. Often, buyer and seller will negotiate aspects of both types so that the risk is spread between both the seller and the buyer.

What are some potential drawbacks to using contract incentives?

List of the Disadvantages of Incentive Contracts

• It creates additional administrative costs for ownership.
• It requires extra negotiation time.
• It can change the priority of the contract.
• It increases the risk that a dispute will occur.
• It can be difficult to determine what a fair incentive target happens to be.

What is point of total assumption (PTA)?

Point of Total Assumption = { (ceiling price – target price)/buyer’s share ratio} + target cost The video below explains the concept succinctly using an example. PTA helps seller identify at which point on project cost curve would the buyer stops contributing for cost overrun.

What is the point of Total Assumption of a contract?

Point of total assumption. The point of total assumption ( PTA) 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 (FPI) contract above which the seller effectively bears all the costs of a cost overrun.

What is the meaning of the word “assumption”?

One of the meanings of word “Assumption” is “ the act of taking possession of something ” e.g. “Assuming the power”. Although this is a more popular meaning, but there are other connotations of this word. It also means “ the act of taking over another person’s debts or obligations ”.

What is point of Total Assumption in PMP exam?

Point of Total Assumption, is part of Project Procurement Management knowledge area of PMP/CAPM exam. This concept is useful in Fixed Price Incentive Fee (FPIF) type of contracts.