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Point of Total Assumption (PTA) - Test your PM Knowledge

Posted by Harwinder on Sunday, September 06, 2009 - 16 comments  |  Readability Mode


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.


  1. Is PTA always between Target Price and Ceiling Price?

  2. Can PTA be higher (or more) than the Ceiling Price?

  3. Can PTA be lower (or less) than the Target Price?

  4. Is PTA the same as the point of no profit / no loss for the seller?

  5. Who is more concerned about PTA - buyer or seller - and why?

  6. What is the buyer/seller share ratio for the cost overruns exceeding PTA?

  7. Can seller be already in losses (profit below zero) at PTA?

  8. What is the contract price when the actual costs exceed the PTA?

  9. At what point does a Fixed Price Incentive Fee (FPIF) contract become a Firm Fixed Price (FFP) contract?

  10. When does PTA assume more importance - in cost underruns or overruns?

I plan to do several detailed posts on this subject. This post is just an appetizer. So, keep the forks and spoons !

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.

Related Articles: Image Credit: Flickr / Stefan Baudy

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16 comments:

  1. Hello,

    At which page in the PMBOK is PTA covered ? I didn't find it (or was too tired)

    Thanks !
    ReplyDelete
  2. Hello Anonymous,

    It's not mentioned in the PMBOK Guide, Fourth Edition, but often seen on the PMP exam.

    All the best !
    ReplyDelete
  3. 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
    ReplyDelete
  4. 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 !
    ReplyDelete
  5. 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
    ReplyDelete
  6. 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.
    ReplyDelete
  7. Hi Sir
    Excellent questions! I am still waiting to see the answers.

    Rahul
    ReplyDelete
  8. 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 !
    ReplyDelete
  9. 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
    ReplyDelete
  10. This comment has been removed by the author.
    ReplyDelete
  11. 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
    ReplyDelete
  12. Hi, really didactic the way you explained the PTA concept.

    Here my answers:

    1. No
    2. Yes
    3. No
    4. No
    5. The seller, as this will assume 100% of costs above the PTA
    6. 0:100
    7. Yes
    8. Ceiling Price
    9. At PTA
    10. Cost Overrun

    I await your response.

    Gaston Blanco Massani
    ReplyDelete
  13. Hello Gaspo,

    Excellent! The answers are available in other blog posts. See the links in my comments of Oct 23 (above).

    Thanks.
    ReplyDelete
  14. Hi Harry,

    On question 3) Can PTA be lower than Target Price? I believe the answer is Yes. 2 reasons for that
    - PTA is a "cost" figure, not a "price" figure. So it is possible that PTA is below Target Price
    - In your example 2 at http://www.deepfriedbrainpmp.com/2009/10/point-of-total-assumption-pta-facts.html, PTA is indeed below Target Price

    If the question was 3) Can PTA be lower than Target Cost?, then the answer is No.

    I believe there is a typo above?

    Thanks.
    ReplyDelete
  15. Hello Rookie,

    The question doesn't have a typo, but the answer does :) You are absolutely right in all the points you made. PTA is indeed a "cost" figure and not a "price" figure.

    I scrolled up (to one of my previous comments) and noticed that I said "no" was the correct answer to Question 3. I'm not sure what I was thinking then, but that's not correct and I have proven that in the other post, as you pointed out. I have removed the previous comment to avoid confusion.

    Here are all the answers:

    1. No
    2. Yes
    3. Yes
    4. No
    5. Seller, because cost overrun above PTA is not shared by the buyer
    6. Buyer:Seller = 0:100
    7. Yes
    8. Ceiling Price
    9. At PTA
    10. Cost overruns

    Let me know if you find any discrepancies now.
    ReplyDelete
  16. Rookie - BTW, thanks for pointing it out !
    ReplyDelete

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