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.
Full series (5-part) on Point of Total Assumption in FPIF Contracts
- Point of Total Assumption (PTA) - Test your PM Knowledge (you are here)
- The Point behind Point of Total Assumption in FPIF Contracts
- Derivation of Point of Total Assumption (PTA) Formula
- Point of Total Assumption (PTA) - Interesting Facts (PMP)
- Seller Fee Calculations in FPIF Contract
Image credit: Flickr / Stefan Baudy