Point of total assumption

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. The seller bears all of the cost risk at PTA and beyond, due to a dollar for dollar decrease in profit beyond the costs at the PTA. In addition, once the costs on an FPI contract reach PTA, the maximum amount the buyer will pay is the ceiling price. Note, however, that between the cost at PTA and when the cost equals the ceiling price, the seller is still in a profitable position; only after costs exceed the ceiling price is the seller in a loss position.

Any FPI contract specifies a target cost, a target profit, a target price, a ceiling price, and one or more share ratios. The PTA is the difference between the ceiling and target prices, divided by the buyer's portion of the share ratio for that price range, plus the target cost.

PTA = ((Ceiling Price - Target Price)/buyer's Share Ratio) + Target Cost

For example, assume:

PTA = ((2,450,000 - 2,200,000)/ 0.80) + 2,000,000 = 2,312,500

This is a term used in project management when managing specific fixed price contracts.

For cost reimbursable contract, the Point of Total Assumption does not exist, since the buyer agrees to cover all costs. However, a similar incentive arrangement with similar components, called a Cost Plus Incentive Fee (CPIF) contract sometimes is used. The CPIF includes both a minimum fee and a maximum fee. The share line in combination with the Target Fee, Maximum Fee and Minimum Fee can be used to easily calculate the points at which the incentive arrangement affects fee. The range between these points is called the "range of incentive effectiveness." Edited by oldPCO

For contracts subject to the Federal Acquisition Regulations, FAR 16.403-1 provides the Government description of FPI. The contract type is implemented by calling out FAR Clause 52.216-16 Incentive Price Revision - Firm Target. This clause captures the Ceiling Price as well as the government share ratio(s). If multiple line items are identified as FPI type, the individual line item information shall be included here, otherwise final contract costs and price are reconciled at the contract level.

The idea of a "Point of Total Assumption" is an extremely recent one, and even high-level government logistics specialists often don't know what the term means, or how to calculate it. In the government's efforts to cut cost overruns, however, the PTA is being introduced to FPIF contracts on an increasingly wide basis. Moreover, high-level professional examinations for industry certification, such as the Project Management Professional certification, are beginning to test applicants' knowledge of this concept and its application.


Wikimedia Foundation. 2010.

Игры ⚽ Поможем написать реферат

Look at other dictionaries:

  • Assumption — In logic an assumption is a proposition that is taken for granted, as if it were true based upon presupposition without preponderance of the facts. An assumption that is considered to be self evident or otherwise fundamental is called an axiom.… …   Wikipedia

  • Responsibility assumption — is a doctrine in the personal growth field holding that each individual has substantial or total responsibility for the events and circumstances that befall them in their life. While there is little that is notable about the notion that each… …   Wikipedia

  • Self-Indication Assumption Doomsday argument rebuttal — The Self Indication Assumption Doomsday argument rebuttal is an objection to the Doomsday argument (that there is only a 5% chance of more than twenty times the historic number of humans ever being born) by arguing that the chance of being born… …   Wikipedia

  • Third-order intercept point — In telecommunications, a third order intercept point (IP3 or TOI) is a measure for weakly nonlinear systems and devices, for example receivers, linear amplifiers and mixers. It is based on the idea that the device nonlinearity can be modeled… …   Wikipedia

  • Apache Point Observatory Lunar Laser-ranging Operation — APOLLO shooting a laser at the Moon. The laser pulse is reflected from the retroreflectors on the Moon (see below) and returned to the telescope. The round trip time tells the distance to the Moon to great accuracy. In this picture the Moon is… …   Wikipedia

  • Morris–Putnam point — The Morris–Putnam point (MPP or “Profit Horizon” ) is the point within a break even analysis where an algorithmic trend line indicates break even will be exceeded by n percent. Economists and Financial analysts use the Morris–Putnam point to… …   Wikipedia

  • Floating point — In computing, floating point describes a method of representing real numbers in a way that can support a wide range of values. Numbers are, in general, represented approximately to a fixed number of significant digits and scaled using an exponent …   Wikipedia

  • Sewell's Point — is a peninsula of land in the independent city of Norfolk, Virginia in the United States, located at the mouth of the salt water port of Hampton Roads. Sewell s Point is bordered by water on three sides, with Willoughby Bay to the north, Hampton… …   Wikipedia

  • Law of total tricks — In contract bridge, the Law of total tricks (abbreviated as LoTT) is a guideline used to help determine how high to bid in a competitive auction. It is not really a law (because counterexamples are easy to find) but a method of hand evaluation… …   Wikipedia

  • Cost curve — In economics, a cost curve is a graph of the costs of production as a function of total quantity produced. In a free market economy, productively efficient firms use these curves to find the optimal point of production (minimising cost), and… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”