Point of Total Assumption (PTA), Explained With Example

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.

Using PTA in the contract needs some generosity from the buyer, because they are expected to absorb some amount of cost overrun on seller’s side!

You can expect to get a question on the exam to use the formula to calculate 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. This is the point beyond which seller absorbs all additional cost overrun.

point-of-total-assumption

Image courtesy:
Ybelodray, PMP FPIF Contracts – BAC exceeds PTA, CC BY-SA 3.0

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