{"id":2789,"date":"2021-08-11T15:57:10","date_gmt":"2021-08-11T20:57:10","guid":{"rendered":"https:\/\/projectmanagementacademy.net\/resources\/?p=2789"},"modified":"2022-01-21T11:18:11","modified_gmt":"2022-01-21T16:18:11","slug":"point-of-assumption","status":"publish","type":"post","link":"https:\/\/projectmanagementacademy.net\/resources\/blog\/point-of-assumption\/","title":{"rendered":"Point of Assumption"},"content":{"rendered":"\n<p>Different types of contracts have different requirements and budget impacts. <a href=\"https:\/\/projectmanagementacademy.net\/pmp-certification-requirements\">Project Managers who are working towards earning the Project Management Institute (PMI)\u2019s Project Management Professional (PMP)\u00ae certification<\/a> should have a basic understanding of contracts and project formulas connected to different types of contracts. For instance, the point of total assumption calculation can be used with fixed-price incentive fee contracts. Although it has been deemphasized in recent years by the PMI itself, the point of total assumption (PTA) formula may be used by some companies.<\/p>\n\n\n\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-1 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<p><strong>On this page:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><a href=\"https:\/\/projectmanagementacademy.net\/resources\/blog\/point-of-assumption\/#pta\">Point of Total Assumption (PTA)<\/a><\/li><li><a href=\"https:\/\/projectmanagementacademy.net\/resources\/blog\/point-of-assumption\/#fpif\">Fixed-Price Incentive Fee (FPIF) Contracts<\/a><\/li><li><a href=\"https:\/\/projectmanagementacademy.net\/resources\/blog\/point-of-assumption\/#pta-formula\">Point of Total Assumption (PTA) Formula<\/a><\/li><li><a href=\"https:\/\/projectmanagementacademy.net\/resources\/blog\/point-of-assumption\/#pta-example-1\">Point of Total Assumption Calculation Example 1<\/a><\/li><li><a href=\"https:\/\/projectmanagementacademy.net\/resources\/blog\/point-of-assumption\/#pta-example-2\">Point of Total Assumption Calculation Example 2<\/a><\/li><li><a href=\"https:\/\/projectmanagementacademy.net\/resources\/blog\/point-of-assumption\/#conclusion\">Conclusion<\/a><\/li><\/ul>\n<\/div>\n<\/div>\n\n\n\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-2 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:40%\">\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/e360-media.s3.amazonaws.com\/2022\/01\/21103157\/PMP-Formula-Cheat-Sheet-809x1024.png\" alt=\"PMP Formula Cheat Sheet\" class=\"wp-image-4712\" width=\"296\" height=\"374\" srcset=\"https:\/\/e360-media.s3.amazonaws.com\/2022\/01\/21103157\/PMP-Formula-Cheat-Sheet-809x1024.png 809w, https:\/\/e360-media.s3.amazonaws.com\/2022\/01\/21103157\/PMP-Formula-Cheat-Sheet-237x300.png 237w, https:\/\/e360-media.s3.amazonaws.com\/2022\/01\/21103157\/PMP-Formula-Cheat-Sheet-768x972.png 768w, https:\/\/e360-media.s3.amazonaws.com\/2022\/01\/21103157\/PMP-Formula-Cheat-Sheet.png 1010w\" sizes=\"auto, (max-width: 296px) 100vw, 296px\" \/><\/figure>\n<\/div>\n\n\n\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:50%\">\n<div style=\"height:48px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>PMP\u00ae Exam Formula Cheat Shee<\/strong>t<\/h2>\n\n\n\n<p id=\"block-14690051-2796-4b03-bcb7-95d54bd01fcd\"><em><em>Learn how to successfully use project management formulas after reading this cheat shee<\/em>t.<\/em><\/p>\n\n\n\n\t\t\t\t\t<script>\n\t\t\t\t\t\thbspt.enqueueForm({\n\t\t\t\t\t\t\tportalId: 3294842,\n\t\t\t\t\t\t\tformId: \"730482d7-eef5-49c7-aa16-898785e241ee\",\n\t\t\t\t\t\t\ttarget: \"#hbspt-form-1776460101000-1285931270\",\n\t\t\t\t\t\t\tregion: \"na1\",\n\t\t\t\t\t\t\t\n\t\t\t\t\t\t});\n\t\t\t\t\t<\/script>\n\t\t\t\t\t<div class=\"hbspt-form\" id=\"hbspt-form-1776460101000-1285931270\"><\/div>\n<\/div>\n\n\n\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:10%\">\n<div style=\"height:100px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<\/div>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"pta\">Point of Total Assumption (PTA)<\/h2>\n\n\n\n<p>There is not a point of total assumption formula needed for the PMP exam (a \u201cPTA formula PMP\u201d in other words), but there is a core definition that drives the calculation of this concept. PTA applies only in incentive fee contracts in which the buyer and seller have a fixed price, and the buyer agrees to repay an agreed-upon percentage of any cost overrun to a maximum point. Although not included in the PMI online lexicon nor as a term within the PMP\u00ae certification exam, project managers should know the PTA is the cost point at which the seller has agreed to cover all cost overruns.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-subtle-pale-blue-background-color has-background\"><tbody><tr><td><strong>POINT OF TOTAL ASSUMPTION<\/strong><\/td><td><em><br>The amount above which the seller bears all the losses of an additional cost overrun; only related to fixed-price incentive fee contracts<\/em> <em>\u2013 Source <\/em><a href=\"https:\/\/www.izenbridge.com\/blog\/pmp-exam-point-of-total-assumption\/\"><em>https:\/\/www.izenbridge.com\/blog\/pmp-exam-point-of-total-assumption<\/em><\/a><br><br><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>No one wants to incur additional costs, so the fixed-price incentive contract provides a financial incentive to motivate teams to stay on budget.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"fpif\">Fixed-Price Incentive Fee (FPIF) Contracts<\/h2>\n\n\n\n<p>The fixed-price incentive fee contract must be carefully designed with very specific terms in place. If an FPIF contract is well planned, \u201c<a href=\"https:\/\/mosaicprojects.com.au\/WhitePapers\/WP1061_PTA.pdf\">when the cost equals the ceiling price, the seller should still be in a profitable position (but with reduced profits); only after costs exceed the ceiling price should the seller be in a loss position<\/a>.\u201d &nbsp;Below find listed core terms reflective of the FPIF contract and the point of total assumption. Note, these terms are not included in the PMI online lexicon nor as a term within the PMP certification exam at this time.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-subtle-pale-blue-background-color has-background\"><tbody><tr><td><strong>TERM<\/strong><\/td><td><strong>DEFINITION <\/strong><strong><\/strong><\/td><\/tr><tr><td><strong>TARGET PRICE<\/strong><\/td><td>\u2022 Sum total of Target Cost + Target Fee<br>\u2022 Both seller and buyer use as a benchmark<br>\u2022 If the final project cost less than this price, the buyer and seller will share the profit as per the profit-sharing agreement. If the price goes beyond the target price, buyer and seller share the cost as per the cost-sharing agreement (subject to the maximum ceiling of the selling price).<br>Source: www.izenbridge.com\/blog\/pmp-exam-point-of-total-assumption\/<\/td><\/tr><tr><td><br><strong>TARGET FEE<\/strong><\/td><td>\u2022 Fee which the seller wants to charge for the work<br>\u2022 Planned fee, and the actual fee will depend upon how well the seller manages the project (cost overruns)<br>Source: www.izenbridge.com\/blog\/pmp-exam-point-of-total-assumption\/<\/td><\/tr><tr><td><strong>TARGET COST<\/strong><\/td><td>\u2022 The estimated budget, which the seller has planned for delivering the given project<br>\u2022 Shared with the buyer<br>Source: www.izenbridge.com\/blog\/pmp-exam-point-of-total-assumption\/<\/td><\/tr><tr><td><strong>CEILING PRICE<\/strong><\/td><td>\u2022 Target Cost, plus the Buyer\u2019s Share of the cost overruns, plus the seller\u2019s Target Profit<br>\u2022 The maximum the buyer is expected to pay regardless of cost overruns<br>\u2022 Defined as the Target Price plus a percentage<br>\u2022 May be adjusted for authorized scope changes and other approved variations to the contract, but not for cost overruns associated with the original scope of work<br>Source: https:\/\/mosaicprojects.com.au\/WhitePapers\/WP1061_PTA.pdf<\/td><\/tr><tr><td><strong>GUARANTEED MAXIMUM PRICE<\/strong><\/td><td>\u2022 Frequently used outside of the USA<br>\u2022 Represents the maximum project value after which the buyer has no more to pay<br>\u2022 Set in the contract and a \u2018profit share\u2019 agreed for the expected cost underruns.<br>\u2022 GMP contracts may include target costs or may simply include a share ratio for any cost under-runs<br>Source: https:\/\/mosaicprojects.com.au\/WhitePapers\/WP1061_PTA.pdf<\/td><\/tr><tr><td><strong>SHARE RATIO<\/strong><\/td><td>\u2022 Compares the actual cost at completion with the target price and divides the benefit of<br>\u2022 There are two types of ratios:<br><br>1. One for sharing profit, when the project cost less than the target cost, and<br>2. Another is the cost-sharing ratio when the project costs more than the target cost.<br><br>\u2022 A typical set of share ratios are 80% buyer \u2013 20% seller for overruns and 50% \u2013 50% for underruns. This means the seller (contractor) contributes 20% of any cost overruns (usually from its planned profit) up to the ceiling but receives 50% of any cost savings (underruns).<br>\u2022 Consequently, the seller is incentivized to achieve underruns but not heavily penalized for cost overruns until the cost ceiling is reached<br>Source: www.izenbridge.com\/blog\/pmp-exam-point-of-total-assumption\/<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<p class=\"has-text-align-center has-medium-font-size\"><strong>Studying for the PMP Exam?<\/strong><\/p>\n<\/div><\/div>\n\n\n\n<div class=\"wp-block-buttons is-content-justification-center is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button has-custom-width wp-block-button__width-50 is-style-fill\"><a class=\"wp-block-button__link has-white-color has-text-color has-background\" href=\"https:\/\/projectmanagementacademy.net\/free-pmp-questions?cat=pmp-formulas\" style=\"border-radius:20px;background-color:#366194\" target=\"_blank\" rel=\"noreferrer noopener\">Practice Questions for PMP Formulas<\/a><\/div>\n<\/div>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<hr class=\"wp-block-separator is-style-wide\"\/>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"pta-formula\">Point of Total Assumption (PTA) Formula<\/h2>\n\n\n\n<p>Although the Point of Total Assumption is not in the sixth edition of the PMI\u2019s <em>A<\/em> <em>Guide to the Project Management Body of Knowledge <\/em>(<em>PMBOK<\/em>\u00ae <em>Guide<\/em>), project managers may find situations in their professional life that may benefit from a basic understanding of the PTA formula. An FPIF contract will specify <a href=\"https:\/\/www.pmchamp.com\/point-of-total-assumption-calculations-on-pmp-exam\/\">a target cost, a target profit, a target price, a ceiling price, and one or more of the sharing ratios<\/a>. The PTA formula requires the ceiling price, target price, buyer\u2019s share ratio, and the target cost.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"678\" height=\"96\" src=\"https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081347\/image-15.png\" alt=\"\" class=\"wp-image-2808\" srcset=\"https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081347\/image-15.png 678w, https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081347\/image-15-300x42.png 300w\" sizes=\"auto, (max-width: 678px) 100vw, 678px\" \/><\/figure><\/div>\n\n\n\n<p>The mathematical calculation for PTA is relatively straightforward. Examples of the PTA formula calculations show it is dependent upon the figures determined in the FPIF contract.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"pta-example-1\">Point of Total Assumption Calculation Example 1<\/h2>\n\n\n\n<p>Review below from the examples provided by the <a href=\"https:\/\/www.pmchamp.com\/point-of-total-assumption-calculations-on-pmp-exam\/\">PMChamp.com site<\/a>:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Target Cost:&nbsp;1,000,000<\/em><\/li><li><em>Target Profit for Seller:&nbsp;100,000<\/em><\/li><li><em>Target Price:&nbsp;1,100,000 (Target Cost + Profit for Seller)<\/em><\/li><li><em>Ceiling Price:&nbsp;1,300,000 (the maximum the buyer will pay)<\/em><\/li><li><em>Share Ratio:&nbsp;80% buyer\u201320% seller for over-runs, 50%\u201350% for under-runs<\/em><\/li><\/ul>\n\n\n\n<p>What is the Point of Total Assumption for this project with these contract terms?<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"470\" height=\"67\" src=\"https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081409\/image-16.png\" alt=\"\" class=\"wp-image-2810\" srcset=\"https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081409\/image-16.png 470w, https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081409\/image-16-300x43.png 300w\" sizes=\"auto, (max-width: 470px) 100vw, 470px\" \/><\/figure><\/div>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"332\" height=\"113\" src=\"https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081425\/image-17.png\" alt=\"\" class=\"wp-image-2811\" srcset=\"https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081425\/image-17.png 332w, https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081425\/image-17-300x102.png 300w\" sizes=\"auto, (max-width: 332px) 100vw, 332px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"pta-example-2\">Point of Total Assumption Calculation Example 2<\/h2>\n\n\n\n<p>For other examples, review this <a href=\"https:\/\/www.deepfriedbrainproject.com\/2009\/10\/point-of-total-assumption-pta-facts.html\">information from Deep Fried Brain Project.com:<\/a><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Target Cost: $60,000<\/em><\/li><li><em>Target Fee: $15,000<\/em><\/li><li><em>Target Price: $75,000<\/em><\/li><li><em>Ceiling Price: $100,000<\/em><\/li><li><em>Buyer-Seller Share Ratio: 60:40<\/em><\/li><\/ul>\n\n\n\n<p>What is the Point of Total Assumption for this project with these contract terms?<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"471\" height=\"67\" src=\"https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081450\/image-18.png\" alt=\"\" class=\"wp-image-2812\" srcset=\"https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081450\/image-18.png 471w, https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081450\/image-18-300x43.png 300w\" sizes=\"auto, (max-width: 471px) 100vw, 471px\" \/><\/figure><\/div>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"288\" height=\"119\" src=\"https:\/\/e360-media.s3.amazonaws.com\/2021\/08\/12081505\/image-19.png\" alt=\"\" class=\"wp-image-2813\"\/><\/figure><\/div>\n\n\n\n<p>The formula is straightforward. The challenge is in finding the needed data from the project contract and budget documentation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"conclusion\">Conclusion<\/h2>\n\n\n\n<p>The Project Point of Total Assumption is in fact, not an \u201cassumption\u201d as in a guess. It is a very specific figure determined by calculations driven by a specific formula. Although there may not be a PTA section of questions on the PMP\u00ae certification exam or a \u201cpoint of total assumption PMP\u201d definition, there could be organizational value derived from knowledge of the values used within a fixed-price incentive fee (FPIF) contract.<\/p>\n\n\n\n<div style=\"height:45px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<p style=\"font-size:25px\"><strong>Upcoming PMP Certification Training &#8211; Live &amp; Online Classes<\/strong><\/p>\n\n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\"><table class=\"table table-striped table-bordered table-responsive-sm font-md mt-5 mb-0 d-none d-md-table\"><tr><td>Name<\/td><td>Date<\/td><td>Place<\/td><td><\/td><\/tr><\/table>\n<\/div><\/div>\n\n\n\n<p><\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:45px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<hr class=\"wp-block-separator is-style-wide\"\/>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Different types of contracts have different requirements and budget impacts. Project Managers who are working towards earning the Project Management Institute (PMI)\u2019s Project Management Professional (PMP)\u00ae certification should have a basic understanding of contracts and project formulas connected to different types of contracts. For instance, the point of total assumption calculation can be used with [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":2807,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[35],"tags":[41],"class_list":["post-2789","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-pmp-formulas","tag-general-project-management"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Point of Assumption - Project Management Academy Resources<\/title>\n<meta name=\"description\" content=\"The PMP Formula for Point of Total Assumption is, in fact, not an \u201cassumption\u201d as in a guess. 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