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TOPIC: How is Celing Price calculated ?

How is Celing Price calculated ? 6 years 8 months ago #2965

  • Poorvi Bagdi
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How do I calculate Celing Price when Target Cost and Target Fee and Actual Cost are mentioned.

How is Celing Price calculated ? 6 years 7 months ago #2967

  • Kevin Reilly
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Hi Poorvi -

The Ceiling Price is a dollar figure that is agreed upon by two parties engaging in a Fixed Price Incentive Fee contract (FPIF). All costs above the agreed upon Price Ceiling are the responsibility of the seller, who is obligated to complete the work (PMBOK Guide, 4th Edition, page 322). As far as calculating the Ceiling Price, there isn't really a calculation involved in determining the Ceiling Price since it is set as a fixed amount by the two parties who engaged in the contract.

First of all, rest assured that you will most likely not encounter a question that asks to calculate the Ceiling Price, since this is something that will be given to you in the question. Having said that, below is the formula for the Point of Total Assumption (PTA), with which the Ceiling Price I usually associated.

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

In your scenario, you only have the Target Cost, Target Fee and Actual Cost, which does not give you enough information to determine the Ceiling Price.

I hope that helps.

Thanks

Kevin
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How is Celing Price calculated ? 1 year 7 months ago #12305

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Hi Kevin,
Thank you for the explanation. However, looking at Rita Mulcahy's PMP exam prep book (8th edition) on pages 480-482 we have several exercises where they describe a situation and then ask for final fee and price. However, ceiling price is not mentioned and just randomly appears in calculation table (i.e. the amount is never mentioned in the text). If we are not meant to calculate ceiling price and should assume that the question will give this information to us, does that mean that the question in Rita's book is just badly formatted?
Sorry if I sound confusing. I have been trying to figure this out for a while now... (i.e. if i missed something),

How is Celing Price calculated ? 1 year 6 months ago #12652

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I had the exact same question tonight while studying using Rita's PMP book. I'm going with Kevin Reilly's response above "this is something that will be given to you in the question." so I can move on with my life. LOL! Thanks, this made my search online for a quick response to my concern very easy to locate. Dallas Resident (March 2018 PMP)

How is Celing Price calculated ? 1 year 5 months ago #12758

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I had the same question in regards to ceiling price being mentioned in Rita's PMP book. I could not see anywhere in the question where the ceiling price is given while this thread instructs that it will be a given value in the question. I have seen some other inconsistencies in Rita's PMP book. So the question becomes if even Rita's PMP book is a good reference for PMP exam preparation ? Does anyone been able to pass the exam by only reading Rita's PMP book ? Thanks in advance

How is Celing Price calculated ? 1 year 3 months ago #13709

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Check the table under the question. Ceiling price is given. And for your question about passing exam by only reading Rita's PMP book, nothing is impossible but it will be difficult without reading PMBOK

How is Celing Price calculated ? 1 year 3 months ago #13710

  • Ty Weston, PMP
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The Ceiling Price typically will be the maximum the client is expected to pay regardless of any cost overruns that may occur. It has also been defined as the Target Price plus a percentage; at times.
The ceiling price could be adjusted up or down for any approved scope changes and any approved variations to a contract, but not for cost overruns associated with the original scope of work.
The calculation of the Ceiling Price is: (Target Cost + Buyer’s Share of the cost overruns + Seller’s Target Profit or Fixed Fee).
The Target Price will be: (Target Cost + Seller's Target Profit or Fixed Fee).
This has several variables in it, so deriving other factors out of these is either really difficult, or cannot be done in the PTA calculation.
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