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TOPIC: How is Celing Price calculated ?

How is Celing Price calculated ? 4 years 1 month 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 ? 4 years 1 month 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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