CPIF -

HI FOLKS HAPPY INDEPENDENCE DAY OF REPUBLIC OF INDIA (15th August) ---------------------------------------------------------------------


ABOUT CPIF


I observe at some places that


problems of FPIF and CPIF, has been made jumbled, in each other.


Sometimes CPIF concept are used in FPIF  or vice-vera.


There are many points which can be discussed but at present I put here an excellent example of CPIF, (from wiki), with a graphical support created by me.


 


To achieve this incentive,


In CPIF contracts, the seller is paid his target cost plus an initially negotiated fee plus a variable amount that is determined by subtracting the target cost from the actual costs, and multiplying the difference by the buyer ratio.   


 For example, assume a CPIF with:   


§ target costs = 1000,   


§ fixed fee = 100 (also called Target Profit),   


§ benefit/cost sharing = 80% Buyer / 20% Seller,   


 If the final costs are higher than the target,


say 1100, the Buyer will pay 1000 + 100 + 0.8*(1100-1000)=1180 (seller earns 80 which is less than if he had reached the target cost). 1180 (final payout) - 1100 (actual cost) = 80 profit.   


 If the final costs are lower than the target,


say 900, the buyer will pay 1000 + 100 + 0.8*(900-1000) = 1020 (seller earns 120 which is more than if he had reached the target cost). 1020 (final payout) - 900 (actual cost) = 120 profit.   


Formulas 


Final payout = Target cost + Fixed fee + Buyer share ratio * (Actual Cost - Target Cost).


If there is a ceiling price involved and actual cost is more than the ceiling


Final payout = Target cost + Fixed fee + Buyer share ratio * (ceiling price - Target Cost).   


To protect the buyer, it is occasionally agreed to set a ceiling price. This is the maximal price the buyer will be required to pay the seller, regardless of how high the costs have become. It is also occasionally agreed that a bonus be paid if costs are below the Target cost.     


The graphical presentation of CPIF 


http://er-sspawar.blogspot.in/2012/08/cost-plus-incentive-fee-contract.html


or


http://er-sspawar.blogspot.in/


There is one single formula - for solving sellers payout, no where it will  briefed so.


deducting the [AC +TF] from that seller's payout - Incentive can be find out.


Cheers


 

hi guys