A multicriteria approach to the marking-up of a bid

Abstract

The paper acknowledges that, in competitive bidding, the determination of the “optimum” mark-up to be placed on a bid should incorporate not only risk-preference and profit but also recognition of a loss in losing a bid. This is accomplished by isolating three important objectives, namely (maximising) the expected risk-adjusted basic profit, (maximising) the expected risk-adjusted profit corrected for bias in estimating, and (minimising) the expected loss in losing a bid. The “optimum” mark-up is then established by selecting a compromise solution among these three objectives. The procedure is compared with some more conventional (single-criterion) bidding strategies based on actual bidding records. It is shown that a multicriteria decision-making basis is a rational and fundamental way of handling the competitive bidding strategy problem.