An order acceptance strategy under limited engineering man-hours for cost estimation in Engineering–Procurement–Construction projects

Abstract

Accurate cost estimation is essential for any Engineering–Procurement–Construction (EPC) contractor accepting profitable projects because the project price is determined prior to receiving the contract. Therefore the contractor needs to ensure engineering man-hours (MH) in order to estimate project costs accurately as well as carry out the accepted orders. In this paper, we develop MH based order acceptance strategies and investigate their effects on the total expected profit through a long-term operation in EPC projects under a competitive bidding situation. To this end we build a simulation model describing relations among the volume of MH for cost estimation, accepted orders, revenues, and profits in EPC projects. Using our model, we show that the strategy, which maintains the appropriate balance of MH for cost estimation and project execution under the variability of accepted orders with competitive bidding situations, improves the total expected profit in EPC projects.