Bid pricing-calculating the possibility of winning

Abstract

For many years, those researching into the problem of bid pricing have attempted to determine the probability of a bidder winning a bid based only upon the price of its proposal. However, researchers have professed the need to consider the many other factors influencing the client's bid selection. We examine two novel pricing approaches which address this need. This has been done by modelling the three main actors within the bid pricing problem: the client, the competitors and the bidder. Multi-attribute utility theory is applied to capture the bid selection behaviour of the client, while possibility theory is used to model the performance of competitors in the bid. The resulting models determine the possibility of the bidder winning a bid at different bid prices, allowing the bidder to optimise its bid price. This is performed with the aim of enhancing the overall success rate and profitability of the bidder in real bidding environments. The authors are examining the novel bid pricing approaches outlined in this paper as a part of their research work within two major projects: (1) the DECIDE project, which is focused on one-of-a-kind or small-series manufacturing, where costs are important since the average margins on successful bids are often quite low; and (2) the ServPrice project, which aims to develop bid pricing tools for sophisticated high value-added service industries where costs are fixed and the marginal cost to provide the service is very small. This is especially true in the telecom and software industries, so ServPrice is developing the bid pricing tools with partners from these industries.