Bids Considering Multiple Criteria

Abstract

Typically, the only criterion quantitatively considered in competitive bidding optimization is profit criterion. This may or may not lead to suboptimal decisions when a decision maker's total utility is considered, depending upon the importance of profit relative to other criteria, such as loss avoidance or work force continuity. Common sense generally provides a basis for subjective modification of profit‐based bidding strategies in order to incorporate additional criteria. However, the more complex the situation, the more difficult it becomes to determine what strategy modifications are appropriate. This paper presents a quantitative method for incorporating decision‐maker preferences into the bidding process when multiple criteria are to be considered. The method is based upon the merging of stochastic bidding models with the analytical hierarchy process (AHP). Inputs are cost data, competitor data, and decision‐maker preferences, while output is a set of composite weights by which alternative bid mark...