Naïve Bayesian Classifier for Selecting Good/Bad Projects during the Early Stage of International Construction Bidding Decisions

Abstract

Since the 1970s, revenues generated by Korean contractors in international construction have increased rapidly, exceeding USD 70 billion per year in recent years. However, Korean contractors face significant risks from market uncertainty and sensitivity to economic volatility and technical difficulties. As the volatility of these risks threatens project profitability, approximately 15% of bad projects were found to account for 74% of losses from the same international construction sector. Anticipating bad projects via preemptive risk management can better prevent losses so that contractors can enhance the efficiency of bidding decisions during the early stages of a project cycle. In line with these objectives, this paper examines the effect of such factors on the degree of project profitability. The Naïve Bayesian classifier is applied to identify a good project screening tool, which increases practical applicability using binomial variables with limited information that is obtainable in the early stages. The proposed model produced superior classification results that adequately reflect contractor views of risk. It is anticipated that when users apply the proposed model based on their own knowledge and expertise, overall firm profit rates will increase as a result of early abandonment of bad projects as well as the prioritization of good projects before final bidding decisions are made.