Utility-Theory Model for Bid Markup Decisions

Abstract

A utility theory model, which is one of three generic methods for bid markup determination, is developed using 21 criteria in the bidding decision. The majority of the criteria are evaluated subjectively by a decision maker, and numerical quantification and evaluation is typically difficult for such criteria. Previous works of Saaty, Lifson and Shaifer, and Ahmad and Minkarah are used to develop a simplified approach using straight-line utility functions to resolve such difficulty. This bidding model accommodates the variation of different decision makers' attitude in the weighting of criteria, and thus the model can be customized to different preferences and bias of risk. Considering the subjectivity of the process, the writers consider the accuracy of this approach to be acceptable for the use of utility theory as one of the decision making tools that are available to assist the construction contractor in determination of bid(s) markup during bid preparation.