Reference no: EM133111670
Bid Problem:
A contractor is trying to decide how much to bid on an upcoming job. The contractor can submit a high, average, or low bid. The size of the bid impacts the likelihood of winning and the expected contractor profit.
Payoff Matrix - ($000)
|
Bid Result
|
High
|
Average
|
Low
|
|
Win
|
110
|
75
|
25
|
|
Lose
|
-15
|
-15
|
-15
|
The number of potential bidders also impacts the probability of winning. Overall, 45% of the time the contractor faces >10 competitors on a bid and 55% of the time fewer than 10 competitors.
Probability (Winning|# Bidders & Bid Level)
|
Probability
|
High
|
Average
|
Low
|
|
< 10 Bidders
|
0.15
|
0.3
|
0.5
|
|
> 10 Bidders
|
0.05
|
0.15
|
0.35
|
The contractor tries to estimate the number of potential bidders on any job by using a field engineer to track the number of sets of contract documents checked out of the AGC plan room. When there were >10 bidders, >20 sets of plans were checked out 65% of the time. When there were < 10 bidders, > 20 sets of plans were checked out 25% of the time. It usually requires about $800 of the engineer's time to track the activity in the AGC plan room.
Part I
• Draw an influence diagram for this situation
Remember ID is about identifying the decision, uncertainties, and relationships between them
• Draw a decision tree for this situation
Remember DT is about the sequence in which the decision context will unfold.
Part II
• Which bid should the contractor submit (high, average, low)?
• Should the contractor use the field engineer to try to estimate the number of competitors?