TRIANGULAR DISTRIBUTION AND PERT METHOD VS. PAYOFF MATRIX FOR DECISION-MAKING SUPPORT IN RISK ANALYSIS OF CONSTRUCTION BIDDING: A CASE STUDY

Milan S. Mirković

DOI Number
https://doi.org/10.2298/FUACE201117020M
First page
287
Last page
307

Abstract

Decision-making in construction bidding represents a complex process due to the present risk. Risk or uncertainty cannot be ignored and should be treated as a constituent of decision-making. The paper aims to emphasize the importance of probability theory by comparing insufficiently applicable methods in practical bidding. The triangular distribution and the PERT method belong to three-point estimate techniques, while payoff matrices represent a multi-criteria approach. Also, selected methods belong to quantitative techniques for risk cost analysis. Still, the risk costs determination of the unit costs and the total costs of bids is often based on an intuitive approach. Therefore, compared results of the triangular distribution, PERT method, and payoff matrix techniques (minimin, minimax, expected monetary value, and expected opportunity loss) indicate the significance of risk costs estimating in tendering. The analysis of the results showed some overlaps in risk costs values obtained by the PERT method and expected monetary value technique. Those are due to the specificity of the chosen practical example and cannot be adopted as a rule. This means that selected methods and techniques are very useful for all bid estimation. The paper proved the complexity of decision-making, where the primary goal is to award a contract.

Keywords

bidding, risk, cost, unit cost, total cost, bid price

PDF

References

M. Brook, Estimating And Tendering For Construction Work, 4th ed., Butterworth-Heinemann, Elsevier, UK, 2008.

K. R. Molenaar, “Programmatic Cost Risk Analysis for Highway Megaprojects”, Journal of Construction Engineering and Management © ASCE, Vol. 131, pp.343-353, 2005, DOI: 10.1061/(ASCE)0733-9364(2005)131:3(343).

D. Makovšek, “Systematic construction risk, cost estimation mechanism, and unit price movements”, Transport Policy Vol. 35, pp.135–145, 2014, https://doi.org/10.1016/j.tranpol.2014.04.012.

A. Singh, Quantitative Risk Management and Decision Making in Construction, 1st ed., American Society of Civil Engineers, Reston, Virginia, USA, 2017.

M. Мirkovic, “The impact of failure types in construction production systems on economic risk assessments in the bidding phase”, Complexity Journal, ID 5041803, pp. 1–13, https://doi/org/10.1155/2018/5041803.

Y. Joo and G. Casella, “Predictive distributions in risk analysis and estimation for the triangular distribution”, Environmetrics, Vol.12, pp. 647-658, 2001, DOI:10.1002/env.489.

D. Johnson, “The triangular distribution as a proxy for the beta distribution in risk analysis”, Journal of the Royal Statistical Society Series D (The Statistician) Vol. 46, No. 3, pp. 387-398, 2002, DOI: 10.1111/1467-9884.00091.

T. S. Glickman and F. Xu, “Practical risk assessment with triangular distributions”, International Journal of Risk Assessment and Management, Vol 13, pp. 313-327, 2009, DOI: 10.1504/IJRAM.2009.030702.

W. E. Stein and M. F. Keblis, “A new method to simulate the triangular distribution”, Mathematical and Computer Modelling, Vol.49, pp. 1143-1147, 2009, doi:10.1016/j.mcm.2008.06.013.

M. Nabawy and L. M. Khodeir, “A systematic review of quantitative risk analysis in construction of mega projects”, Ain Shams Engineering Journal, In press. pp.1-8, 2020, https://doi.org/10.1016/j.asej.2020.02.006.

F. Fam, A. Malak, U. H. Issa, Y. H. Miky, and E. A. Osman, “Applying decision-making techniques to Civil Engineering Projects”, Beni-Suef University Journal of Basic and Applied Sciences, Vol. 6, pp. 326–331, 2017, http://dx.doi.org/10.1016/j.bjbas.2017.05.004.

S. Laryea and W. Hughes, “How contractors price risk in bids: theory and practice”, Construction Management and Economics, Pub Routledge, Vol. 26, pp. 911–924, 2017, DOI: 10.1080/01446190802317718.

A guide to the PROJECT MANAGEMENT BODY OF KNOWLEDGE, 6th ed, Project Management Institute Inc., USA, 2017.

G. K. Koulinas, A. S. Xanthopoulos, T. T. Tsilipiras, and D. E. Koulouriotis, “Schedule Delay Risk Analysis in Construction Projects with a Simulation-Based Expert System”, Buildings, Vol 10:134, pp. 1-19, 2020, doi:10.3390/buildings10080134.

D. Johnson, “Triangular Approximations for Continuous Random Variables in Risk Analysis”, The Journal of the Operational Research Society, Vol. 53, No. 4, pp. 457-467, 2002, https://doi.org/10.1057/palgrave.jors.2601330.

Y. Y. Haimes, Risk Modeling, Assessment, and Management, 3rd ed., A John Wiley & Sons, Inc., Publication, New Jersey, USA, 2009.

A. Leśniak and E. Plebankiewicz, “Modeling the Decision-Making Process Concerning participation in Construction Bidding”, Journal of Management in Engineering, Vol.31, pp. 04014032-1 - 04014032-9,2013, DOI: 10.1061/(ASCE)ME.1943-5479.0000237.

V. K. Gupta, and J. J Thakkar, “A quantitative risk assessment methodology for construction project”, Sadhana, Vol. 43:116, pp.1-16, 2018, https://doi.org/10.1007/s12046-018-0846-6Sa.

H. W. Kang and Y. S. Kim, "A Model for Risk Cost and Bidding Price Prediction Based on Risk Information in Plant Construction Projects”, KSCE Journal of Civil Engineering, Vol. 22, pp. 4215–4229, 2018, https://doi.org/10.1007/s12205-018-0587-4.

W. C. Wanga, S. H. Wang, Y. K. Tsui, and C. H. Hsu, “A factor-based probabilistic cost model to support bid-price estimation”, Expert Systems with Applications, Vol. 39, pp. 5358–5366, 2012, doi:10.1016/j.eswa.2011.11.049.

P.Y. Ekel, J.G. Pereira Jr, R.M. Palhares, and R.O. Parreiras, “On multicriteria decision making under conditions of uncertainty”, Information Sciences. Vol. 324, pp. 44–59, 2015, https://doi.org/10.1016/j.ins.2015.06.013.

H. G. Wieloch, “The Impact of the Structure of the Payoff Matrix on the Final Decision made Under Uncertainty”, Asia-Pacific Journal of Operational Research, Vol. 35, No. 1, pp. 1-27, World Scientific Publishing Co. & Operational Research Society of Singapore, 2018, DOI: 10.1142/S021759591850001X.

R. Liang, Z. Sheng, F. Xu, and C. Wu, Bidding “Strategy to Support Decision-Making Based on Comprehensive Information in Construction Projects”, Discrete Dynamics in Nature and Society, Volume 2016, Article ID 4643630, pp. 1-15, 2016, Hindawi Publishing Corporation, https://doi.org/10.1155/2016/4643630.

T. Wiseman, “A Partial Folk Theorem for Games with Unknown Payoff Distributions”, Econometrica, Vol. 73, No. 2, pp. 629-645, 2005, https://doi.org/10.1111/j.1468-0262.2005.00589.x.

R. R. Yager, “Decision making using minimization of regret”, International Journal of Approximate Reasoning Vol. 36, pp. 109–128, 2004, doi:10.1016/j.ijar.2003.10.003.

A. Purnus and C N. Bodea, “Considerations on Project Quantitative Risk Analysis”, 26th IPMA World Congress, Crete, Greece, Procedia - Social and Behavioral Sciences Vol. 74, pp. 144 – 153, Crete, Greece, 2013, doi: 10.1016/j.sbspro.2013.03.031

M. J. Thaheem, K. C. Hurtado, and A. D. Marco, “A review of quantitative analysis techniques for construction project risk management”, Creative Construction Conference, pp. 656-666, Budapest, Hungary, 2012.

Refbacks

• There are currently no refbacks.

ISSN 0354-4605 (Print)

ISSN 2406-0860 (Online)