SIM-UTILITY: Model for Project Ceiling Price Determination

Wei‐Chih Wang

32 citations0/0 files storedJournal of Construction Engineering and Management

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Construction Project Management and Performance Multi-Criteria Decision Making Value Engineering and Management

Abstract

Before considering bids submitted by competing contractors for a public procurement project, the owner should determine a project ceiling price or cost estimate to use as a reference point for evaluating the bids. A high ceiling price conflicts with the owner’s interests in minimizing costs. Meanwhile, a low ceiling price can jeopardize the project if all bids exceed the ceiling price. This paper proposes a model for determining a reasonable project ceiling price. The model, called SIM-UTILITY, is based on a utility theory and facilitated by a cost simulation approach. The utility theory is applied to reflect the owner’s preferences regarding the determination criteria, while the simulation approach is used to generate more objective project cost data to support execution of the utility theory. The advantages of SIM-UTILITY are proven by its successful application to three construction projects in Taiwan. A computerized SIM-UTILITY is expected to be broadly applicable to public construction projects in Taiwan.

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References

1996STROBOSCOPE: State and Resource Based Simulation of Construction Processes 1992Monte Carlo Technique with Correlated Random Variables 1996Utility-Theory Model for Bid Markup Decisions 1993DBID: Analogy‐Based DSS for Bidding in Construction 1998Competitive Bidding Strategy Model and Software System for Bid Preparation 1995Evaluation of Competitive Bids 1988Bidding Models—Symmetry and State of Information

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2011Stochastic time–cost tradeoff analysis: A distribution-free approach with focus on correlation and stochastic dominance 2003Supporting project cost threshold decisions via a mathematical cost model 2002Simulation‐Facilitated Model for Assessing Cost Correlations

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