Modelling uncertainty in competitive bidding

Due to the current market development of servitisation, manufacturing companies are required to compete through the provision of services as opposed to physical products. For such companies, the shift towards being a service provider often means they have to bid for service contracts, sometimes competitively. In the context of competitive bidding, the decision makers face various influencing uncertainties. Ignoring these uncertainties or their influences can result in problems such as the generation of too little profit or even a loss or the exposure to financial risks. Raising the decision maker's awareness of the uncertainties can provide valuable information to assist in the decision-making process. The research presented in this paper presents an approach to modeling the uncertainties at the competitive bidding stage for long-life, high-value service contracts. The aim of this research is to provide decision makers with a decision matrix which illustrates the probability of winning the service contract and the probability of making a profit. The framework utilized for identifying the uncertainties and a layered approach for analyzing these uncertainties is described. These are then applied to a case study where the modeling approaches and data gathering methods are explained and the results are displayed via the decision matrix.