Uncertainty analysis and its application to service contracts

Because of the transformation of market structures into the direction of servitization, manufacturing companies are forced to compete through the supply of services as opposed to products. Competing for these service contracts, particularly during bidding, the decision makers face various uncertainties that influence their decisions. This paper presents a holistic approach for identifying, modeling and representing these uncertainties to enable a more informed decision. As current literature lacks a holistic approach to characterize uncertainty, this paper proposes such an approach by classifying uncertainty into five layers. It is described how they offer an integrated approach to describing the uncertainty inherent in a situation. This classification is then applied to the bidding situation for a service contract in the form of a conceptual framework. This framework depicts the influencing factors on a bidding decision, namely, the contract conditions, internal company perspective, competitors and customer. To demonstrate the use of the uncertainty classification in detail the influencing factor of the customer is used as an exemplar. The uncertainty connected to the customer is characterized and the techniques for modeling the uncertainty are described. It is explained how the can be included in a decision matrix representing the probability of winning the contract.