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Real life situations as games
Here's a situation from my work in the form of a simple game:
I work on a construction site where I hire companies to do work on our building until it's completed. We usually employ the lowest bidder but we also consider safety records and performance on previous contracts.
To submit a bid the company must do some tricky work, they measure materials, compile labour rates and think of practical methods to figure out how much their bid should be. They won't be paid for doing any of that unless they actually win so they include an hidden amount for that work and multiply it by their perceived odds of winning. (Or at least this last part is the expected behaviour from our point of view. They may do something else with that cost but they've got to make it back somehow.)
The companies might not be able to find immediately out how many others they are competing with but they will have found out by the time the next opportunity comes along.
Extreme strategies:
Every now and again a colleague says "We should ask as many companies as possible to bid on this work. That way we will certainly get the cheapest price on this job."
Sometimes a colleague suggests "We should form a relationship with one of them and their confidence in winning work will reduce their estimating mark up creating long term savings."
Another suggestion is to do as much of the measurement as possible ourselves to make it cheaper for them bid. Unfortunately this is harder for us as we are never as clever as they are with respect to the trade they specialise in.
In practice:
Both of the extreme plans are rather flawed but the middle ground gets endlessly debated. 4 or 5, and occasionally 3 or 6 is the rule of thumb conventionally accepted.
Just last month a manager on a tight contract sent out invitations to bid to 16 companies. I reckon this causes ripples that upsets my project.
Unfortunately the actual numbers are formed in such a nebulous way involving relationships, new technology, company cultures, markets and our own inconsitent behaviour. I don't think we can find an optimum answer by plugging in numbers and solving it. Plus the works are unique every time in scope and skill.
What real situations do you come to appreciate as a game?
I work on a construction site where I hire companies to do work on our building until it's completed. We usually employ the lowest bidder but we also consider safety records and performance on previous contracts.
To submit a bid the company must do some tricky work, they measure materials, compile labour rates and think of practical methods to figure out how much their bid should be. They won't be paid for doing any of that unless they actually win so they include an hidden amount for that work and multiply it by their perceived odds of winning. (Or at least this last part is the expected behaviour from our point of view. They may do something else with that cost but they've got to make it back somehow.)
The companies might not be able to find immediately out how many others they are competing with but they will have found out by the time the next opportunity comes along.
Extreme strategies:
Every now and again a colleague says "We should ask as many companies as possible to bid on this work. That way we will certainly get the cheapest price on this job."
Sometimes a colleague suggests "We should form a relationship with one of them and their confidence in winning work will reduce their estimating mark up creating long term savings."
Another suggestion is to do as much of the measurement as possible ourselves to make it cheaper for them bid. Unfortunately this is harder for us as we are never as clever as they are with respect to the trade they specialise in.
In practice:
Both of the extreme plans are rather flawed but the middle ground gets endlessly debated. 4 or 5, and occasionally 3 or 6 is the rule of thumb conventionally accepted.
Just last month a manager on a tight contract sent out invitations to bid to 16 companies. I reckon this causes ripples that upsets my project.
Unfortunately the actual numbers are formed in such a nebulous way involving relationships, new technology, company cultures, markets and our own inconsitent behaviour. I don't think we can find an optimum answer by plugging in numbers and solving it. Plus the works are unique every time in scope and skill.
What real situations do you come to appreciate as a game?
Comments
As far as paying for the bidding process man hours, his company rolled that into the general overhead that was calculated with every bid. I think typical company overhead is 6-10% in construction.