Situation Analysis
A major aerospace contractor to the US government was interested in exploring whether decision science could help it determine the optimal bidding strategy for high-tech specialty products.
At the time of this engagement, competitive bidding of government contracts had become increasingly competitive as the US government implemented significant changes to its procurement process in order to rein in costs. The company intended to continue to bid on government contracts, but only those contracts that would generate a reasonable profit to the organization. The company’s management team included champions of decision quality and decision science, who thought a bidding strategy would be the ideal way to test an analytical approach that would combine the principles of decision science together with a “game theory” approach that would incorporate the potential strategies of competitors.
Discovery & Solution
As in most organizations that contract with the US government, the bid and proposal (B&P) process in this organization represented a large draw on company resources. SDG was brought in this effort due to its reputation for risk-informed decision making and its rigorous analytical expertise. The management team asked SDG to develop a bidding methodology that would maximize the probability of winning this specific contract given the constraint of achieving a reasonable profit. This particular opportunity would also open a new line of business with the US government, which meant that the potential value was not limited to the single project subject to the bid, but to downstream business opportunities as well.
SDG devised a method and approach for competitive bidding that would maximize the company’s chances of winning this specific contract for high-tech products. SDG facilitated fast and focused communication within the project team and was able to build a meaningful structure for the decision problem in very short time. The dynamic decision model developed to support this engagement incorporated cost structures, financial analyses, and bidding strategies for not just for this client, but also for its competitors.
Results & Impact
The pilot project proved to be a novel approach to competitive bidding for this client. In the end, the aerospace company won this specific bid to provide high-technology products to the US government—at a price that met the company’s profit requirement. Further, the company now had a probabilistic approach it could use in the future to develop its bidding strategy in the face of competitor actions and uncertainty. While this approach could not guarantee that the company would subsequently win all of its bids on US government contracts, it helped ensure that those it did win would meet its requirements for a reasonable profit or would contribute to a broader, ongoing opportunity for new business.
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