A small software company bids on two contracts. If it wins the more significant contract, it expects to make $50,000 in profit; if it wins the minor deal, it expects to make $30,000 in profit. A small software firm predicts a 31% likelihood of winning the more significant contract and a 61% chance of winning the smaller one. The corporation won’t profit or lose money if it doesn’t win either contract.
What Is The Anticipated Profit, Assuming The Contracts Will Be Allocated Independently?
Example 1
Finding the total sum of each event’s probabilities, multiplied by the event’s value, yields the expected value.
The expected value formula is as follows:
Expected value = [P(A) * A] + [P(B) * B] + … + [P(N) * N]
where P(A) + P(B) + … + P(N) = 1.
So the expected profit would be:
Expected profit =[ P($30,000) * $30,000 ] +[ P($15,000) * $15,000 ] + [P($0) * $0 ]
= [ .34 * $30,000 ] + [ .55 * $15,000 ] + [ (1 - .34 - .55) * $0 ]
= $10,200 + $8,250 + $0
= $18,450.
As you can see, P($0) is obtained by finding the probability that the other events are not happening, which would be
1 - P($30,000) - P($15,000)
Example 2
A man invests $20,000 in a racehorse and enters it in two events. Then, to turn a profit, he intends to sell the horse. It will only be worth $10,000 even if it wins one of the races. The horse winning the second one has a 20% chance in the man’s estimation.
Find the man’s anticipated profit if the two races are separate events.
Discrete Random Variable Expected Value:
Suppose that X is a discrete random variable with possible values in the domain,
xi∈A⊂R,beingindependentevents
The amount, which is the expected value of X,
E(X)=n∑i=1xiP(xi),
where P(xi) is the probability that X=xi,
The expectation of X, or the expected value of X, is the sum of the product of all possible values of X in its domain and the respective probabilities of the random variable X, assuming the events X=xi are independent of each other.
Let X be a discrete random variable assuming the profit values from the two contracts. Hence we will assume the values x1=50000,x2=20000x1=50000,x2=20000 with the probabilities,
P(x1)=0.3,P(x2)=0.7P(x1)=0.3,P(x2)=0.7
Then the expected profit would be:
E(X)=n∑i=1xiP(xi)=50000×0.3+20000×0.7=15000+14000E(X)=29000E(X)=∑i=1nxiP(xi)=50000×0.3+20000×0.7=15000+14000E(X)=29000
Assuming the values of the profit the man receives from the horse winning the races, let X be a discrete random variable. The horse is worth $10,000 if it wins one of the contests. A 0.20 chance of the horse winning the second race is stated. Let’s call this occurrence “x=x2.”
Other outcomes include the horse winning just the first race, winning both races, losing both races, etc.
Accordingly, let’s refer to these as x1, x3, and x4.
The odds of all the conceivable events listed above must equal one. The odds of the other three events would be if all four events above were assumed to be independent.
1−0.2=0.8
.
We divide this probability between the three events. Hence, we have the following:
P(x2)=0.2
P(x1)=0.8\3
P(x3)=0.8\3
P(x4)=0.8\3
The values assumed by the random variable X are the profit attained from each outcome of the horse’s performance. Hence, the expected yield would be:
E(X)=n∑i=1 xi(xi)
=(10000−20000)×0.8\3+(10000−20000)×0.2+(20000−20000)×0.8\3+(0−20000)×0.8\3
=(−10000)×0.8\3+(−10000)×0.2+(0)×0.8\3+(−20000)×0.8\3
=(−30000)×0.8\3+(−10000)×0.2
=(−10000)×0.8+(−10000)×0.2
= −10000×(0.8+0.2)
= −10000×(1)
E(X)= −10000
Summary
Today’s technology makes it simple for a small group of people to build a small business or a startup with little upfront cash. As a result, hundreds of millions of small firms currently operate worldwide, accounting for nearly 90% of all global corporations.
Concept Of Bid
A bid is an offer to carry out a contract for work, labour, or delivering supplies at a set price. Neither the offeror nor the offeree acquires any rights due to the bid before the offeree voluntarily accepts the proposal.
“Bid” For Contracts Comprises
- Subcontractor A engages in “bid peddling” when they decide not to submit a bid, wait for subcontractor B to pay for the estimate and submit an offer, and then make a lesser offer to complete the work. Additionally, this enables subcontractor A to escape the estimating fees that subcontractor B has already agreed to pay.
- When a general contractor requests lower bids from other subcontractors after obtaining one from a particular subcontractor, this practice is known as “bid shopping.”
- “Bid rigging” occurs when rival businesses agree to boost their product or service pricing to increase profits. According to the Sherman Antitrust Act, bid rigging is illegal.
Techniques For Collecting (Bidding)
In the construction industry, there are six different types of tendering procedures.
- Open bidding
- Selective single-stage procurement
- selective tendering in two stages
- selective bidding for design and construction
- Negotiation
- joint endeavours
- A competitive auction
Open Solicitation
In this approach, the client solicits bids and advertises them. Any contractor that chooses to submit a quote may do so by invitation.
Selective Single-Stage Procurement
The client has chosen a few contractors and requested quotes from them. Most of the time, contractors are selected based on their prior expertise or application materials.
Selective Tendering In Two Stages
Negotiated tendering is another name for it. Pre-selected contractors are first asked to provide their pricing guidelines, and then the client will ask them to produce designs based on these price levels.
Selective Bidding For Design And Construction
The client chooses one or more contractors and requests that they produce a design and a business proposal at the same time.
Negotiation
Utilised primarily for specialised tasks like elevators. The client frequently uses this kind of contractor and is their preferred contractor for this kind of work. Here, the contractor submits their expenses, and the client negotiates the charges before awarding.
Joint Endeavours
JVs are frequently utilised for intricate and sizable undertakings.
Various Types Contract
You can contract in various ways to increase your chances of receiving federal government grants.
Set-Aside Contracts For Small Businesses
The government restricts competition for some contracts to small firms to help level the playing field for these companies. These contracts, known as “small company set-asides,” aid small companies in bidding for and obtaining federal contracts.
Competitive and sole-source set-aside contracts are the two types of set-aside agreements.
Contracts With A Competitive Set-Aside
The government reserves the contract solely for small enterprises when at least two small businesses can complete the task or supply the required goods. It occurs automatically for all government contracts under $150,000, with few exceptions.
Any small firm can apply for some set-asides, but others are only available to those participating in SBA contracting support programmes.
Contracts For Sole-Source Set-Aside
The majority of contracts are competitive. However, this isn’t always the case. One type of contract that can give without a competitive bidding process is a sole-source contract. It typically occurs when a single company is the only one capable of carrying out the terms of an agreement.
Programs For Set-Asides For Government Contracts
Small firms in specific socioeconomic categories are eligible for some set-asides. By taking part in one of the SBA’s contracting support programmes from the list below, you can submit a bid on these set-aside contracts:
| Contracting Programme | percentage |
|---|---|
| Enterprise Development | Every year, the federal government aims to give small, disadvantaged firms at least 5% of all federal contracting money. |
| Hub Zone | The federal government makes an effort to give HUBZone-certified small firms at least 3% of all federal prime contracting funds each year. |
| Women-Own Small Bussiness, | The federal government makes an effort to give women-owned small companies at least 5% of all federal contracting funds each year. |
| Service Disabled | The federal government makes an effort to give service-disabled veteran-owned small companies at least 3% of yearly federal procurement money. |
Summary
When submitting a bid for a contract, you should try to finish it well before the final submission. The strain and stress may be lessened as a result. Even in the best cases, tenders can be lengthy and complicated, so you should give yourself plenty of time. Planning early might help protect your reaction if unanticipated delays occur.
FAQS
Here are some questions
Q.1 What are the four steps involved in a bid?
- Steps for Contract Bidding Planning and Research. You must conduct your due diligence before placing a bid.
- Get the request ready.
- Send in the offer.
- The presentation.
- Getting the Job. Getting the Bid. Getting the Tender. Getting the Proposal.
Q.2 How should a contract bid be written?
When writing your initial offer, keep these five points in mind.
An information packet isn’t a bid. It serves as a persuasive technique.
- A bid ought to be tailored to the client.
- A request ought to demonstrate your comprehension of the task.
- A proposal should show how you will add value.
- Detail is where the devil is.
- And keep in mind.
- The final word
Q.3 QuickBooks for small businesses costs how much?
$30/month. Tools for simple accounting with a single-user licence. $55/month. Up to three users can access all Simple Start capabilities and bill and time management.
Q.4 What systems are required for small businesses?
EVERY firm, regardless of size, requires methods for tracking customers and following up with them. A CRM (Customer Relationship Management) software solution is typically required. To-do lists are necessary for everyone. Information Management.
Q.5 What makes a programme necessary for my business?
The programme is crucial for automating organisational chores and reporting any delays or progress in those processes. It increases the effectiveness and efficiency of the company’s operations. The programme streamlines processes and lessens workload.
Q.6 What takes place during a bid?
Bids enable people to purchase products and services through auctions and other venues. It is a competitive procedure in which two or more parties compete by increasing the price they are willing to pay to acquire the item.
Q.7 What is the process for contract bidding?
You fill up the bid contract and all other necessary paperwork, including the estimate of your fee for the job. It is then sent to the party requesting a sealed envelope. Each bid has a submission deadline.
Q.8 What differentiates tendering from bidding?
In essence, a tender is a method of purchasing products. It is a request for the tender and the project acquisition procedure. They are both linked yet also very different from one another.
Q.9 What’s a formal bid?
Written solicitations are used to acquire formal bids. Written bids must be submitted by a specific day and time. The Purchasing Department opens the requests to the general public. The Purchasing Department is in charge of keeping track of written bids and bid summaries. Purchasing.
Q.10 What is the formal term for requesting quotes?
A request for quotes (RFQ), also known as an invitation for bid (IFB), is a procedure in which a business requests price estimates and recommendations from a limited number of suppliers and contractors in exchange for the opportunity to complete specific tasks or projects.
Conclusion
The owner may consider the contractor’s experience and reputation when evaluating bids. Therefore awards may not always be granted based on the lowest bid.
