Toward a Flexible Bidding Strategy with Preference Analysis

Abstract

Today, the majority of solution development is completed under a fixed-price contract. Due to the inherent uncertainty of executing a project with many unpredictable factors, the solution developer bears significant risk in terms of cost, delivery time and quality. Compared to a variable-price (time-and-materials) contract, a fixed-price contract shifts most of the development risk from clients to developers. Therefore, it is important for developers to understand the level of risk inherent in a project and take the proper steps to mitigate risks. From the analysis of custom application development projects using service-oriented architecture methods, we observe that extension of the project duration utilizing a smaller development team can help to reduce the project effort (working hours) and therefore reduce the development cost. We characterize the relationship between deterioration in team performance and the increase in project team size through multivariate regression. We also provide a method to adjust the results of standard project estimation methods to take into account client-side risks. We then propose simple client and developer utility functions to quantify these trade-offs. This serves as an initial framework to identify choices that can be made during the bidding process to reduce development risks.