The pricing of the constituent component items of a project has a substantial influence on the profitability of a project for a building contractor. Despite this, there has been relatively little research done on this subject since `unbalanced bidding (the manipulation of component item prices) was identified as a viable strategy 50 years ago. This book outlines a new approach, called CUP Theory (Construction Unit Pricing Theory), which is intended to lay a new foundation for a scientifically based approach to item pricing. It shows that contractors could increase their profit by as much as 150% without much change to their risk. The author has included a CD containing the program by which pricing can be calculated, and has presented it so that it can be further worked on by those researching the field.
Muu info
Presenting a pricing model that reduces risk and offers potentially considerable rewards, this book offers a fresh perspective on the prices that contractors choose for the components of large projects, such as those in the construction and civil engineering industries. A new theory on Component Unit Pricing identifies and quantifies the benefits and consequences of item pricing as this account proposes that contractors should optimize their utility by pricing items to take account of their assessed risk profiles. A CD-ROM containing software written to test this theory is also included.
| Acknowledgements |
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v | |
| The author |
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viii | |
| Foreword |
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ix | |
| Preface |
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xi | |
| The book's structure |
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xiii | |
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1 | (10) |
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1 | (3) |
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The effects of item price loading |
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2 | (2) |
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4 | (7) |
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7 | (1) |
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The role of the professional quantity surveyor |
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8 | (3) |
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2 Other unbalanced bidding models |
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11 | (30) |
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11 | (1) |
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12 | (5) |
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17 | (5) |
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17 | (1) |
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18 | (1) |
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19 | (3) |
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Ashley and Teicholz's models |
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22 | (8) |
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22 | (1) |
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22 | (1) |
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23 | (1) |
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The optimisation of profit |
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24 | (1) |
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The probability of execution |
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25 | (1) |
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The analysis of each item's cost |
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25 | (1) |
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The expressed inclusion of the cost of interest |
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26 | (1) |
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The dropping of Stark's rate constraints |
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27 | (1) |
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The desirability index alternative to the use of linear programming |
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27 | (3) |
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Diekmann, Mayer and Stark's model |
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30 | (5) |
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35 | (1) |
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36 | (1) |
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37 | (1) |
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38 | (3) |
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3 Modelling a project's revenue |
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41 | (13) |
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41 | (1) |
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42 | (1) |
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43 | (1) |
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44 | (2) |
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46 | (2) |
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Complex composite loading |
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48 | (3) |
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51 | (1) |
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52 | (2) |
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4 Modelling a project's risk |
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54 | (19) |
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54 | (1) |
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The risks of item pricing |
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54 | (7) |
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54 | (6) |
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60 | (1) |
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60 | (1) |
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61 | (1) |
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62 | (2) |
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64 | (9) |
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64 | (3) |
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67 | (2) |
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69 | (2) |
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Illustration of the combined risks |
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71 | (2) |
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5 Modern portfolio theory |
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73 | (5) |
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73 | (1) |
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74 | (1) |
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Application to unit pricing |
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75 | (3) |
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6 Cumulative prospect theory |
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78 | (12) |
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78 | (1) |
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Subjective perspective on risk |
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79 | (1) |
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80 | (1) |
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80 | (4) |
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84 | (2) |
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Cumulative prospect theory |
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86 | (2) |
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Practical application of the theory |
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88 | (2) |
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7 Software for testing the model |
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90 | (31) |
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The Java technology platform |
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90 | (1) |
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91 | (9) |
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Monte Carlo simulation (MCS) |
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92 | (1) |
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Artificial intelligence (AI) |
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93 | (1) |
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93 | (1) |
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94 | (1) |
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95 | (5) |
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100 | (21) |
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100 | (1) |
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Test `risk of error' loop |
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100 | (1) |
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101 | (1) |
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102 | (2) |
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104 | (2) |
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106 | (1) |
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107 | (3) |
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110 | (4) |
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Cross-pollination of knowledge between `associated' items |
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114 | (2) |
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Setting things up for the next generation |
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116 | (4) |
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120 | (1) |
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120 | (1) |
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121 | (9) |
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121 | (8) |
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129 | (1) |
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9 Conclusions and recommendations |
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130 | (8) |
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130 | (3) |
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131 | (1) |
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Modelling the expected returns |
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131 | (1) |
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132 | (1) |
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133 | (1) |
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Research aims and objectives |
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134 | (1) |
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Recommendations for further research |
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135 | (3) |
| Bibliography |
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138 | (9) |
| Index |
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147 | |
David Cattell is Honorary Adjunct Professor at the Institute of Sustainable Development and Architecture, Bond University, Australia. He is also a software developer and has conducted research into component unit pricing for more than 25 years.
