BUS 630 Ed Richter estimates the cost of future projects for a large contracting firm

| June 14, 2018

Ed Richter estimates the cost of future projects for a large contracting firm. Mr. Richter uses precisely the same techniques to estimate the costs of every potential job, and formulates bids by adding a standard profit markup. For some companies to whom the firm offers its services, no competitors exist, so they are almost certain to get them as clients. For these jobs, Mr. Richter finds that his cost estimates are right, on average. For jobs where competitors are also vying for the business, Mr. Richter finds that they almost always end up costing more than he estimates. Why does this occur?

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