diff --git a/2025-11-21.md b/2025-11-21.md new file mode 100644 index 0000000..ab6e1ce --- /dev/null +++ b/2025-11-21.md @@ -0,0 +1,37 @@ +--- +id: +aliases: [] +tags: + - authorship/original + - destiny/permanent + - status/draft + - type/daily +title: 2025-11-21 +--- +# 2025-11-21 + +## 2025-11-21 10:11 + +> [!quote] [ELECTRI's Industry Benchmarking Tool - ELECTRI International](https://www.electri.org/research-overview/electris-industry-benchmarking-tool/) +> ### Hours Burned vs. Hours Earned +> +> Definition: +> Comparison between portion of project estimated hours complete +> compared with the actual hours spent on the task. +> This is the labor performance factor +> (needs to reference the labor factor used at bid time for a full comparison). + +This is a terribly problematic metric. + +If a project went over its material budget +despite standard rigorous oversight +where would you first look, +construction or estimating? +In almost all cases the safer bet is estimating. +Why should labor be different? + +Wherever there is budget variance +there is a persistent tendency to blame construction +before estimating. + +[[purpose-of-construction-estimating#The Myth of Estimate Accuracy]] diff --git a/bid-price-modeling.md b/bid-price-modeling.md new file mode 100644 index 0000000..6e196c3 --- /dev/null +++ b/bid-price-modeling.md @@ -0,0 +1,122 @@ +--- +id: +aliases: [] +tags: + - authorship/llm + - destiny/fleeting + - status/complete + - topic/estimating + - topic/risk +title: Modeling Bid Prices Under Intrinsic Cost Uncertainty +--- +# Modeling Bid Prices Under Intrinsic Cost Uncertainty + +> [!warning] +> This text is almost entirely LLM output. +> I don't intend to keep or use any significant portions of it. + +Consider a construction project characterized by an intrinsic but unknown final cost $C$. +Prior to project completion, $C$ cannot be observed directly; +instead the estimator possesses only a probability distribution over feasible outcomes. + +Let $(\Omega, \mathcal{F}, \mathbb{P})$ be a [probability space](https://en.wikipedia.org/wiki/Probability_space) +describing the estimator's uncertainty, +and define the true cost model as a non-negative random variable + +$$ +C : \Omega \to [0,\infty) +$$ + +with [distribution](https://en.wikipedia.org/wiki/Probability_distribution) $\mu_C$. + +The distribution $\mu_C$ summarizes all available information at the time of bidding, +including quantities, labor productivity uncertainty, +market conditions, subcontractor pricing variability, +and correlation structures inherent to the estimator's assumptions. + +Although the natural mathematical representation of cost is thus a distribution, +procurement mechanisms typically require that each bidder submit a single deterministic price. + +Denote this bid by + +$$ +B \in [0,\infty). +$$ + +> Read as +> "$B$ is an [element](https://en.wikipedia.org/wiki/Element_(mathematics)) +> of the interval from zero to infinity, including zero." + +A bid $B$ may be viewed as the output +of a pricing [functional](https://en.wikipedia.org/wiki/Functional_(mathematics)) + +$$ +\Phi : \mathcal{P}([0,\infty)) \to [0,\infty), +$$ + +mapping a cost distribution $\mu_C$ to a scalar. + +Examples of such functionals include: + +### 1. Risk-neutral expectation + +$$ +\Phi(\mu_C) = \mathbb{E}[C], +$$ + +> Read as "Phi of mu sub C equals the expected value of C." + +where $\mathbb{E}[\cdot]$ denotes the [expected value](https://en.wikipedia.org/wiki/Expected_value). + +### 2. Risk-adjusted expectation + +$$ +\Phi(\mu_C) = \mathbb{E}[C] + \lambda\sqrt{\mathrm{Var}[C]}, +$$ + +> Read as "Phi of mu sub C equals the expected value of C plus lambda times the square root of the variance of C." + +where $\mathrm{Var}[C]$ is the [variance](https://en.wikipedia.org/wiki/Variance) +and $\lambda>0$ is a risk-loading parameter. + +> This mirrors mean--variance pricing common in portfolio theory. + +### 3. Quantile-based pricing + +$$ +\Phi(\mu_C) = Q_p(C), +$$ + +> Read as "Phi of mu sub C equals the p-quantile of C." + +where $Q_p$ is the $p$-[quantile](https://en.wikipedia.org/wiki/Quantile) +of the distribution. + +### 4. Utility-maximizing bid + +Under a bidder [utility](https://en.wikipedia.org/wiki/Utility) function $U$, + +$$ +\Phi(\mu_C) = \arg\max_{b\ge0} \; \mathbb{E}[\,U(b - C)\,]. +$$ + +> Read as "Phi of mu sub C equals the argument b greater than or equal to zero +> that maximizes the expected value of U of b minus C." + +> [$\arg\max$](https://en.wikipedia.org/wiki/Arg_max) is the value of $b$ that maximizes the expression. + +*** + +The central tension is: + +* The ontologically correct representation of project cost prior to execution is a **probability distribution**, whereas +* The procurement mechanism requires a **deterministic scalar**. + +The study of such pricing functionals $\Phi$ sits within +[stochastic optimization](https://en.wikipedia.org/wiki/Stochastic_optimization), +[risk measures](https://en.wikipedia.org/wiki/Risk_measure), +and [mechanism design](https://en.wikipedia.org/wiki/Mechanism_design). +Understanding how different choices of $\Phi$ +compress and distort the underlying uncertainty $\mu_C$ +has direct implications for bidder profitability, competitive strategy, +and how risk is allocated across the construction market. diff --git a/bid-process-strategy.md b/bid-process-strategy.md index 0552d84..dc7b36a 100644 --- a/bid-process-strategy.md +++ b/bid-process-strategy.md @@ -15,7 +15,7 @@ title: Bid Process Strategy ## Scope This note is intended to describe bid process strategy -especially in terms of [[strategy#Auction Theory]], +especially in terms of [[auction-theory]], which specifically addresses the competitive bid format typical of construction project award. @@ -38,3 +38,31 @@ Bidders will accept a lower payout or even a loss in order to retain employees. **Backlog Deficit** drives up **Utility of award** + +## Factors Brainstorm + +This is a list of semi-independent factors +relevant to the contractors decision of if and how to bid. + +### Key + +* `> [!info]` --- **Fact:** an indisputable truth or term definition +* `> [!important]` --- **Logical Consequence** +* `> [!tip]` --- **Relationship** +* `> [!success]` --- **Desirable Outcome** +* `> [!failure]` --- **Undesirable Outcome** + +> [!info] +> The exact cost of a construction project is **uncertain** +> until it is completed. + +> [!info] +> Customers request bids as a + +> [!tip] +> Spending _more_ time on estimates + +> [!tip] +> Estimating _more_ projects leads to _more_ opportunities for award. +> Estimating _fewer_ projects leads to _fewer_ opportunities for award. + diff --git a/estimating-culture.md b/estimating-culture.md index 6370a99..9a5729e 100644 --- a/estimating-culture.md +++ b/estimating-culture.md @@ -35,6 +35,28 @@ Because they are not expected to ever look at their work again, they have no incentive to reveal errors as they can simply plead ignorance if the error is discovered. +## Incentives + +I strongly oppose any project-based incentive structure for estimators. +Such a structure is at odds with the [[purpose-of-construction-estimating]], +and is an example of a [perverse incentive](https://en.wikipedia.org/wiki/Perverse_incentive). + +This behavior should be regulated by an accompanying _disincentive_ structure, +but equivalent punishment becomes unfeasible +before monetary rewards become effective. +The absolute worst disincentive an estimator faces is termination, +which, with fully-remote options available, is only an inconvenience. + +The timeline to recognize an estimate was deliberately misrepresented +is not much shorter than that of the project. + +Such incentives therefore create a [[game-theory|competitive game]] +between the estimator and the employer +where the employer is hopelessly outmatched, +and the estimator's [[strategy#Strictly Dominant Strategy|strictly dominant strategy]]--- +resisted only by their moral conviction--- +is to abuse the system: to bid fast, lie often, take the bag, and leave. + ## Collaboration Estimation is a profession ripe for productive collaboration. @@ -80,9 +102,3 @@ to embrace the statistical aspects of our field. * Be competent with every tool available to you. * Always assume there is a better way to complete a given task. - -## Incentives - -I strongly oppose any project-based incentive structure for estimators. -Such a structure is at odds with the [[purpose-of-construction-estimating]], -and is an example of a [perverse incentive](https://en.wikipedia.org/wiki/Perverse_incentive). diff --git a/game-theory.md b/game-theory.md new file mode 100644 index 0000000..8e3cf7b --- /dev/null +++ b/game-theory.md @@ -0,0 +1,59 @@ +# Game Theory + +## Domains + +### Auction Theory + +[[auction-theory|Auction theory]] is a subset of game theory + + + +#### Reverse Auction + +In a reverse auction, +bidders compete for the right to _sell_ a product or service. + +#### Sealed-Bid Auction + +Opposite of a conventional "open" auction, +in a sealed-bid auction, +bid prices are hidden from the bidders. + +[[uncertainty#Information]] + + + +## Terminology + +### "Solved" Games + + + +### Symmetry + +## Typical Games + +### Chicken + +| Player A \ Player B | Player B: Back Down | Player B: Hold Firm | +|:------------------- |:-----------------------:|:-----------------------:| +| Player A: Back Down | Tie \ Tie | Lose face \ Gain status | +| Player A: Hold Firm | Gain status \ Lose face | Die \ Die | + +### Prisoner's Dilemma + +| Prisoner A \ Prisoner B | Prisoner B: Cooperate | Prisoner B: Defect | +|:----------------------- |:---------------------------:|:-----------------------------:| +| Prisoner A: Cooperate | Serve 1 year \ Serve 1 year | Serve 3 years \ Go free | +| Prisoner A: Defect | Go free \ Serve 3 years | Serve 2 years \ Serve 2 years | + +### Stag Hunt + +| Hunter A \ Hunter B | Hunter B: Hunt Stag | Hunter B: Hunt Hare | +|:------------------- |:--------------------:|:--------------------:| +| Hunter A: Hunt Stag | Eat stag \ Eat stag | Go hungry \ Eat hare | +| Hunter A: Hunt Hare | Eat hare \ Go hungry | Eat hare \ Eat hare | + +### Ultimatum Game + +### Dictator Game \ No newline at end of file diff --git a/purpose-of-construction-estimating.md b/purpose-of-construction-estimating.md index 4da7075..b259d6c 100644 --- a/purpose-of-construction-estimating.md +++ b/purpose-of-construction-estimating.md @@ -18,8 +18,6 @@ which would take far longer than allotted for bid, ## The Myth of Estimate Accuracy - - This is a dangerous superstition which encourages unproductive conflict. @@ -27,6 +25,20 @@ Operations is blamed for failing to meet targets not intended for the purpose, ... +*** + +Construction contract bids are inherently risky. + +Executives want to bid because construction can be profitable. +Executives hire estimators to mitigate risk of loss. + +An estimator's value is determined by their + +An estimator's job is to mitigate + + +Estimators downplay the + ## For Each Party ### For the Solicitor diff --git a/strategy.md b/strategy.md index bbb688c..0c10ae1 100644 --- a/strategy.md +++ b/strategy.md @@ -14,48 +14,28 @@ title: Strategy The field of strategy is concerned with the optimal solutions of problematic scenarios. -## Decision Theory +## Domains -Decision theory concerns +### Decision Theory -* ~~internal problems~~ -* ~~no competition~~ -* ~~internal optimization~~ +[[decision-theory|Decision theory]] concerns choices +made by a single party, based on environmental conditions -## Game Theory +"Player vs. Environment" -Game theory concerns decisions +### Game Theory + +[[game-theory|Game theory]] concerns choices made in competition with other intelligent actors. -Predictions of competitor behavior in bids and market movements -are made with a game-theoretic lens. +"Player vs. Player" + +## Terminology ### Dominant Strategy A dominant strategy is one that results in the better outcome. -### "Solved" Games +### Strictly Dominant Strategy - - -### Auction Theory - -Auction theory is a subset of game theory - - - -#### Reverse Auction - -In a reverse auction, -bidders compete for the right to _sell_ a product or service. - -#### Sealed-Bid Auction - -Opposite of a conventional "open" auction, -in a sealed-bid auction, -bid prices are hidden from the bidders. - -[[uncertainty#Information]] - - diff --git a/the-failure-of-risk-management.md b/the-failure-of-risk-management.md index c25a324..db46816 100644 --- a/the-failure-of-risk-management.md +++ b/the-failure-of-risk-management.md @@ -29,6 +29,10 @@ by Douglas W. Hubbard * Certain Monetary Equivalent (CME) * also called Certainty Equivalent +One or more curves referenced in the text are +[Indifference curves](https://en.wikipedia.org/wiki/Indifference_curve) +but not referred to as such. + ## Key Takeaways ### Definition of Risk diff --git a/uncommon-syntax.md b/uncommon-syntax.md index 3180b1a..ef21407 100644 --- a/uncommon-syntax.md +++ b/uncommon-syntax.md @@ -12,3 +12,20 @@ title: Uncommon Syntax * **i.e.** --- _id est_ ("that is") * **e.g.** --- _exempli gratia_ ("for example") + +## Symbols + +* $\therefore$ + +* $\vdash$ --- turnstile, + denotes logical consequence + +* $\vDash$ or $\models$ --- double turnstile, + denotes [semantic](https://en.wikipedia.org/wiki/Semantic "Semantic") consequence + + > [!quote] [Double turnstile - Wikipedia](https://en.wikipedia.org/wiki/Double_turnstile) + > read as + > "[entails](https://en.wikipedia.org/wiki/Logical_consequence "Logical consequence")", + > "[models](https://en.wikipedia.org/wiki/Model_theory "Model theory")", + > "is a **semantic consequence** of" + > or "is stronger than". \ No newline at end of file