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Portfolio theory and bid strategy models are used to select construction projects and determine bid prices. Probabilistic estimates of cost of existing projects are used to generate the characteristics of the existing portfolio of projects of a construction firm. Adding new projects generates new portfolios. The desirable new portfolio is selected and the bid price for the new project is determined. This is done considering the incremental effect of the new project on the portfolio of the firm. The correlation between project costs is considered in the determination of the portfolios.
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Vergara et al. (1977) studied this question.
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