Decision Making in

Construction Project and

Contractor Selection

Roadmap

Indian construction industry

Understanding ground reality
Decision
Project Complexity
Types of decisions
Models of decision making
The decision making process
Selection of contractor

Indian construction industry

Construction as backbone of
developing nation
As economic activity contributing 10
% to national GDP, growing at a
compounded annual growth rate
(CAGR) of about 11.1 per cent over
the last eight years.

Indian construction sector

Characteristics and challenges
Fragmented, with a handful of major companies
No long-term relationships between the contractors and clients leads to poor
economies of scale.
Organized and unorganized sector
The organized segment consists of firms and independent contractors who
manage their business (design, financing, execution, etc.) On a professional basis.
Unorganized segment primarily consists of standalone contractors that operate at
a small scale.
Construction activities of smaller firms in the organized segment and contractors
in the unorganized segment are mainly focused on simple construction projects
building houses for individuals, repair, and maintenance for smaller buildings.
Construction activities for larger firms involve higher complexity such as process
industry and mega construction .
Developing country construction challenge
General situation of socio economic stress,
Chronic resource shortage,
Institutional weakness and general inability to deal with key issue like skill development
considered as 3 ds ie, dirty, dangerous and demanding rather than 3 ps ie professional,
productive and progressive.

Problem Encountered during execution

Related to decision making

Problem Encountered during execution

Lack of ownership in
contractor team
Resource planning or
availability during
execution by contractor
team

Site management by
contractor team
Managing work by
Break up of the job into
small packages by
contractor

Claims and contractor

Risk analysis

Man power
Requirements planning

Estimation
People management

Decisions and Decision Making

Decision = choice made from available
alternatives
Decision making is the process of identifying
and choosing among alternative courses of
action in a manner appropriate to the
demands of the situation.
Alternative courses of action must be
Identified,
Weighed,
Weeded out.

Major Decision in construction project

Contractor selection for construction project
Vendor selection in a supply chain environment
Material selection for a given engineering
application

Robot selection for a given construction

application
Selection of material handling equipment such
as crane, truck, trailer
Selection of construction equipment such as
form roller, excavator, plastering machine,
Selection of software for project applications
Integrated project evaluation and selection
Facility location selection
Operational performance evaluation of
competing contractor

There is no single definite criteria of

selection but large number of criteria fro
various area such as
Technological,
Economic,
Ethical,
Political,
Legal,
Social
Example Material selection-Toughness, density,
thermal expansion, Thermal conductivity,
specific heat, weight, cost, durability etc.
There is a need for simple, systematic, and
logical
methods or mathematical tools to guide
decision makers in considering a number of
selection criteria and their interrelations.
objective of any selection procedure:
to identify appropriate selection criteria, and
obtain the most appropriate combination of
criteria in conjunction with the real
requirement.

Conditions For Efficient Decision Making

Understanding the current and upcoming events
Factors influencing the whole construction
environment
Exploring the nature of decision-making processes
and the reach of different typologies of methods
and techniques,
Structuring the decision-making approach based
on a wide range of issues related to construction
systems design, planning, and management.
Decision makers frequently face the problem of
assessing a wide range of alternative options, and
selecting one based on a set of conflicting criteria.

Exercise 1

Problem faced in decision

making at your work area

Problem In
Decision Making
Criteria
information

Project
Complexity

Simple System
Straight forward
Problem defined
properly and
completely in
beginning
Easy monitoring
and control due to
less
interdependency
and clarity in
interaction
Remedial action
bring project to
goal path

Controlled to Chaotic project

What Is a Complex Project

Many elaborately interrelated or interconnected Components

Numerous tasks
High risk
Leading-edge or rapidly changing technologies
Multiple partners and/or vendors
Geographically dispersed organizational entities
Project implementation across many locations
Many agents
Great uncertainty about how to conduct the project from
start to finish
Nonlinearity

Non-linearity or
Difficulty in Linking Cause and Effect
Nonlinearity :It result from
Complicated information pathways in many large projects
Multiple decision points
Multiple players

Cyclical chains of events that reinforce each other, as

opposed to predictable, linear chains of cause and
effect.
Factors for non linearity
Technical complicacy,
Unclear or untimely decision-making,
Unexpected environmental changes
A significant delay in one activity effect many
activities due to high levels of interconnectivity and
interdependence that produce cycles of rework ,

Complexity Factor: Project

Specific

Key personnel (executive sponsors, clients, user representatives,

project managers and project team members)

Capabilities and behaviour

Motivation
Commitment

Causal factors: physical nature of the project

Size
Organisation structure
Technical challenge
How the project is affected by deadlines and time-related issues.
Multitude of authority with contradictory requirement
Public visibility of project
Public concern over related environmental issues
Lack of appropriate support structure in place within owner
organization

Complexity Factor: Project

Specific

Perceptions of the complexity of the project are

more likely to be influenced by an interaction of
these aspects.
Example- project with theoretically avoidable
complexity, became complex due to
poor cost and time estimation
Pressure from senior executive to start the project
Culture of optimism
Unwillingness by seniors exec. to acknowledge identified
risk severity
Sponsors lack of understanding of the need for highly
experienced project support personnel

Putting head in sand is not the option with complex

project

Project Complexity

Complexity Indicators: Trust and blame

game
uncertainty Reduce
confidence which
reduces ability to
deliver and adversely
affect the trust in those
on whom you depend.
When uncertainty
prevails and trust
diminishes, otherwise
competent leaders and
managers can behave
poorly.
People start running for
cover and blame
begins to be hurled in
all directions

Uncertain
ty

Delivery
ability

Blame
Game

Trust

Managers Challenge
Many decisions that managers deal
with every day involve at least some
degree of uncertainty and require
non programmed decision making
May be difficult to make
Made amid changing factors
Information may be unclear
May have to deal with conflicting points
of view

Managers Challenge in decision making

Multiple criteria:
Number of conflicting
criteria representing the
interest of different group
Value Judgment: Bias
factor based on
perception
Unintended
Consequence: Positive,
negative , Frankenstein
monster effect :Man
Creates Dinosaur, Dinosaur
Eats Man
Ex- signal jammer, fund for
eradication

hurried and/or narrowly

Conditions Affecting Decision

Certainty

Information is fully available, no doubt about factual basis, outcome

predictable accurately

Risk

Decision has clear-cut goals

Information available but has poor reliability
Alternative are subject to probability

Uncertainty

Information about alternatives and future events is incomplete and not reliable

Ambiguity

Goals to be achieved or the problem to be solved is unclear

Alternatives are difficult to define
Information about outcomes is unavailable

Conditions that Affect the Possibility of

Decision Failure

Organizational
Problem
Low

Possibility of Failure

Certainty

Risk

Uncertainty

Programmed
Decisions

High
Ambiguity

Nonprogrammed
Decisions
Problem
Solution

Categories of Decisions
Programmed Decisions: Routine , SOP
Situations occurred often enough to enable decision rules to be
developed and applied in the future
Made in response to recurring organizational problems, e.g.
hiring, billing

Non programmed Decisions Non routine,

in response to
unique, poorly defined and largely unstructured, and have important
consequences to the organization e.g.: replacement of contractor in
middle of the project.

The Principle of Exception

Only

bring exceptions to the way things should be to the

managers attention. Handle routine matters yourself.
Top
IllNon programmed
structured

Decisions

Type of
Problem

Well-

Programmed
Decisions

Level in
Organizatio
n

Bottom

Avoiding Decision Trap

Human tendencies that are capable of eroding the
quality of decision making.
Framing error:
Tendency to evaluate positively presented information favorably
and negatively presented information unfavorably. Glass 50 %
full or empty.
Framing influences interpretation and intended behavior.
Advertisement to create frame , major problem in perception

Overconfidence:
It expose managers to unreasonable risks. With business
conditions constantly changing and innovations often seem to
be the only constant, no one can have all the answers for
long.
Being crisp and decisive tend to settle issues so quickly that
they have no opportunity to grasp the ramifications .
already have all the answers, they have no way to learn new

Avoiding Decision Trap

Escalation of commitment :Tendency of individuals and

organizations to get locked into losing courses of action because
quitting is personally and socially difficult.
Reason to hold on to failing decision/business : sentimental value,
false hope, and culture

Steps in the Managerial Decision-Making

Process

EvaluationRecognition of
and
Decision
Feedback Requirement

Implementation
Diagnosis
Decisionof Chosen
and Analysis
Making
Alternative
of Causes
Process

Selection of Development of
Desired
Alternatives
Alternative

General Decision
Making Model
Decision makers in
an organization are
Floating in the
stream, jostled
capriciously by
problems Popping
up, and finding
anchors through
Action at a given
time in a given
place

Decision making process(Non

Programmed/Strategic)

Decision
may
considered as

Operational
decision:

be

Concerned
with
managing operation,
Focus result on short
term basis,

Outcome is known
quickly

Strategic decision :

Prediction pertaining to
important issue on a long
term basis,
Lot of uncertainty in
consideration,
Choice
is
among
significantly
different
alternative,

Elements Of Decision Quality

Elements Of Decision Quality

Appropriate frame:
clear purpose,
conscious perspective,
Well defined scope.

Creative, doable alternatives:

explore all possibilities
understand fully different alternatives
Quality achieved with number of innovative and
realizable alternatives considered

Meaningful, reliable information:

establish correct and explicit information based on
appropriate facts.
The uncertainty involved can then be expressed in the
form of a probabilistic judgment.

Elements Of Decision Quality

Clear values and trade-offs:
explicit statements of fundamental values need to
be established.

Logically correct reasoning:

consequences of each alternative on the value
measure to be evaluated comprehensively.

Commitment to action:
full commitment to put the action plan into
implementation is a significant of ensuring success.
Without commitments from all parties involved, it
is unlikely to obtain any useful and beneficial
results, even with the most sophisticated and
comprehensive action plan in hand.

Selection of Desired Alternatives:

Factors
Risk Propensity = willingness to
undertake risk with the opportunity
of gaining an increased payoff
Implementation = using managerial,
administrative, and persuasive
abilities to translate the chosen
alternative into action

Single, Group-aided Decision Making And

Group Decision Making

Moving from single to multiple decision maker bring complexity

Decision making is a highly social activity with committees, study

groups, review panels, or project teams contributing in a variety of
ways.

In group aided DM, group does everything except make the final
decision. Where as in group DM group actually makes the final
decision.

Problem of dispersed accountability: in group decision

making, it reflect the collective experience and wisdom of all those
involved, personal accountability is lost. Blame for a joint decision
that fails is too easily passed on to others.

There was a company run by committee, by consensus. No one

Advantages and Disadvantages of GroupAided Decision Making

Advantage

Disadvantage

1. Greater pool of
knowledge
2. Different perspectives

1. Social pressure
Unwillingness to disturb(rock the boat) and pressure to
conform(due to hierarchy) may combine to stifle
the creativity of individual contributors.
2. Minority domination:

3. Greater comprehension
4. Increased acceptance:
outcome viewed as ours
rather than their

5. Training ground:
learning of group
dynamics by less
experienced

by those who talk loudest and longest

3. Logrolling :
Exchange favor/reciprocal voting
Political wheeling and dealing can displace sound
thinking when an individuals pet project or vested
interest is at stake.
4. Goal displacement
Sometimes secondary considerations
such as winning an argument, making a point, or
getting back at a rival displace the primary task of
making a sound decision or solving a problem.
5. Groupthink
Sometimes cohesive in groups let the desire for
unanimity override sound judgment when
generating and evaluating alternative courses of

Individual Vs group performance:

Contingency Management
Nature of task and Insights from research
Problem-solving task: Individuals are faster,
but groups tend to produce better results
Complex task/ Brainstorming task : Best
results achieved by polling the contributions of
individuals working alone
Learning task :Groups consistently outperform
individuals
Concept mastery/ creative task:
Contributions from average-ability group
members tend to improve when they are
teamed with high-ability group members

Decision Approaches for Turbulent

Times

Brainst
orming

Kno
wW
Bail
hen
to

t
on
D
,
n
ar ish
Le un
P

in
e
ag e
g
En bat
De

us
o
r
o
g
Ri

New
Decision
Approache
s for
Turbulent
Times

ve
i
F
the
e
c
i
ct
Pra
s
Why

Multi-Criteria
Decision Making
It has become more and more
difficult to see the world around us
in a one-dimensional way and to
use only a single criterion when
judging what we see

The Decision-Making Process

Identify Problem
Select Alternative
Develop Decision
Criteria

Allocate Weights
to Criteria

Develop
Alternatives

Analyze
Alternatives

Implement
Alternative

Evaluate Results

Multicriteria group decision making

Approaches For MCDM

Simple additive weighting
method (SAW)
Weighted product method(WPM)
Analytic Hierarchy Process
(AHP)
Technique for Order of Preference by Similarity to Ideal Solution
(TOPSIS)
Entropy Method
Standard Deviation Method
Data envelopment Analysis

Multi-Criteria Decision Making

Each decision table (also called decision matrix) in
MADM/MCDM methods has four main parts, :
Alternatives, alternatives, ai (for i = 1, 2, .. , N),
Attributes, bj (for j = 1, 2, .. , M),
Weight or relative importance of each attribute, wj (for j=1, 2,
.., M)
Measures of performance of alternatives with respect to the
attributes. Mij (for i= 1, 2, .., N; j=1, 2, .., M

Decision maker is to find the best alternative and/or to

rank the entire set of alternatives.
all the elements in the decision table must be
normalized to the same units, so that all possible
attributes in the decision problem can be considered

Measurement system as basis of

effective Decision making
All organizational system are based on measurement
system
Basic Problem : organization has many measurement
system in place of a common integrated one, located in
functional silos and not well interconnected
Wrong
Measure

Wrong
decision

Wrong
result

Most individual or organization do not get what they want

because they dont measure what they want
No organization can be any better than its measurement
system
Poorly measured organization: Chaos and waste proliferate

Decision Table in MCDM

Example Using Weighted

Scoring Method
Objective
Selecting a mobile crane

Criteria
Capability, Reliability, Fuel-economy

Alternatives
Crane
Crane
Crane
Crane

1,
2,
3,
4

Weights and Scores

Weight
Si

0.3

0.4

0.3

Capability Reliability Fuel Eco.

Crane 1

8.4

Crane 2

7.6

7.5

Crane 3
Crane 4

6
8

7.0

Simple Additive Weighting (SAW)

Method
Weighted
suma method
Each
attribute is given
weight, and (Fishburn)
the sum of all

weights must be 1.
Each alternative is assessed with regard to every
attribute.
Overall or composite performance score of an
alternative is given by equation

Drawback: saw should be used only when the decision

attributes can be expressed in identical units of
measure (e.G., Only ruppes, only pounds, only seconds,

Simple Additive Weighting (SAW)

Method
Weighted sum method (Fishburn)

However, if all the elements of the decision table are normalized, then SAW can
be used for any type and any number of attributes. In that case,

where (mij)normal represents the normalized value of mij, and Pi is the overall or
composite score of the alternative Ai.
The alternative with the highest value of Pi is considered as the best alternative.
The attributes can be beneficial or non-beneficial.
When objective values of he attribute are available, normalized values are
calculated by (mij)K/(mij)L, where (mij)K is the measure of the attribute for
the K-th alternative, and (mij)L is the measure of the attribute for the L-th
alternative that has the highest measure of the m attribute out of all
alternatives considered. This ratio is valid for beneficial attributes only. Ex profit
By contrast, non-beneficial attribute (e.g., cost) is that for which the lower
measures are desirable, and the normalized values are calculated by

(mij)K.

(mij)L/

Weighted Product Method (WPM)

Similar to SAW.
Instead of addition in the model, there is multiplication (miller and
starr, 1969).
The overall or composite performance score of an alternative is
given by equation

The normalized values are calculated as explained under the saw

method.
Each normalized value of an alternative with respect to an
attribute, i.e., (Mij)normal, Is raised to the power of the relative
weight of the corresponding attribute. The Alternative with the
highest pi value is considered the best alternative

Conversion of Linguistic Term into Crisp

Score
11 point crisp scale

5 point crisp scale

Linguistic
Crisp
term
Score

Linguistic term

Crisp
Score

Exceptionally low

0.045

Extreemly Low

0.135

Very Low

0.255

Low

0.335

Low

0.115

Below Average

0.295

Average

0.495

Average

Above average

0.695

Above average

High

0.895

Below Average

0.41
0.5
0.59

High

0.665

Very High

0.745

Extremely High

0.865

Exceptionally High

0.955

Analytical Hierarchy Process

Methods: AHP
The analytic hierarchy process (AHP), which provides
a proven, effective means to deal with complex
decision making, was first introduced by Thomas
Saaty in 1970s
Evaluation phase is divided
into four steps given below;
1. Generate pairwise
matrices
2. Generate the weights of
the measures
3. Normalize weights to get
the consistency among
measures
4. Calculate the overall
ratings

The Fundamental scale

Intensity of
Importance

Definition

Explanation

1
2

Equal Importance
Weak or slight

Two activities contribute equally to the objective

3
4

Moderate importance
Moderate plus

Experience and judgment slightly favor one activity over another

5
6

Strong importance
Strong plus
Very strong or
importance
Very, very strong

Experience and judgment strongly favor one activity over another

7
8
9

demonstrated An activity is favored very strongly over another; its dominance

demonstrated in practice
The evidence favoring one activity over another is of the highest
possible order of affirmation

Extreme importance
If activity i has one of the above
Reciprocals of above nonzero numbers assigned to it
when compared with activity j,
then j has the reciprocal value
when compared with i
A reasonable assumption
If consistency were to be forced by obtaining n numerical values to
Rationals
Ratios arising from the scale
span the matrix

Thanks

Reference
Michael Crandall, Decision Science,
Information school of University of
washington
Laxmi C jain and Chee Peng Lim,
handbook of decision science, Vol-1
Technique and application

Contractor selection

Determining specification of
work
Finalizing criteria such as
Experience
Type of business in terms of
similarity,
capacity,
quanta and
complexity o of job
Environment and location
Familiarity to location and
culture

Availability,
Reliability,
Record of performance

Technical competence,
Hse,
Delegation of power to site
person

Record of poor
performance
abandoning the work,
not properly
completing the
contract,
inordinate delays in
completion or
financial failure etc.
Over booking beyond
capacity

Contractor selection
Administrative approval
Financial sanction
Technical sanction

Contractor selection

The lowest price isnt

always the best value
Fairness of your approach
matters

Typical multi objective decision

making process
Triggering signal

Initiation set up

Recognition for need for change

and diagnosis of the system

Problem definition, with

specification of objectives and
Problem formulation step
identification of attribute or
objective Measure
System Modeling step

Value Judgement

Construction of model( mental,

graphis, physical , or mathematical )
together with parameter estimation
Generating

nalysis evaluation step

Set of Alternative
X

Decision
environm
ent and
state of
nature

Estimating

Value of attributes
f1(x),.fn(X)

Decisio
n
Implementation and
re evaluation

Value
Judgement