Moe Green estimates the cost of future projects for a large contracting firm. Mr

Question

Moe Green estimates the cost of future projects for a large contracting firm. Mr. Green 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. Green finds that his cost estimates are right, on average. For jobs where competitors are also vying for the business, Mr. Green finds that they almost always end up costing more than he estimates. Why does this occur?

Explanation / Answer

This happens because when there are no competitors estimates can be done on a trial and error basis as the margin of error is quite wide and also there is no fear of losing the clients.

When there are competitors there are other people who are estimating for the same job. Hence the margin of error becomes comparatively narrower. Also the competitors have their own contacts for estimating a close number to the actual cost.

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