Tender Bids Evaluation in the Context of Value-Based Management

The paper aims at presenting a coherent algorithm allowing to evaluate tender bids in accordance with the principles of value-based management. The evaluation of tender results in many cases lacks rigorous methodology and often involves an inherent element of subjectivity. The mathematical models, used to assign weighs to the bid evaluation criteria, may not accurately reflect the outcomes of the valuation prepared as part of the capital budgeting process, which as a consequence, may impair the credibility and objectivity of the company’s procurement policy. The problem is further complicated by the difficulties related to operationalisation of the qualitative evaluation criteria. The paper elaborates on the idea that tender bids should be evaluated based on a unique objective function, i.e., the company value. The algorithm presented in the paper supplemented with an elaborated numerical example, gives a step-by-step guidance in the process of the tender results evaluation and presentation, thereby allowing to minimise possible errors and biases. The model may be of considerable interest to the practicing financial managers, as it accords perfectly with the process and concepts of value-based management, and assures the transparency of the tender procedures.