Features of Application of Relevant Approach in Decision Making to Participate in Tender for Assessment of Land

The paper describes the features of relevant approach for decision making to participate (or not participate) in a tender for appraisment of land. The basis of this approach is the following: the greater is the number of non-won tenders, the greater is the amount of irrelevant costs, and company operations are less effective. Thus, the approach to use relevant and non-relevant indicators should be applied not to a particular tender, but at once to a group of tenders. This transforms the traditional notion of relevance and suggests that in certain situations the irrelevant costs are unchanged, and the presence of a negative relevant result, as to one of the orders, does not lead to the automatic rejection of its execution.


Introduction
The additional possibility of formation of new orders for appraisement of land is taking part in the auctions conducted on the basis of competition between firms-applicants.Thus, for solving management problems facing the management of appraising firms, and for fair pricing of tender contracts, it is desirable, in our view, to use the relevant approach in management decision-making.Since the customer himself makes decision to place orders, the traditional for management accounting approach to formation of relevant costs needs rethinking.

Theory
"Appraiser" JSC company takes part in a tender for estimation of land.The maximum price of the contract proposed by the Customer (administration of neighboring area) is 320 thou rubles.When documents being prepared, the amount claimed was reduced by the management of "Appraiser" to 90 thou rubles.It has been estimated that in case of victory the organization must implement the costs associated with travel, accommodation, salaries of appraisers, charges accrued and so on -in the amount of 70 thou rubles.Due to the fact that the emergence of these costs (and revenues) is directly connected to the victory in tender, these indicators are classified as relevant.Thus, the result of taking part in the tender can be considered positive: 90 thou rubles -70 thou rubles = 20 thou rubles.
The remaining costs incurred previously to participate in the tender, for example, pre-trips to the customer, long-distance calls, interests on loans taken out to finance working capital, etc. -can no longer be changed in any development of events, that is why their amount is neglected, believing that the positive result in 20 thou rubles will cover irrelevant costs either fully or in part, but in any case it will make the activities of organization healthier.And only if there is a negative result, calculated on relevant indicators (for example, not 20 thou rubles, but -10 thou rubles.),further participation in the tender will be stopped by the company management (Klychova & Iskhakov, 2014;Klychova, Zakirova, Mukhamedzyanov, & Faskhutdinova, 2014).
The approach set out in the example is true, but only under the condition of ignoring the relationship between the tenders.At the same time, the activities of the firm in which decisions are made on a regular basis to participate in the tenders, even on the basis of partial coverage of irrelevant costs can seriously be impaired by reducing the difference between revenues received by the organization for the period, and uncovered irrelevant costs for the same period.In other words, the greater is the number of non-won tenders, the greater is the amount of irrelevant costs, and operations company -less effective (Klychova, Faskhutdinova, & Sadrieva, 2014;Safiullin, Klychova, Nizamutdinov, & Mavlieva, 2014).This is especially true for newly established organizations traditionally having difficulties in finding regular customers and orders, as well as for all organizations operating in the crisis period, when the number of tenders is limited, so the owners are forced to take risks by setting low prices in the hope that a subsequent tender will be won and cover a part of non-return costs (Hopwood, 2008;Ittner & Larcker, 2002;Bebbington & Thomson, 2013).Thus, in our view, the approach to the use of relevant and irrelevant indicators should be applied not to a particular tender, and once to a group of tenders, which expands the field of analysis and allows us to make more objective management decisions.

Results
The above approach to group analysis of tenders transforms traditional ideas regarding interpretation of the results based on relevance and suggests that in certain situations irrelevant costs are changed, and the relevant negative result on one of the orders does not lead to automatic rejection of its execution (Faizrakhmanov, Klychova, & Khametova, 2014).Here is the example.
The management of "Appraiser" JSC organization applies for participation at once in two tenders, though internal resources of the organization (number of appraisers, amount of current assets, etc.) are sufficient for only one order.Thus, the management hopes, on the one hand, to increase the chances of getting the order, on the other hand -if it wins one of the tenders -supposes to abandon the other tender, considering the applications for which will take longer time.In such circumstances, the formation of irrelevant information, to exclude it from analysis, should be done not according to one, but to two orders, with either one or none of the tenders will be won.Let us consider both.
Table 1.Effectiveness analysis of allocation of orders to participate in tenders, which is performed on the basis of relevant approach in management result Abandonment of the tender Winning the tender In the first case "Appraiser" JSC wins the tender number 2 and on the same day withdraws its application for participation in the tender number 1.As a result, the relevant costs of the tender number 1 in total ∑ р 1 are ignored, because they occur only in the case of performing the order.The amount of irrelevant costs 2∑ н 1 remains unchanged.But the tender number 2 value of irrelevant costs will be changed and for other conditions being equal will be not 2∑ н 1 , but 4∑ н 1,2 , that is irrelevant expenses of the first order will be considered as part of the costs of implementing the tender number 1.For this, the costs of tender № 1 (2∑ н 1 ) in the tender number 2 can not be considered relevant, for management of "Appraiser" JSC has to face the fixed relationship: a victory in one tender automatically leads to rejection of the other one.Thus, the additional expenditures of 2∑ н occur at organization's winning in any of the tenders, so they are irrelevant.Based on this information, the specialists in the field of management accounting calculate the level of relevant costs in different types of victories that allows us to answer the question: "Should I take part in tenders with an estimated price level?".
Let us consider a situation, where "Appraiser" JSC company does not win in any of the tenders, or for any reason withdraws both the applications, either on the results of analysis given in Table 1 initially refuses to participate in tenders.In these cases, it is impossible to compensate irrelevant costs, therefore their value for each of the tenders remain unchanged -at the level of 2∑ н .Thus, irrelevant costs behave according to classical approach to the definition of relevance essence.But the principle of unchangability of irrelevant costs ceases to operate at the time of appearance of the new (third) tender, which can compensate the earlier costs in amount of 4∑ н 1,2 , and cover the own relevant and irrelevant costs.
Another paradox, based on decision-making regarding tenders, this assumption of negative relevant result for one of the orders, if its performance, even at a loss, guarantees obtaining one or more of posterior orders to compensate the imputed at time of analysis loss and make a profit (Safiullin, Klychova, & Zakirova, 2014).In other words, if in the previous example the appraising firm operated with limited resources, which led to the need for non-participation in various tenders, the current situation, on the contrary, is characterized by sufficient resources to participate in the performance of even the loss-making order.A simplified example of this situation is shown in Table 2.The data of the table show that in addition to irrelevant costs, in the cost of implementation of tender number 1 is also included the imputed loss of $ 10 thou rubles.For this, the said tender is not yet profitable, but only allows us to reduce the overall amount of negative financial result of the company.
Thus, as in the previous situation, we are talking about the need to win the tender, the revenue from implementation of which will eventually pay back all the earlier costs.From this perspective, it can be stated that there is a critical amount of accumulation of irrelevant costs, even when the desired order in the most ideal conditions of implementation will not be able to offset all previously made costs, for the accumulation of irrelevant costs is the trend that cannot be reversed by one order.To track this trend, one can apply the formula: Where K нз -irrelevant cost factor in the range of 0 to 1, ∑ н -the total amount of irrelevant costs for the period; ∑ р -the total amount of relevant costs for the period, excluding not won tenders.
The obtained coefficient of irrelevance for the value of "0" indicates that to get the tenders, organization does not carry out any preliminary costs, i.e. it is the effective expenditure of resources or there were no lost tenders at all; for value of "1" the irrelevant costs become absolute, that is, inefficient operation of the company.This ratio can be calculated for any period and on any date, provided that there is a tender, in which the organization is involved.Correlating the obtained for the same time intervals factors one may make conclusions about effectiveness of administrative decisions made by management.
When the index tends to unit, the organization has the possibility associated with transition to a new, more expensive level of orders execution.In this case, along with the coefficient of irrelevant costs it is also necessary to apply the profitability ratio of tenders, which is calculated as the ratio of income (revenue) to the amount of relevant and irrelevant costs (Quinn, 2014;Bourne, Melnyk, Bititci, Platts, & Andersen, 2014).Thus, in Table 3 tender № 1 allowed us to get income of 90 thou rubles, tender number 2 -520 thou rubles.For this, coefficient of irrelevant costs of tender number 2 is: K нз = 710 (100 + 710) = 0.87, which is higher than the similar indicator calculated for tender number one, the irrelevant costs and imputed loss of which were included in the cost of tender number 2. However, the profitability ratio of tenders indicates that the implementation of loss-making order was not a mistake: К рен 1 = 90 : (100 + 350) = 0,2, or 20%.
Thus, the profitability of tender number 2 even with taking into account the cost of tender № 1 has increased by more than 40%, thus reducing the overall cost of non-return expenditures of organization from 350 thou rubles up to 290 thou rubles.Further, if the management of appraising company could find a few more orders, changing, thus, the tend to accumulate irrelevant costs and "output in plus" will be possible, i.e. profits from participation in implementation of orders obtained in tenders.
In our view, the organizations involved in a large number of tenders should allocate levels of orders execution, based on the volume and cost of work, and closely monitor so that the total irrelevant costs accrued for tenders of the same level, did not "pass" in the cost of orders of the next level.The reason is that the greater is the level of execution cost of order, the lower is the number of orders themselves at this level and so they are more important for the organization in terms of contribution to overall profits; and hence the influence of irrelevant cost factor increases.In other words, K нз of the first level of 0.5 is not the same as K нз of 0.5 of the third level.As for the last level of orders execution, the coefficient of irrelevance of more than 0.5, is generally not allowed to, because the next level, by which the non-return costs could be compensated does not exist, and the previous levels are not able to provide the necessary amount of revenue.From our experience of working in the field of appraising business, we have been developed the following gradation of levels of orders execution for tenders (Table 3).Thus, achieving the value "1" by coefficient of irrelevance (which means no orders) at the first level of their performance reduces revenue of the company by 3.93%.At the fifth level, represented only by two orders, the maximum allowed percent indicator is just over 50%, i.e. accumulation of irrelevant expenditures for the order with cost up to 10,000 rubles., can be covered by performance of the same second order.Let us specify that we mean maximum values of indicators.

Conclusions
The management of appraising company should analyze information about all tenders -by total participation in them and, first of all, to analyze the level and dynamics of prices offered by competitors.This will set out the best way to combine the mentioned relevant approach to the management of tender costs, setting the lower (breakeven) price limit and approach based on analysis of competitors' prices to ensure finding the upper limit.Within this price range for the organization "a room for maneuver" appears in terms of setting the final price level.The possibility to analyze competitors' prices appears during announcement of the results of tender, in which participants are given the announced prices and the place, which each of the participants took, and the first place is given to the winner.As a result, one can identify the approximate amount of discount that each of the participants is usually ready to give.
Thus, the proposed in this paper relevant approach to decision-making regarding participation or non-participation of appraising organization in the tender or group of mutually related tenders allows us to solve complex problems associated with determining the economically reasoned levels of costs for execution of contracts for tenders, and, respectively, with reasonable pricing for different conditions of victory.However, the techniques in this article for systematizing the relevant and irrelevant costs in the context of each of the tender may be used only for small amounts of activity or in conditions of adapted for tender activities software product added with required directories, management accounts, reports, as well as calculation algorithms for implementation of relevant approach.

Table 2 .
Analysis of effectiveness of participation in mutually related tenders, provided loss of one of them

Table 3 .
Grouping of orders as to levels based on cost criterion