SEPTEMBER 1, 2018

The Evolution of Estimating

Estimating. From our parents, to our children, to a deli clerk halfway around the world, everyone is estimating something daily. In general, estimating is a computation of a value. In its everyday use we often compute the value in our heads. Like when you’re at the grocery store and trying to calculate how much chicken, burgers, and hot dogs you’ll need for the next day’s barbeque. You give it your best guess, and in most cases, that’s good enough.  Uncle Jim will survive if there’s no more hot dogs left. But what about when tens or hundreds of thousands of dollars are at stake? When the estimating determines whether or not your company wins an important contract that is vital to growth (or in some cases survival), is it still ok to use that same method? The obvious answer is NO.

The Reality of Estimating

Although it’s 2018 and we live in a fairly technologically advanced society, many companies at this moment are using methods not far off from our grocery store example. Over the last 10 years, I’ve heard first hand from thousands of companies on how they develop their estimates. From time to time I’ll see some that have made some effort towards achieving accuracy, whether it’s through the use of CAM programs or some home built calculators in Excel, but most company’s methods are just downright crude.

Common Estimating Methods

Here are the top 3 cost estimating methods I see used in the manufacturing industry (before implementing a more consistent and accurate cost estimating software solution).

  1. Experience

This is by far the most common way I see people generating cost estimates. This typically requires an individual(s) who has 15+ years of first-hand experience in manufacturing parts and often times they’ve worked at that particular company for decades. Where I’ve seen this fail for companies is in situations where you have multiple people on an estimating team using this method. Since everyone has different levels of experience, their best guesses will eventually lead to inconsistencies from one estimator to the next. One of the most common complaints I hear with this method is when it comes time for that experienced estimator to move on, so does all their years of expertise and knowledge in their head, leaving the company in a serious bind.

  1. Historical Data

With this method of cost estimating, data from a past quote or job is applied to the current quote. Despite the similarities, this method can go wrong really fast! All it takes is an overlooked tolerance, surface finish, or finishing operation and that similar quote/job is not so similar anymore and you’ve grossly overbid/underbid that job, leading to either lost bids and/or lost profits.

  1. Spreadsheets/CAM

The use of home-grown spreadsheets with formulas is as about as high-level as is gets for most manufacturers. I tend to see sheet metal fabricators make use of this method. Machine shops, on the other hand, typically don’t use spreadsheets using Speeds & Feeds, instead I tend to see them using CAM programs to help with machining cycle times. From an estimating perspective, it’s a step in the right direction, but much like the first two estimating methods, there are still potential speed, accuracy, and consistency problems. Who developed the spreadsheet and where did these formulas come from? Can I mass update my quotes in a spreadsheet? I get good machine cycle times from my CAM system, but what about all the other operations that go into the part cost (or even that machining operation!).

The Intelligent Solution to Estimating

It‘s 2018. Manufacturing companies use software for planning, accounting, job tracking, sales, design, programming and assisting machines, etc., etc. etc.! So why then are companies settling on outdated methods when it comes to cost estimating? Is it not a critical aspect of the business?  With a fraction of the effort and cost required to get some of those other software programs implemented, you could be on your way to incorporating a cost estimating method that produces winning, profitable quotes. In fact, most companies who implement cost estimating software report a ROI within just a few months.

Cost Estimating Software Considerations

Cost estimating software comes in many shapes and sizes. Some are specific to certain industries or processes, while other support a broader range of industries and processes and have many advanced features. Some of the best cost estimating software solutions on the market allow you to configure the system around your specific needs and requirements. Below are just a few of the most common features of cost estimating software, which you may want to consider when making your evaluations:

  • Database Driven. This will not only bring standardization to the process from user to user but will also allow for things such as mass updating of past parts or quotes with new database information, or updating child part estimates automatically when a last minute quantity revision is required at the parent level part. Having a database driven tool means one location and easy retrieval of part estimates and quotes.
  • User Friendly. The definition of this varies wildly. Many might think “speed” when you mention user friendly. I’ll agree that speed is definitely part of what makes an estimating software friendly, but there are others too. Is it easy to navigate from one area to another? Does the flow make sense? Is the GUI (graphical user interface) clean and easy to understand?
  • Configurable. A good estimating software will allow for customization of the data and formulas that drives the time and cost calculations as well as reports. The customizing tools should also be user friendly! What good is software that isn’t easily customizable?
  • ERP Integration. Finding an estimating software that has the ability to integrate with your ERP is a homerun. Hundreds of companies I’ve dealt with are reentering estimate information into their ERP system. This saves you from double entry and will definitely contribute to time savings and standardization of the whole quoting process for your company.
  • CAD Integration. Now, as I’ve stated a few times already, it’s 2018. So, that means we should just be able to “load” a CAD file into an estimating program and voila! Its spits out an estimate that’s within 2% of actual and does it every time, for every part type scenario. Just as much as we would all like that we all should know that is unrealistic. What it can do for estimating is dramatically increase the speed of developing estimates by incorporating the geometric attributes of the features on a CAD model. When you want to be really accurate with your estimating then you need to account for the little details like the different diameters, depths, lengths, widths, etc. on the features of a part. For many features, using a CAD can grab and populate this type of information automatically which in turn can dramatically increase the speed of developing estimates.

If you don’t think there’s a need to improve your company’s cost estimating method you might not be putting enough emphasis and value on your quoting process and how it can drastically affect your bottom line. The use of cost estimating software is becoming more and more common, and at some point you may realize you are behind the times. You may be thinking to yourself, “We’ve been in business a long time, we must be doing something right.” That may be true, but the real question you should be asking yourself is, “How much better off would your company be today if it was utilizing cost estimating software?”