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How Accurate Is Cost Estimating Software?

A Seasoned Expert Determines the Accuracy of Cost Estimating Software

As a Sales Director at a Cost Estimating Software company, I get the question, “How accurate is your cost estimating software?” quite often. The simple answer is that the software is always as accurate as the data that is imported into the software. Not every machining center machines at the same rate, not every laser cuts at the same rate, and not every press brake bends at the same rate. Since not every company has the exact same equipment, uses the same type of tooling, purchases raw material at the same price or has the same shop rate, no off the shelf cost estimating software will generate perfectly accurate cycle times and costs without some level of data configuration specific to the company using it.

Garbage In, Garbage Out  

The main benefits of utilizing cost estimating software are increased speed, accuracy and consistency of estimates. These benefits are achieved, in large part, through the use of standardized, formula-driven methods of calculating labor and machine cycle times (rather than relying solely on the opinion, or experience, of an estimator). The accuracy of a quote generated by estimating software is highly dependent on the back-end data and formulas that produce the results. If the raw data imported into the cost estimating software is garbage, a garbage estimate is what you can expect to receive in return.

Take For Example, Estimating Laser Cutting Times

Not every laser machine has the same characteristics or cut-rate capabilities. In order for any costing software to generate an accurate cycle time calculation, it first needs to be loaded with the cuts rates associated with the particular laser machine(s) that your shop owns.

Established cost estimating software companies have solutions that come with out-of-the-box data for the various manufacturing processes their system support. The better tools will make it easy to modify and add to the base data in an effort to dial in the numbers to better reflect a particular shop’s equipment and core competencies. The more advanced systems will enable companies to mass import raw material and purchased item pricing, work center shops rates and customer contact information, most of which is typically stored in their ERP system. The database configuration process is critical to having a software tool that will consistently generate an accurate cost estimate for your shop.

No Two Shops Are The Same

It’s simply not realistic to think that off the shelf cost estimating software will be able to generate an accurate estimate for YOUR SHOP until your shop’s data has been loaded into it. The process of doing that, if the software you choose comes with out-of-the-box data, is not necessarily that time consuming. In fact, some software companies provide the database configuration service as part of their overall offering.

The good news is, once the configuration process is complete your company now has an estimating system that will increase the speed, consistency and accuracy of its quotes. For most shops, the result is greater quoting throughput, higher RFQ win rates and increased sales and profits.

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Is Manufacturing Cost Estimating Software a Worthwhile Investment?

Having worked for and with hundreds of manufacturers over the past 3 decades, I can tell you that the majority of shops estimate by knowledge/experience, long-hand calculations and/or similar jobs.  The problem with those estimating methods is they can be extremely time consuming, inaccurate, and inconsistent. The result – late delivery of quotes to the customer, quoted prices that are either too high or too low (both of which can be costly), and customers that can quickly lose confidence in your shop’s ability to provide fast, accurate, consistent quotes (which can also lead them to question your shop’s capacity to produce quality parts in a timely, consistent manner).

What Are the Benefits of Cost Estimating Software?

The main benefit these programs provide is a standardized, formula-driven method of estimating labor and machine cycle times. Utilizing standardized formulas to estimate labor/cycle times takes the subjectivity out of the process, leading to a much more consistent estimate. The better estimating systems allow you to modify the out-of-the-box cost models (cycle time formulas) to more closely model the speed of the equipment your shop owns, resulting in much more accurate cycle time estimates. No off the shelf software will have your company’s data, and without that in place, a high level of accuracy cannot be achieved.

Cost estimating software has many additional features that is designed to increase the speed, accuracy and consistency of the entire estimating and quoting process. Most systems have tools to accurately calculate raw material usage and costs. Some of the more powerful cost estimating software on the market today enables users to open, capture and utilize feature and dimensional data found within a 3D CAD model, which greatly reduces the amount of manual data entry required to produce an estimate, dramatically speeding up the estimating process.  In addition, the more advanced databasedriven systems allow you to mass import data (raw material pricing, work center shop rates, etc.) into the databases as well as export the estimate data out of them, in order to create custom reports and links with other software tools, such as ERP/MRP.  

What Is Your Current Estimating Method “Costing” Your Company?

To answer that question, you first need to identify what the main issues are with your current cost estimating process. For most shops it’s one or more of the following; a lack of estimating speed (quote turnaround), accuracy (quotes too high or too low) and a lack of consistency, from part to part and/or between one estimator to another.

If your company’s main estimating issue is the time it takes to generate an estimate, the benefit can come in the form of cost savings, revenue growth, or both. Increasing your estimating speed would allow you to reduce your estimating staff, lowering your labor costs. It can also allow you to increase your quoting throughput, increasing the number of jobs you quote, which even with the same win rate would result in more jobs, revenues and profits.

Most companies who utilize cost estimating software also realize a significant increase in their quoting accuracy and consistency, which can dramatically increase a company’s RFQ win rate. The result – higher revenues and profits. Being accurate on your quotes also reduces the likelihood that you will experience “loser” jobs (cost your company money) due to underestimating your true costs. That can be a huge cost avoidance benefit for many companies.

Is Estimating Software for Every Company?

Absolutely not. The good news, for those shops that can benefit from this type of software, is the ROI is normally achieved within the first few months of its use. For many, all it takes is one or two “wins” that resulted from the customer received your quote on time, or even first, or perhaps because the quoted price was spot on rather than being too high, or even unreasonably low.

For companies who are burdened with an estimating/quoting process that is slow and at times inaccurate, not having cost estimating software to rely on can be extremely costly. With competition amongst manufacturers heating up like never before, now might be a good time to see if this type of software can give your company the competitive advantage it deserves.                

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Estimating by Experience? Put That Knowledge Into Estimating Software

Put historic engineer knowledge and experience into a database to help your bottom line

Estimating by Experience? Put That Knowledge into a Database!

If your company is still estimating primarily by experience, you are not alone. The majority of job shops estimate by relying on an individual who has decades of experience in the industry or within the company itself. This experience can enable the individual to look at drawings as the quotes come in and return an estimated time or cost in sometimes minutes- it takes many years for someone to be able to do this accurately and consistently. Once a company finds themselves with an individual like this, the experienced individual soon becomes irreplaceable. Now take that person out of the picture for a moment – turnover, cost cutting, the next global pandemic affecting your company’s bottom line. How is your ability to generate quick and reliable quotes now?

Trouble on the horizon

When the estimating duties fall heavily on your most experienced employee day-to-day, you are setting up the process for failure. Employees can get sick, have short to long-term leaves, move on to other opportunities, or retire. Unfortunately, these things can occur with little notice, leaving you scrambling to fill the void of an essential staff member along with the knowledge they carry with them. The immediate result can be costly and important quoting opportunities either can fall by the wayside or are not completed quickly or accurately enough. When going through these difficult times, manufacturers are forced to pull in resources often from multiple departments in order to keep up with the quoting. This collaborative effort can sometimes get you through the tough times on the short-term, but pulling others away from their actual day-to-day responsibilities is not a long-term solution.

Be Proactive

Unless you have a replacement waiting on standby, then being proactive will help you avoid some of these pitfalls. You could sit down with your estimator and try to extract all that knowledge, and then try to develop a spreadsheet tool around it; You could hire another full-time estimator to begin the understudy process, with hopes they learn all there is to know. However, what happens when that estimator leaves? All of these options could be costly and take a lot of time. A cost effective and dependable option for you is to implement a database driven Cost Estimating Software.

Technology is here to Help

A database driven estimating software program enables sheet metal, fabrication, and machine shops to take some of that extracted knowledge from their most experienced personnel, and put it into a database. Not all of their experience can be withdrawn, but after implementing, your company can rely on a standardized tool and not on a person. An estimating software will be bring many benefits to your organization, including the following:  

  • Consistency – Using formula driven methods to calculate the times for processes like laser, welding, milling, drilling, and turning, and more, will standardize the process. It makes estimating consistent no matter what day it is, or who is using it and how they feel that day. It can also make estimating accessible to different skillsets.
  • Accuracy – It is not in the eye of the beholder, it is in the database. With database driven Estimating Software, the accuracy comes by what you put into it. Some programs come ready with machine data, speeds & feeds, formulas, time standards, etc., but every shop is unique so finding an estimating software that is fully customizable should be a top priority.
  • Speed – While nothing can compete with the speed of someone looking at a drawing for a few seconds then coming up with a (right or wrong) number, using a standardized estimating system can be very quick, and for most companies is an improvement on their estimating time. Some cost estimating software programs integrate with 3D CAD files as well as ERP’s, which can greatly speed up the quoting process from begging to end.   

It’s Never Too Late

It is a tough situation when an indispensable staff member suddenly becomes unavailable or decides to move on. Do yourself a favor and plan ahead for the worst. There are tools available to help smooth the transition. In addition, you will be standardizing your estimating process for all those involved, and for decades to come. Why wait until disaster strikes? Be prepared and stabilize your quoting process before it is too late. 

About MTI Systems, Inc.

MTI Systems provides cost estimating software and estimation services for the manufacturing industry, serving both suppliers and OEMs. For more information on Costimator and MTI Systems, contact MTI Systems, 1111 Elm Street, Suite 6, West Springfield, MA 01089; Phone 413-733-1972

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Sheet Metal Safety Tips that Affect Costs

While many professionals in the sheet metal business can agree on all of the following safety issues, there are times that “common sense ” is sometimes overlooked. Much of managing and implementing proper safety standards and procedures begins by brainstorming situations and estimating the effects of not having reasonable safety procedures in place. Working without a plan, in a new production environment or where characteristics of the environment change, exposes workers to the “trial and error” effects on injury. It doesn’t take a whole lot of planning to foresee, prevent, or at least reduce the possibility for injuries.

When safety is compromised, injuries can increase a company’s overhead cost, which ultimately increases part costs and/or reduces a company’s profits.

Gene Barsaleau, 1 of our cost estimating trainers, who also had been working in the sheet metal business for 30 years, has the following recommended tips and real life experiences he shares here:

Top 10 Sheet Metal Safety Tips for Manufacturing that Affect Costs! 

1.) Gloves– Select good ones and don’t just carry them – wear them. “They can be a hand saver, even when you or your co-workers may think the immediate job is “a quick move and carry.”  Take the time to get your gloves on for protection. A simple cut not only can become a serious infection it can delay and/or affect your ability to remain employed. This costs you and your company money. Even if you are still able to work its likely you are operating less effectively.”

2.) Too big to handle – Recognize what is too big to handle. “Too many times I’ve seen workers, even family members, go at a job or task with the ‘I can do it attitude’ and that’s just when injury likes to lend a hand (no pun intended).”

3.) Don’t scrimp on hoisting equipment – “Material moving tools are expensive, but losing an employee is much worse. The good news is that an effective hoisting tool can greatly reduce the time to manufacturing parts by reducing the time to move parts and materials. The time savings converts to cost savings. Pass this cost savings along to your customer, reap higher profits, or both. It can be a win-win for all.”

4.) Don’t try to stop Inertia – Inertia, (the resistance of any physical object to a change in its state of motion or rest, or the tendency of an object to resist any change in its motion), rules how easy it will be to stop “out of control” metal from causing harm to you or others – “get out of its way.”

5.) Know the limits of fork lift trucks – Just because you aren’t the driver doesn’t mean you should be ignorant to its limitations of gravity and strength. “I once dropped a 40″ plate of steel because the back wheels lost contact with the floor.”

6.) Safety Glasses/ Helmets – “While it’s easy to throw this on the list it’s not easy, or acceptable, to show graphically what can happen to the eyes or head when impaled with flying debris – wear them always.”

7.) Hearing Protection – “What did you say? Don’t be a hero…save your hearing!”

8.) Steel toe shoes – “These can make a difference between having toes and not having them!”

9.) No loose clothing – We hear this more and more. “Don’t become another statistic because you had strings attached.”

10.) Don’t work under the influence – While obvious… always read the labels. “Even over the counter medications can affect your ability to function safely.”

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Estimating Tools for Welding Manufacturers

Identifying welding time and the cost for various weld types has been an age old challenge for manufacturers. There are few companies to this day that have a good understanding and estimating tools or methods to determine what the times and costs are. Many companies have failed to take advantage of estimating software technology tools that’s available today. Also, they may have neglected to even look at their welding cost and how it might affect the outcome of winning the job or selling more products!

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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.

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Is Cost Estimating The Old Fashion Way Costing You?

There nothing more frustrating for a manufacturer than spending hours, days, even weeks on a quote package only to find out you were not awarded the job. What a kick in the gut. What’s worse is if you find out the reason for losing the bid was because the quote was submitted too late or your quoted price was way out of whack compared to the competition.

Continue reading “Is Cost Estimating The Old Fashion Way Costing You?”