Estimating the Costs of Estimates

An interesting situation when creating estimates is determining which estimates to spend time on and which estimates are too costly to put the effort into.  In a tough economy, your company takes on jobs that don’t lead to a reasonable profit, but you will do almost anything to keep your machines busy.  This is a valid desire, but it should be looked at on a case-by-case basis.

Estimating the costs of estimates is critical because you do not want 90% of your effort to go toward quoting the machining, sheet metal, tubing or any other type of job to only get 10% of those jobs.  The other factor that is really important is your ROI (Return on Investment).  Estimating is a “best guess” and you are almost always competing against others who do their best to guess a reasonable price.

The more accurate the cost estimate, the higher the costs will be.   The reason is the more accurate the job cost estimate is the longer it takes to produce, increasing upfront design work, and details to prepare the estimate.  Now, when you are estimating in a job shop environment where parts are made to order and engineer to order the cost of the estimate is also based on the “value” of the product.  If the product is a panel, cutting a small tube or small machined part the costs are not that high to estimate.

One of the reasons is the engineering time to estimate is low, most of the job is done by machines and not manual labor, and it’s small.  On the other hand, if the job was a vehicle, machine, house, addition to a house, etc the cost to estimate is much higher.  The reasons would include the bill of material requirements would be much greater and therefore require more effort to accumulate those costs.  Assembly costs are the largest unknown portion because of unknown factors, employee performance which makes it very difficult to quote accurately.

I leave you with the thought that you should try to do a rough cut look at the part before expending a lot of wasteful hours trying to come up with a good estimate.

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