There are numerous purposes behind cost estimating, including the following:
1. A manufacturer can determine if the project or product is cost-effective to the manufacturer prior to the manufacturing process.
2. There are various alternatives to manufacturing and cost estimating can determine the economic feasibility of manufacturing the project or product by different methods
3. A manufacturer can determine the selling price before manufacturing begins. This may or may not be a good idea because the product still needs to be priced at a value the consumer will purchase the item.
4. In software estimating packages like MIE QuoteIt, you have the ability to create different quotes based on different manufacturing procedures. This also carries through when you decide to purchase the item because it’s cheaper to purchase the item then to manufacturer it in-house.
5. Production cost estimator can set standards for production. In ERP software, once a job is received it can be scheduled. The scheduling standards start at the estimating stage of production. The more accurate these estimates are the less effort has to be done during production scheduling.
6. In a production line, the estimate can be used to plan the equipment required to manufacture and what the capital requirements are.
7. Personnel are a key factor and an estimate can determine the person required to manufacture the item.
If the estimate is not accurate the above items as to the purpose of the cost estimate are not accurate. If all your estimate bill of materials, labor, outsourcing, and resource requirements are wrong you will not be successful. Losing work to competitors is one thing but losing money on the job is another issue which costs more than you would lose the job to a competitor.