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You need to ensure you are not bidding yourself out of business. Without feedback pressuring your staff to think about costs, you will cost yourself out of business. Start internally when sales personnel bring you new opportunities. Take control of this process before it creeps out of control and thwarts your company growth.
Begin cutting the cost of your in-house estimates. Cut back on run and setup time. Challenge your production personnel. Tighten up on hours and cost. Reduce the time allowed for setting up jobs (preparation time). If the estimator does not know the time for setup and this is the first time the job has been done, he should use the minimal amount of time.
Challenge your production people; challenge your staff. Regardless of the complaints received, when estimating an unknown job, estimators need to place the bar at a point that challenges the operators. Do not throw a lot of time at the job because it makes the company uncompetitive in the marketplace. Operators will rarely call and complain that the estimate is too fat and allows too much time.
Go low in order to grow. It is better to estimate ‘on the cheap’ than ‘fattening it up’. This general rule of thumb applies for nearly every type of business estimate. When in doubt, go low on estimated hours, time, money and all other costs when you need to get to the real number. Unless you really know the limitations of your staff, you need to assume they are sharp enough to meet this challenge. It raises the bar for your employees and you will get much better feedback when they are given a number to beat rather than one easy to achieve. You will always get valuable feedback on tight estimates versus fat ones because your employees’ weaknesses begin to show up very quickly when given more difficult tasks. You need to learn who needs improvement and decide who needs replacement.
Points to remember when setting estimates:
- Was the estimate for running the job (seconds per part, minutes per part or parts per hour) significantly incorrect? If it is, is the correct revision given to the estimator so he is more up to date?
- Are there operations on the estimate that are not needed? Result: overstated cost, bad for the company, costly in the marketplace because bids are lost that should have been won if the estimate was correctly bid.
- Are there operations on the estimate that are missing? Result: Understated cost is bad; company underbids the quote, gets the job and has a difficult time raising the price later.
- Has a second engineer looked at the estimate to see if it can be streamlined or cost minimized? Note: You may want to begin looking for sharper talent if your current group continually comes up short on good or innovative ideas. The health of your company depends upon it.
- Has materials’ costs been updated and negotiated for volume discounts?
- Have outside service costs been updated and negotiated?
- Has the production rate been set to the best operator standard in your facility? If not, do it; expect and train all of the others to work towards achieving these better lower cost production efficiencies.
Your goal is to get to the right estimate to win the job, something achievable but not easy. Easy estimates come first before your company goes out of business. You become less competitive and you win fewer jobs in the marketplace. This process does not happen overnight but over many projects and jobs.
