GPI 318 – How good are your estimators? Measure them to see.

Sales personnel throughout all industries submit bids every day to potential buyers. Many times, those bids are prepared by estimators in the home office.  These estimators will make assumptions on manufacturing rates or buying volume discounts and dictate what will be submitted to customers.  Sometimes they are right and sometimes they are not. Does your firm ever measure how close those bids were to final profit results? There are a number of reasons why it should.  Your estimators prepare many estimates and will occasionally make mistakes.

Reasons to measure original estimates to final actual profit results:      

• Work Center Variances: Measure estimates versus actuals against specific work centers.  Your estimators may not be very good at certain types of machinery.  Find out which work centers are bid wrong versus actual results (i.e. results greater than 10% difference).
• Customer Variances: Measure estimates versus actuals for specific customers. The jobs some customers request may be far more difficult than the normal job that goes through your plant.  Which customers possess the worst estimate variances between original estimate and final financial results?
• Estimator Variances: Measure estimates versus actuals for estimators. Each of your estimators has different levels of skills and years of experience.  Find out who needs training or assistance with a second look before submission to customers.
• Industry Variances: Measure estimates versus actuals for industries. You might find wide variances in your bids between the automobile industry and heavy industrial equipment, or between private jobs versus government jobs.
• Size or Complexity Variances: Measure estimates versus actuals for differences in size of jobs or complexity. You might find that your firm does beautifully for very small projects but screws up continually on large jobs. Find out by measuring those estimates.

The flaw in all of this analysis lies in that you are only measuring those jobs you were awarded.  You are not measuring those that you lost, so remember to ask where you are getting all of the jobs you bid may be due to your bids being far too low. Don’t throw money out the window.