Utilizing the full capacity of the estimating department can increase profit

Many company owners begrudge the money invested in the estimating department, but it is necessary to estimate the cost of new work.
Informed owners and managers recognize the opportunities of this department to drive profits for the company. They also realize that the investment in equipment, computers, software, training and salaries needs to create a return and they know that if they skimp on the investment, they reduce the opportunity to generate a return.

Let’s take a look at how enterprising estimators can help with research and development, quality control and continuous improvement.
Informed decisions

In today’s difficult economic environment, I often hear about companies that are starving for business, while others are successful in keeping their presses running. Having the right information to make informed decisions is critical at any time, but during difficult times, it makes the difference between profit and loss.

Accurate standards and a full understanding of how Budgeted Hourly Rates (BHR) are calculated is critical to the pricing decision process. After all, the estimator or sales rep does not determine the price. It is actually determined by your customer and market conditions.

Research and development
Estimators regularly get feedback from the sales department on unsuccessful quotes and which competitor won the order. In a tight industry, competitors often know who has what equipment, and more importantly, know the benefits that equipment offers. Estimators and sales managers can track “lost” orders and help to identify the equipment that should be considered more appropriate for the shop.

The estimator does not determine the price. It is actually determined by your customer

Has your company investigated the benefits of integrating your estimating, order entry, scheduling, job costing and inventory modules? How about the next stage of linking this information to the prepress, press and bindery equipment?

Using software with a standard Job Definition Format (JDF) would enable a plant to achieve significant benefits, including reduced duplication of data, quicker job turnaround, and better consistency. Estimators should stay current on the latest technology and standards and be ready to identify the financial returns of an investment.

Use production targets
Since the estimating department uses standards to calculate costs for a job, it should also use the information to set production targets. If the estimator calculates that a certain prepress task should take X hours or the press should be running at 8,000 sheets per hour, these times should be posted, and the operators should be under constant pressure to beat these times, not just match them. A recognition program should also be put in place to recognize and perhaps reward high performers. This does not always mean additional money. Often recognition programs can take the form of a certificate, lunch, or being recognized in front of other employees at a meeting or in a newsletter.

The key to having production targets is to have realistic production standards in your estimating database that reflect the real production environment.

Job cost analysis = Continuous improvement
Once the targets are set, and production is completed, job cost analysis is important to determine the reason for any apparent difference between the estimate and the actual cost. In some cases this may identify changes that the customer is responsible for. In other cases, the differences may be due to incorrect assumptions, and challenging production tasks. Feedback on these situations improves the accuracy of the next estimate or production run, since we can all learn from history.

We need to be careful not to examine the discrepancy between the estimate and the actual costs with an adversarial approach. In one shop where I worked, the comparisons were done by a fiery manager who would review the job-cost sheets, storm onto the production floor and tear a strip off the unsuspecting production worker. This does not create a learning environment.

Continuous improvement needs to focus on the positive as well as the negative. Many managers forget this and continue to look for what is wrong.

Informed owners and managers can use their investment in the estimating department to help run the plant more effectively and efficiently, and, therefore, create a return on the investment instead of just incurring an expense. Entrepreneurial estimators will also work hard to position themselves for greater contributions to the organization, so they can help generate a return on investment in estimating.