Estimating by the Book

The estimator takes the first step on the tightrope that ultimately determines your company’s success.  Certainly there is no more important document in a converting plant than a consistent and fair cost estimate.  I believe that the estimate should be an honest broker.  It should be used to measure both the quality of price that sales brings to the company plus how well the plant performs against standard.

Consistency can be described two ways.  First, does your company have more than one estimator?  If so, will each individual produce virtually identical estimates for the same job?  And second, if a job is reordered a year from now (process and methods remaining unchanged), will the job routing, material chosen, waste standards, etc., be identical to the original estimate?  Without consistency, analysis of job closeouts becomes muddy, pricing suffers from unnecessary fluctuations, and plant personnel will lose faith in the process.

This is especially true when it comes to fairness.  A run speed raised to lower cost for a “better” price can hardly be used to hold the plant to task.  It is equally unfair to the sales team to measure it against an overly generous makeready standard that is padded to calculate a higher cost (and resulting price).  A fair production standard is one that allows the crew to achieve 100 percent efficiency by exerting a normal hard day’s work.

Most plants use an estimating system where the estimating standards are embedded in the software.  The Manual should be printed to allow the standards to see the light of day — free from their digital prison.  They should not be secret.  They deserve a careful and regular review.

The estimating manual is the best way to insure fair and consistent estimates.  It defines the estimator’s authority, doubles as a ready-made training manual, provides continuity regardless of turnover or promotion, and reduces to a permanent record the invaluable years of experience of each of the company’s estimators.  The exhibit is a typical example of the standards for one production center. 

If the company’s criteria for determining job cost aren’t in writing, it risks surrendering corporate policy to the whim, albeit well meaning and company minded, of the individual.  Here’s an example.  A seasoned estimator noticed the steady decline in run speed on the plant’s six-color printing press.  Because he correctly suspected the necessary repairs would not be done quickly, he gradually — and unfortunately quietly — reduced the estimated run standard to avoid losing money. 

When actual performance was compared to the new standards, efficiency appeared to still be about 100 percent.  The gradual decline in productivity was HIDDEN by the estimator’s changing standards. When the real problem finally came to light, over two years had passed, and the standard had been reduced by 25 percent.

Estimating is often a springboard for new and bright talent within the plant to learn the ropes.  It’s an excellent way to become immersed in every facet of the business.  However, it takes at least an entire year before a trainee can begin to be considered seasoned.  The estimating manual minimizes this trauma, insures consistency between estimators, and measurably speeds the training process. 

An estimate is just that — an approximation.  One thing’s for sure when we look at one:  the actual won’t be the same as the estimate.  It’s the ability to narrow the variance from layout to closeout that makes a seasoned estimator.  The manual is not carved in stone.  As experience grows, any factor that consistently and unavoidably affects waste or standards (e.g. stiff grain, split fountain, heavy caliper, light caliper, etc.) is incorporated into the book.  It is a living document that reflects the experience of the estimators and the growth of the company. 

What’s the best way to establish an estimating manual?  Engineered production standards, painstakingly collected by months of time and motion studies is the most accurate method.  That was the bad news.  The good news is that with a fraction of the time and expense, you can get 90 percent of the way there by doing the following.  Have the head estimator sit down with the head of manufacturing.  They should ask department heads and plant folks to help them on a machine and department basis.  With a form similar to the exhibit for each production center, this team will develop the initial standards.

WARNING:  Do not create or update standards solely from historical data.  This will invariably result in standards that decline over time.  Rather, answer this question for each machine:  “With the equipment in good repair, what is the fastest speed that creates the least amount of waste?”

During the first year, this committee should meet three or four times to compare actual performance to the new Manual.  Any permanent factor affecting the standards should be added at this time.  Thereafter, an annual review should take care of most of the major changes.

We generally recommend that a sample set of before and after estimates be created to analyze differences.  If the estimate is used in pricing —  and it almost always is — care must be taken not to unintentionally change pricing.  I have some suggestions about how to accomplish this.  Feel free to contact me.