Checklist: What to Look for in Cost Estimation Methods

Key Takeaways:

• Limited resources and increased competition put pressure on identifying a solution to accelerate the cost estimation process and help scale business
• Finding the right data-driven solution can be challenging with the various options available today. Not all cost estimation methods are the same. Consider the differences between aPriori and other cost estimation methods

The Full Article:

You may be checking your holiday list twice. However, have you also considered your checklist when comparing the myriad cost estimation methods and their various capabilities? Understanding your business requirements and challenges will help you determine the best method for you.

With many variables at play, it is easy to see why traditional cost estimation methods can be arduous. What’s more, these complexities often contribute to uncertainty or variability in your estimates that lead to over- or underquoting.

Why It’s Difficult To Win Profitable Business

The ability to respond quickly and confidently to Request for Quotes (RFQs) is essential to remaining competitive and profitable. The pressure to be first-to-bid could leave your quote vulnerable to potential errors in your estimate (e.g., over- or underestimating cost or production capacity).  These other challenges further complicate the cost estimation process:

• Complexity increases the level of uncertainty: Not all project costs can be seen and estimated upfront. This is especially true in project management cases where a more complex project design or more involved processes are required for manufacturability. As a result, an initial quote might not have been factored in, creating cost overruns, which then eat into a manufacturer’s profit margins.
• Limited resources to scale: The U.S. Bureau of Labor Statistics notes that 18,000 openings for cost estimators are projected each year, on average, over the next decade. These openings are anticipated to be in response to workers either exiting the workforce (retirement) or moving to other professions.
• Increased competition with limited data on competitors: When competition increases, manufacturers up the ante with price wars, often undercutting the competition. However, if you have no access to a competitor’s pricing data, it becomes difficult to win that price war. What’s more, it can be difficult to set yourself apart from the crowd beyond the price you quote.
• Continuous supply disruptions raise costs: The pandemic underscored how crippling a disrupted supply chain can be. And with it, often comes higher, fluctuating prices that make cost estimation techniques less predictable than a game of darts.

Then there are other cost estimation considerations such as:

• Can I make the product or component in-house, or do I need to outsource it?
• Do I have the capacity to produce it and deliver it on time?
• What will it cost to make?
• What are the potential design or manufacturability risks? How will they be addressed?
• Will we be competitive in terms of product, cost, etc.?
• Will I be able to defend my quote with detailed, accurate data? This is important because bids are often lost because they are overquoted, underquoted, priced out of the competition, or do not respond fast enough.

The Right Cost Estimation Solution Can Address These Issues…And More

Let’s compare and contrast the cost estimation methods and capabilities of aPriori, another cost estimating method, and an Excel spreadsheet.

aPriori Cost Estimation Method:

Pros:

• Utilizing a bottom-up cost estimating approach, combined with the breadth of process coverage, offers detailed cost, manufacturability, and carbon breakdowns
• Supports comparison against competition regionally and by process
• Improved conversations with the production team by providing insights regarding cycle time, part nesting, and utilization

Cons:

• Higher cost entry point
• No intake capabilities

Other Cost Estimation Methods:

Pros:

• Faster time to quote than Excel-based methods
• Improved workflow and quoting process
• Lower cost entry point

Cons:

• Heavy reliance on the production team for feedback and validation requiring capacity and delivery
• Limited cost breakdown and built-in process coverage expertise
• Costing and pricing logic built on known factors leaving you vulnerable to competition

Excel Spreadsheet Cost Estimation Method:

Pros:

• Easy to customize and set up to your exact specifications
• Minimal or no cost to create

Cons:

• Time-consuming to set up and maintain
• Takes time to generate a usable result
• Reliance on expert feedback for each calculation

aPriori automatically provides updated labor costs and material rates (this is most often done manually) so manufacturers have the most current data available. As a result, manufacturers can respond to quotes faster and more competitively while minimizing the risk of errors.

The Proof Is In the Pudding

The best evidence of an effective cost estimation method is its ease of use and quick, full adoption.

A cost estimation method that has a straightforward implementation and onboarding process is the fastest, most effective route to transforming your revenues and streamlining workflows. So manufacturers get the most from our cost estimation method, aPriori provides several support teams to ensure you meet your business goals and optimize our solution. Moreover, this level of support enables cost estimating teams to independently create and analyze cost estimates and improve resource allocation decision-making. Visit our case studies to learn more about our clients’ high-value wins as a result of our cost estimation solutions.