Avoid exceeding: How inaccurate cost estimates could jeopardize glass and metal projects
Cost estimates are essential for glass and metal companies. It forms the basis for effective financial management and project delivery.
Vanessa Thompson is a commercial estimator at South Dakota-based DeSCo Architectural Inc., a manufacturer of architectural windows. She says accurate cost estimates are critical for proposal proposals, contract negotiations, budgeting and financial planning. This allows companies to properly allocate resources and set realistic project milestones.
Thompson adds that skilled estimators contribute to overall decision making, resource allocation and stakeholder communication.
“[Estimators] Determine the likely cost and schedule outcomes that will be used to plan the work required for development, production and installation based on the project requirements,” she explains.
Total cost estimation allows companies to identify potential pitfalls and develop strategies to mitigate cost overruns. The process protects a company's financial health and enables continuous improvement through analysis of past projects, promoting resilience.
How can inaccurate cost estimates lead to overruns?
Thompson explains that an inaccurate estimate could result in a project going so far over budget that funding is lost and put on hold.
“When customers make decisions based on incorrect information, it can lead to a chain of events that result in material order setbacks, labor shortages, scheduling conflicts and shipping delays,” she says. “Of course, this could lead to a lack of trust between your company and your customers, which could negatively impact a project and the success of future projects.”
Craig Evans, estimator and project manager at Arizona Glass Specialists (AGS), says managers need to anticipate what will be needed on a project and when it will be needed. AGS is a commercial glazing company based in Chandler, Arizona.
Estimation problems arise for a variety of reasons, including lack of experience, inaccurate data collection and cost estimates, and failure to meet deadlines. Evans says incorrect orders and overlooked items quickly tip the balance and force companies to purchase items at a premium.
“Misordered and overlooked items still typically have to be picked at a high price and at the last minute when you can least afford it,” says Evans. “Conversely, in the event of a possible stock-out, maintaining inventory creates its own costs, which do not have a positive impact on the bottom line.”
A stock-out occurs when customer-specific orders for a product exceed available inventory. According to officials at Shopify, an e-commerce company, stock-outs can lead to lost sales, lower profits and customer dissatisfaction.
Internal Estimation vs. Outsourcing
Officials at CostMiner, an online estimating program, say there are pros and cons to hiring an in-house estimator or hiring a third party. Officials explain that in-house estimators can be more expensive but offer more control and flexibility. While outsourced estimators are typically more cost-effective, companies need to ensure that they work well with them and that the estimator understands their needs.
“Your internal estimator should be a known authority, someone who knows you,” says Evans. “An external estimator can supplement your in-house estimate, assist with a simple material determination or, if they have demonstrated greater competence, provide a full estimate along with a written quotation.”
Thompson explains that for large operations, outsourcing may be a better option. She says that for smaller companies, having a team of people involved in day-to-day operations outweighs the benefits of outsourcing.
Practices to Improve Cost Estimation
According to a Project Management Institute article by Christian Bisson, estimating can be a daunting and tedious process. To help companies improve their processes, Bisson shared several tips, including:
- implementation of an emergency plan;
- Avoid adjusting numbers to fit the budget;
- Establish assumptions for tasks and numbers;
- Creating a detailed breakdown describing each process;
- Re-examine frequently overlooked activities. And
- Including the accuracy of the estimate.
Thompson adds that companies need to clearly identify the goals of the project, the tasks to be completed, and the timeline for completion. Equally important is communication between the estimating team, customers, subcontractors, suppliers, logistics, procurement and others.
Companies also need to better track costs, particularly labor costs, to improve estimating, says Evans. He explains that this is fundamental to understand what is happening in the company and how costs are changing. This is because labor is often the largest estimate in any estimate. Estimators may have little idea of the skill level of the team that will ultimately handle the project and must rely on shop standards, intuition and any input offered by the shop and on site.
“Active management will compare the actual workload against the budget estimate to confirm accuracy and make adjustments to production standards as necessary,” says Evans. “Work standards can be influenced by changing skill levels, tools, equipment and practices.”
How can companies refine their cost estimates?
For companies looking to improve the cost estimating process, Thompson says they need to create an environment where employees are encouraged to identify areas for improvement and empowered to make changes. This includes regularly reviewing and updating the process, industry trends and cost of goods to ensure they remain effective and relevant.
She adds that companies also need to set realistic deadlines.
“Many estimates are created too quickly due to time constraints,” she says. “In such cases, the accuracy of the estimates decreases dramatically.”
Joshua Huff is senior editor of USGGirls magazine. Email him at jhuff@glass.com and connect with him on LinkedIn
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