The value of estimating
January 10th, 2010Guess what? The cute little 8 year old girl in our neighborhood came up all wide eyed and excited and said “Scotty, scotty (her dad told her I am a Scot) “guest what” I just saw?” I looked at her and noted (1) she came from the vicinity of her uncle’s house and (2) that she was more excited than normal. Since I knew she is afraid of big animals, I said “You saw a rhinoceros on the roof of your uncle’s house.” She said, oh, don’t be silly.”
We make guesses or estimates every day, in many cases without even realizing that is what we are doing. Making an estimate to check reasonableness is a valuable tool, to save money and/or to keep one out of trouble. For example if you go into the cafe and order two hot dogs and a chocolate shake, and the waiter wants to charge you $14.73, I hope while you are waiting you have estimated what you are probably going to have to pay for this junk food. If you are like me, you have already made a “rough estimate” or guess of what to expect. What is a reasonable amount? The hot dogs are maybe $1.65 each or around $3.00 and change and the shake maybe $2.82 depending on size. Tax at 7% may run the bill up to somewhere between $5.00 and $7.00. So you quite rightly buck on the $14.73
Our electronic manufacturing services business, Global Manufacturing Sevices, requires us to constantly fine tune our estimating skills. We quote jobs using a very good set of spread sheets that aids us in the task. We go out to our suppliers to get parts cost. We count parts on the bill of materials (BOM) and try to get an idea (estimate) of how much labor it will take to assemble the circuit boards. We add our known overhead and come up with a figure, but then we run a reasonableness test to see if it makes sense. We compare our price with that of other similar circuit boards we have built. We ask our selves what we can reasonably charge if we filled up the factory with 100% of this product. No one technique gives us the final answer, but we usually come up with a pretty good estimate of what the cost should be.
I went for the rhinoceros ladder, but when I got to her uncle’s house down the street, a water buffalo had slid down the roof of the house and had fallen through the roof of the porch onto the deck below. Well, at least my guess was partly right. It was a large animal!