The Science and Art of Estimating
Inside this Article
A contractor once said he would be richer and happier if he knew which two jobs not to sell each year. How can companies tell in advance if they have put the right price on the contract? The answer lies in the science and art of estimating.
The solar estimator’s role carries enormous responsibility: Estimate too high, and your company will not get the job; estimate too low, and your company will get the job but may lose money. The estimator’s cost estimate not only informs the offered sales price, but also effectively sets the project budget. To take control of this crucial process, companies must develop systems to track actual costs against project estimates and budgets, and then learn to use those data effectively.
In this article, we discuss the role of the solar estimator. We describe the science of estimating, which is based on the circle of costs, and explain how to develop and implement a strong cost-coding system. We also explore the art of estimating, which lies in using data gathered from past projects to predict the future as it pertains to the job you are bidding now.
The Estimator’s Role
The estimating department has an unusual role. While estimators do not set job pricing, their estimates are critically important to the sales and management personnel who do. As such, the estimating department provides a key service to sales personnel; however, its priorities are not necessarily aligned with those of sales. No salesperson wants to hear that a hot lead is not a great fit for the company’s strengths and that a rival may have a competitive advantage. However, an estimator’s primary goal is to provide accurate cost estimates that protect the company. This potential conflict in priorities is why many companies have separate estimating and sales departments.
In small companies the owner is most likely to be the estimator or at least to approve each bid before it goes out. As a company grows, more people become involved in the process, and this additional complexity and reduced accountability increase risk. Estimating is, by nature, a cross-functional activity. As such, it requires collaboration between the estimating department and the sales, operations, engineering, accounting and purchasing teams; however, the estimator does not need to be part of those teams.
Ideally, the estimating department should be independent. Other departments support estimators by providing additional perspectives that are critical to the company’s success. To facilitate this information exchange, estimators create the internal processes needed to collect and organize cost data. Good estimating is the heart of good business, as it leads to achievable budgets, sensible accounting, clear purchasing and, ultimately, healthy profits for the company. In the fast-paced world of solar sales, it is easy to rush a bid, particularly when a proposal is on its fourth design iteration—but estimators must not sacrifice accuracy to achieve speed. Once the company has won a project, the estimator’s cost estimate effectively becomes the project budget that project managers (PMs) and installation supervisors are expected to meet or exceed.
The Science of Estimating
Estimating is a process of collecting data from many different sources and synthesizing these into a cost estimate. For a solar contractor, this number represents the cost to build a given system. The estimator must take into account factors such as historical estimates versus actual costs, subcontractor bids related to the proposed scope of work, current and historical prices for materials, and job-specific requirements related to wages or materials.