HR – Estimating requires attitude not qualification

What is the first quality you look at while hiring an estimator for your contracting or estimating services business? His degrees, his extra curricular activities, his academic performance or his interests. Although there is merit in looking at all these tidbits of information, I suggest trying to assess his attitude.

Attitude is by far the single most important ingredient in how good an estimator is. Why? Isn’t skill more important? Well, look at the nature of estimating work. It isn’t exactly the most creative job on the planet nor does it require an MIT degree to be good at. If your hiring is limited to engineers then its time you review your hiring policies.

Estimating requires patience, persistence, concentration and above all motivation which can only come if you enjoy your job. In my experience good estimators have all these qualities and enjoy the challenge of being accurate and detailed and hate committing mistakes. Because essentially estimating is about accuracy. It is as much about repetitive tasks as it is about keeping your wits about you to notice any mistakes or anomalies in the design (or in your own work).

So do I recommend hiring a high school dropout with the right attitude over a A grade electrical engineer who hasn’t? Absolutely! The skill required can be learnt. True, you might have to train the guy for a fortnight longer and have a proper training process in place (which you should have anyway), but look a bit farther and the picture becomes rosy.

The question then becomes, how do you judge a persons attitude in an interview? This is as difficult as it sounds. Frankly speaking it is impossible to judge the character and attitude of a person in the short span of an interview (Indeed, I still keep surprising myself). In my experience the interview process is only good enough for sifting the very obvious cases only and even then not always. Still its better than nothing.

The trick is to ask people ‘why’ they did stuff, rather than ‘what’ they did. It will tell you the thought process of the person. When you hire an estimator, unless he has relevant experience you’re going to give a loss on him at the start. He will require training and supervision and still commit mistakes that you’ll need to check. If by the time he is ready to deliver he moves to another organization for a few dollars more then you’re in a fix.

So, the most important question you have to ask yourself is – “Is this person going to stick with me for at least a few years?”, and not go running off for a few dollars or some other common reason (location, set up his own business etc.). The second question is whether this person has the right attitude for estimating. However, this in my opinion is usually answered after you’ve seen the guy work. You might look for the quality of persistence in a person but people are usually persistent when they are motivated. So look for motivation. This motivation may be financial or otherwise. A guy from a lesser known college usually has more to prove.

The knack of recognizing if someone is suitable for the job will only come with experience. But not if you go through the motions in the process. You must constantly evaluate your hiring results and methods.

Making decisions based on the quality of your estimates

Once you’ve got your measurements and calculated various ratios (see the two articles on how to measure the quality of your estimates), you must get down to the business of analyzing and interpreting the information at your disposal. This must be followed by decision making based on your analysis.

Rest assured that most of the analysis is intuitive. If you’ve got a high bid to win ratio then in most cases that will be a good thing. For projects that you do win, you can check the quality of your estimates (ratio of estimated to actual costs). If this is close to 1 (or 100%) then obviously you’re in good shape.

You can also get valuable insights from calculating the ratios based on the various categories that I mentioned in the two previous articles. If you’re performing well on small jobs but not on big ones, then probably you need to look at how you distribute work in a big project. Are your estimators overworked in this period or is your checking reduced due to work pressure. Better organization and team work may be a solution or during periods of high work pressure, it may be possible to outsource small or big projects to a specialized estimating firm and maintain the quality of your in house estimating team.

You may also need to look at the kind or type of jobs for which you have a bid to win ratio for and analyze whether these are the most profitable for you. If you’re happy with these kind of jobs maybe you should consider bidding more for them and less of those in which you have a terrible bid to win ratio and thus efficiently utilizing your resources, cutting down costs and improving quality. Is training for specific kinds of estimating an option if you’re missing out on your most profitable opportunities.

At the same time you can analyze the quality of estimating you get by outsourcing to a particular firm (if applicable) and compare it with yours. You can also compare the costs of both. This would enable you to come to a decision on what is the ideal amount of outsourcing you need to do, whether you shouldn’t do it at all or do all your estimating work through another firm.

Remember, to be useful these measurements shouldn’t be over a very small period of time and must contain enough jobs to be statistically significant. Measurement is a continuous process and after every decision made fresh measurements must be made and analysis conducted to find if the situation has improved or worsened. Otherwise you’re simply shooting in the dark and hoping you’re lucky.

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How to measure the quality of your estimates chapter 2

In the previous article on measuring the quality of your estimates we looked at how can make use of the different versions of the bid to win ratio to gather useful information. However there is an inherent problem with it. The bid to win ratio is only proxy measure of quality of estimates as a winning bid is not necessarily an accurate one.

Important note

When I talk about both estimated and actual costs in this article I am assuming of course that you include your profit margin in both of them.

Difference in estimated and actual cost

To overcome this one needs to look at the actual costs incurred and compare them to the estimated costs. The simplest way would be to look at the difference between the actual costs and the estimated costs. Anything different from zero and your estimating wasn’t fully accurate.

Ratio of estimated and actual cost

However simply calculating the difference will not tell you anything, especially when you want to aggregate different jobs and arrive at a single number of your overall quality of estimating. You need to calculate a ratio so that the size of the job is taken out of the equation. To do that, you divide the estimated cost by the actual cost and multiply the figure by 100 to express it in terms of percentage.

Aggregating ratios for different jobs

A common mistake while aggregating ratio similar to the one given above is that people tend to simply average out the different ratios of all the jobs. They simply add all the ratio (in percentage terms) and divide the sum by the number of ratios (number of jobs). This is completely wrong!

To aggregate the ratios and arrive at a single measure of quality one needs to look at differences from 100 in absolute terms. This is because a ratio that is over 100% is also just as inaccurate as a ratio below 100%. So the first step is to calculate the difference from 100 for each of the ratios. Then you should treat all the differences as positive numbers, so that if you add them up negative errors and positive errors do not cancel each other out. Divide the sum of all these numbers by the number of terms you’ve added (the number of jobs). The resulting figure gives you in percentage terms the amount of error in your estimating. You can subtract the number from 100 to give in percentage terms how accurate your estimates are.

Different types of the ratio

The above ratio can be used in many ways by combining only specific types of jobs as well as looking at a specific area of all the jobs.

Calculating ratio for a specific subcategory of all estimates

Quality of estimating material quantities

By only looking at the ratio of estimated material quantities to the actual material quantities used in the job you can find out specifically the quality of your estimates in estimating material quantities.

Quality of estimating labor hours etc.

Similarly you can look at the ratio of estimated labor hours to the actual labor hours used. I don’t think I need to mention anymore examples. You can look at the quality of whatever specific part of your estimating you want.

Calculating ratio for specific kinds of estimates

You can look at the article on how to measure the quality of your estimates – bid to win ratio for a detailed description on how you can categorize your jobs and then calculate separately for them. You can look at the quality of your estimates for big jobs only and compare them to that of the quality of small jobs. You can look at which clients you estimate better for or which type of work (eg: low voltage) are you better at estimating and so on.

How to measure the quality of your estimates – Bid to Win ratio

In the first part of this three part series of articles we looked at why quality is much more important than cost when it comes to the profitability of your contracting business. We also looked at why measuring the quality of your estimates is essential for better decision making and essential for the survival and growth of your company. Now the question is how to implement that plan.

BID TO WIN RATIO

The simplest and one of the first numbers to look at, is the bid to win ratio.

Advantages

Simple, easy to measure and interpret. It also has less time lag as compared to other (perhaps better) tools that you can use to measure the quality of your estimating. It is quite flexible and as described in the article can be used in a variety of formats to give you more information and help you make better management and business decisions.

Disadvantages

Because of its simplicity it needs to combined or replaced by other more complex tools which you more information to give you the complete picture. It doesn’t tell you for example what profit or loss you made on the jobs you did win. In other words it does not measure the quality of your estimates directly but can only be used as a proxy measure.

Simple Bid to win ratio

The simplest form of the bid to win ratio is the number of jobs you win divided by the total number of jobs you bid for. This will tell you the percentage of jobs you win. This ratio leaves a number of questions unanswered. I’ll try to raise the most important ones during the rest of the article.

Bid to win ratio based on revenue

One possibility is that you could be winning a lot of small jobs while not winning the biggest ones. This probably is not a desirable situation. To overcome this a better ratio would be the total amount you have bid in a given period (for all jobs combined) divided by your total bid amount in jobs that you have won in that period. This will take care of the size or perhaps also the importance (if size is the only criteria) of the jobs you are winning.

Type of jobs being won

Anything else you need to know? Yes, what are the kind of jobs do you bid the best. By the calculating the bid to win ratio for different kinds of jobs you can get a fair idea of the strengths of your estimating team. There are different criteria you can use to categorize jobs.

Type of work

The type of work (e.g. low voltage) is one way to see where your strengths lie.

Which Clients?

It is also important to know who you perform best for. Do you perform better for more important or older clients. If yes, is it the relationship you have built up that leads to your better selection for the job or is it purely a better estimating performance? These are things you may want to look into.

Efforts vs Results

This a more difficult ratio to keep track of. You may use your own memory and general gut feel to get an idea of where you stand on this count. But I would recommend taking the time and effort to quantify it in some way or at least keep track of jobs that you put in more effort or less effort than normal. Then look at your success with jobs that based on the effort you put in. Were you more successful at jobs that had a more thorough checking. If yes, how much difference did it make.

Important Note

As already mentioned in the disadvantages part of the article it is but a proxy measure of the quality of your estimates and cannot be used in isolation unless other measures are not available at the moment or take too much time and effort to be calculated.

Why you should start measuring the quality of your estimates

In the first of this three part series we look at why you as a contractor should start systematically and scientifically measuring the quality of your estimates. Measuring your estimating quality is very essential to the long term survival, growth and profitability of your contracting business.

To get an idea of how important estimating is to your business think about the implications of a winning bid that is below your costs. It will lead to an immediate loss on the job and heaven forbid the gap is large enough to put you out of business. At the same time an fairly overpriced bid will quite often not get you the job, so you have no business.

Everyone in the business knows how important estimating is but for some reason it doesn’t get reflected in the actions that the companies and their management take. You may disagree and yes there are beautiful exceptions, but in my honest opinion this is the general state of affairs. I’ve seen and heard of so many companies going bust due to bad estimating, that it is not even funny.

‘What gets measured, gets managed’, is a fundamental concept of management (Peter Drucker). Measuring something is the only way to concretely come to a decision on what action to take post analysis.

electrical estimating management cycle1

So is measurement a magic pill that will increase your profitability and send you on a growth spiral. No, but it will stop you from shooting in the dark. Moreover, it is a long term commitment and involves a change in philosophy of the management. As can be seen from the chart measurement is a continuous process, after making a decision the outcome must be measured to determine its effectiveness or impact. Which will start the process all over again.