Estimating

Definition: it is an art of finding the cost, which is likely to be incurred on the manufacture of an article, before it is actually manufactured. Thus, it is the calculation of a probable cost of an article before the manufacturing starts. It also includes predetermination of the quantity and quality of material, labour required etc.

Estimating required highly technical knowledge about manufacturing methods of operation times etc.

Importance of Estimating

In all organizations, before starting actual production or filling up the tenders, estimation is done. Therefore, accurate estimating is necessary to compete in the market and to be sure whether manufacture of a particular product will be profitable or not. Both over and under estimating are dangerous. Over-estimating leads to increase the cost and hence tenders may not get suitable response. Under-estimating may lead to heavy losses to the concern. Hence accurate estimating is very essential and, therefore, staff of the estimating department must be well qualified, experienced and trained in this profession.

For example, a concern wants to start the manufacturing of lathe-chucks. The firm finds through market survey that its market price is approximately 150 dollars. But estimated price for the manufacture is more than this value. Then the drawings may be sent back to design function, to find out and alternate design, so that price can be reduced. If reduction of price is not possible then idea of manufacturing the chucks would be dropped otherwise it would lead to a great loss.