A cost estimator is not Merlin the Wizard, by any means. However, the cost estimator must know what it will cost to complete a product, any product, whether it is for a hamburger or an automobile. The ability to do that may well mean the difference between success and failure for a company. Marketing and management decisions play into that success also, but if the price is not right, there is no chance of success.
Make it a Point to Know All of the Details
The cost estimator must take all aspects into account and project spikes in materials if possible. An example of that would be Kodak in the 1980s. They were extremely successful and had been for generations. Their cost and profit point were dead on until a pair of brothers tried to corner the silver market.
Silver was an extremely important part of making film. When the price went from $4 a troy ounce to $50 it almost broke the company’s back. There was the reclaimed silver market, but it produced an inferior product. They struggled through, but it would end up being their downfall.
Most chain restaurants know all prices down to the penny. Pizza Hut has had a training film that talked about employees reusing their paper cups, and this would have been an item caught by a price estimator. The short presentation went from one cent cups times the number of employees, times the number of cups used each day, times the number of stores, and you ended up with a $500,000 dollar loss to the company.
Simple things add up, and it is the cost estimator’s job to find them. Pizza Hut would go to plastic, reusable, cups. It seems the significantly higher initial costs would be reduced over time. Simple things are what make a huge difference.
A restaurant knows exactly how much each product will cost because of portion control. The reason they have to know is that the cost of the food is probably their smallest and most controllable expense. On top of that, you must figure in the building, utilities (how early do you turn your lights on at night?), repair, and other items such as serving containers. Then there are the employees, the most difficult aspect to control.
What About Employee Cost?
Why is employee cost critical? You look at an employee and think; he or she cost the company $8 an hour. You could not be more wrong; that is just the salary. There is the employer Social Security contribution, about 4% of the wage, unemployment insurance, workers compensation, any health insurance, uniforms, and other associated costs. A cost estimator must take all of those and boil them down to a cost per employee so that the number of staff can be adjusted for so that the company can make a profit.
Sometimes, as with Ford in the 1950s, when they came out with the Continental MKII, price was no object. The cost estimators (fondly called bean counters) estimated that Ford could not sell the car for over $10,000 and would lose $10,000 per car.
The estimations were proven correct when the car was produced. Sometimes the loss on a certain product due to cost is overshadowed by the “halo” effect it produces. It is the cost estimator’s job to know what those losses will be so that they can be adjusted. It is the unexpected that closes company doors.
What Must You Know Before Job Searching?
A bachelor’s degree is the most often-noted requirement for a cost estimator. Depending on the industry a person would work in, the degree could as likely be engineering as accounting. The average annual salary is around $57,000, and the demand for such people should rise as companies try to deal with the new costs associated with the Affordable Care Act, as well as rising energy and material costs.
So many things can affect the profitability of a company, making the need for a cost estimator even more essential in the future than it is now. Now is the time to plan for a career in cost estimating, when the companies desperately need a mathematician to steer them right.