Original Date: 07/10/2006
Revision Date: / /
Information : Cost Estimating
Tobyhanna Army Depot created a cost estimating cell that has brought consistency to the cost estimating process and to the quality of the bids developed through centralized handling of requests along with standardizing labor time, pricing updates, and a database to track and review quotes.
In 2005 Tobyhanna Army Depot (TYAD) conducted a rapid improvement event to enhance the effectiveness of it cost estimating function. Cost estimating at TYAD is defined as “the process of receiving workload proposals and specifically developing and delivering to the customer a monetary estimate to perform the requested work.” The original process for producing cost estimates was highly unstructured and decentralized and required multiple steps and people and excessive time. As a result, deadlines for bid submittals were frequently missed and potential contracts were lost.
After assessing the process, it was determined that multiple problems existed. Initial requests for estimates were being received by approximately 45 production controllers within the operation. The large volume of requests for new items required a capability study by engineering, which created a backlog in the engineering and estimating process. All requests required production controllers to obtain time and material costs. Time estimates were received from the shop, while ballpark material costs had to be obtained from parts requisition personnel because shops did not track price changes. A production controller would then complete the process by formalizing the estimate and providing it to the customer. The time to complete new product estimates was excessive, ranging anywhere from 60 to 180 days. Additional problems included the inability of the decentralized process to track the status of estimates. The material costs available were outdated and standard labor times did not exist. As a result, bidding was inconsistent and subject to estimates that were either too high or too low.
In March 2007, the Cost Estimating Cell (CEC) was established to perform all cost estimating functions for the entire organization with a mission “to build customer relationships and grow internal workload by providing timely and accurate estimates to our customers both internal and external.”
The CEC was structured with two lead engineers to handle most of the technical support and a team of additional engineers available as needed to assist on larger estimates. A database program was created and administrative support is available to enter and review customer requests along with bidding and follow-up activities. Past quotes were entered into the system to create a historic support element. Standard labor times were developed and price changes were updated to improve bidding consistency. A front-end review component was also added to exam the feasibility and value to TYAD of received bid requests to determine if a cost estimate was justified. Specific estimate turnaround objectives were also established for CEC based on the complexity of the request – 7 days for simple requests, 15 days for moderate requests, and 30 days for complex requests.
With the CEC in place, TYAD is able to accommodate customer requests for bids in a more timely and efficient manner. Requests not warranting the time and effort to bid have been significantly reduced, freeing up resources to work on more promising bid opportunities. The centralized handling of requests along with standardizing labor time, pricing updates, and a database to review past quotes has brought consistency to the cost estimating process and to the quality of the bids developed. Follow-up is now possible with a support infrastructure in place and a focused staff that has an established mission and goals.
In the first three months of operation, CEC has had a positive impact on TYAD’s response to customer requests for estimates. Bids are more consistent and more accurate, resources are being used more efficiently, turnaround times have been reduced by 50%, and 80% of bid submittals are on time.
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