Excel is an amazing tool due to its flexibility and computing power. No wonder many cost engineers use it for calculating product & manufacturing costs. However, this flexibility also has a dark side. Detailed cost estimation sheets can quickly get sloppy and maintaining them often is a time consuming task. Here, dedicated estimation software can help. But when is switching to more advanced tools beneficial for you? And how does it add value to your business?
The drawbacks of Excel-Based Tools
If your company uses home-made excel tools for shouldcosting, the following will probably sound familiar to you:
Layout & Formatting Problems
We've all been there. After hours of work you've created the perfect excel sheet for its job. Everything is structured and formatted nicely and the equations and functions perfectly account for every scenario possible. However, within days after sharing it with your colleagues you notice overwritten equations that 'must have been wrong' and awkwardly positioned inputs that 'where missing' or ' had to be added for readability'. Soon, all your effort is lost and forgotten again....
Fact is, maintaining coherence and unity of excel sheets among different colleagues or departments is very challenging.
Lack of Traceability
Similarly, finding a certain calculation or version thereof in the virtual maze of your company's server or sharepoint can be time consuming and frustrating, especially when looking for a calculation of one of your colleagues. Strict naming conventions and directory policies might help, but are often forgotten in busy days
Complex & Time-Consuming Maintenance
Besides that, maintaining your entire portfolio of calculations and quotes can be a very time consuming task when using excel based models. Changing just one hourly rate or material cost within all of your models individually can be very time consuming. Tracking which calculations still need to be updated yet can be challenging, and along this process one can very easily lose sight on local copies and different versions of calculations.
Because of this, just maintaining the models itself almost becomes a full-time job on its own.
Detailed cost models can be valuable in many ways. Inside your company for budgeting and optimization purposes, as well as externally in sales and procurement for quotation and supplier negotiations. (see also our blog on Fact-Based Negotiation)
However, home-made excel models often have poor credibility among your suppliers, and might look somewhat unprofessional.
Therefore, most of these models are for internal use only. Professional estimation software will definitely increase the trustworthiness of your models, and often is clearer and more intuitive. Both of which are very important during fact-based negotiation.
Risk of Errors
And let's be honest, besides looking more credible, software with fixed & hard-coded equations actually is less prone to errors.
Moving just one cell or miss typing one input can ruin the entire model, which can be averted by feasibility & input checks built in most of the available software.
The Advantages of Costing Software
Specialized software for product costing can help overcome the issues described above.
The main benefit of costing software lies in the structure it brings to your calculations. The input fields are often fixed and structured in a particular order and divided over different chapters. Depending on the software you're using, customization of individual calculations is still possible, but only within the defined boundaries and hierarchy. Also the resulting cost reports all have the same setup and layout, which prevents layout and formatting issues that have to be resolved afterwards, and makes interpretation of results and conclusions a lot easier.
Ease of Use & Speed
Clear and concise input fields and intuitive calculation structure combined with extensive auto-complete options makes cost calculation a lot easier and faster. Often, calculations are based on company fixed standards and rates, which can be pre-filled by the software itself, saving the cost engineer a lot of repetitive work. Proper management of master data saves time searching for the right constants. Besides that, re-using (parts of) prior calculations often is a lot easier in costing software than in Excel, again saving time and effort.
Having all calculations referenced to the same master-dataset in the exact same structure also makes maintenance of calculations and input data a lot easier. With costing software, a change in e.g. machine rates from a certain date onwards is completed within a couple of clicks, and every calculation or update after that date directly takes into account the correct data. Computing all cost results after such a change also involves just a re-evaluation of the exiting calculations, rather than having to manually change each excel file separately.
Besides proper management of input data, costing software can also provide a clear structure for saving individual calculations themselves. Having your costing tools implemented on one central server makes collaboration among different engineers a lot easier and structured. As all calculations are stored in the same format on the same location, finding back a certain calculation afterwards also becomes a lot easier. Many software even provides traceability of different products, engineers, calculations and versions thereof.
Reporting & Insights
With every calculation having exactly the same setup and structure, reporting on a large scale and generating company wide insights also becomes a lot easier. Many costing tools provide the option to create summaries of many calculations or even departments or product groups. Also, comparing two or more calculations and reporting the differences between them can often be done within seconds. All of which can be very extensive tasks in Excel as soon as there is a mismatch in structure.
Apart from the ease of use and the benefits software brings within your company, professional costing tools also help in external contacts outside your company. Dedicated software always has a better look and feel than even the best excel sheet, making your company look more professional. As software often is less prone to errors, also the credibility of your results is higher. In the ideal case, your customer or supplier even makes use of the same software, making comparison of calculations much easier. Which can be very useful in fact-based negotiation.
The disadvantages of Costing Software
Besides the many benefits, costing software also comes with its drawbacks and limitations.
Of course, every software tool comes with its own price. Whereas Excel is already licensed in almost every company, dedicated software brings extra costs to your organization, either in the form of a one-time purchase or monthly fee depending on the specific tool you've chosen. The monetary benefit of this software for your specific organization depends on the size and diversity of your product portfolio and simply the hourly rates of your engineers, and thus differ for every company.
Whereas Excel often is pre-installed on all your devices, costing software needs to be installed separately, and in some cases even requires its own dataserver. Which can take some effort to set up. Luckily, this is not the case for every software tool available.
In some cases, the fixed structure of costing tools can actually be a disadvantage rather than a benefit. In software, customizability is possible up to a certain extent, depending on the software of your choice. Beyond that point, software developers often have the option to suggest/request new features, but the implementation can be either time consuming, costly or both. Within Excel, all your specific wishes can be implemented directly without being dependent of a different company.
To conclude, estimation software roughly fulfills three different tasks:
- Provide a 'fixed' framework for calculations: A cost calculation consists of different parts (e.g. raw material costs, labor, overheads). By structuring the the order of these elements into different chapters and fixing the fields of input, estimation software standardizes the structure and setup of the calculations.
- Manage & Structure 'Master data' and cost databases:
Calculations are often based on pre-defined cost factors, such as machine rates or overheads.
- Arrange structuring and traceability of different calculations and versions thereof.
However, these are only the pros and cons of estimation software in general. There are many different tools available, and each of them comes with their own strengths and limitations. Whether or not the pros of software cancel out the cons depends on your particular situation.
Spectrum of Available Tools
Within the available software, there exist many differences in e.g.:
- Platform - Either cloud-based or (offline) desktop applications
- Flexibility - The extent of customizability of e.g. calculation structure, rates & wages, input fields and reporting options
- Calculation Effort - Ranging from one-click estimations to extensive calculations
- Level of Detail - Anything between rough estimation and detailed calculation
- Guidance - The amount of data that is auto-filled & the extent of plausibility checks and thus the experience and skills required from the cost engineer himself.
- Price & Payment plan - The cost of one-time acquisition or monthly subscription of the software.