Final answer:
The best practice for creating a cost estimate based on past project costs depicted by a bell curve is to select the estimate at the peak of the bell curve, representing the average cost. This approach should consider additional factors and statistical insights from cost breakdowns for a more informed decision. The goal is to find a ballpark figure and ensure the estimation is logical and reasonable.
Step-by-step explanation:
When creating a cost estimate based on the costs of past projects usually depicted by a bell curve, a general practice is to select the estimate at the peak of the bell curve. This represents the most frequent occurrence or the average, which is generally the best representative value for making predictions or planning for future projects. However, it should be noted that this is not a one-size-fits-all solution; the nature of the project and other factors may influence whether a different point on the distribution may be more appropriate. It is crucial to take into consideration the full context, including other relevant statistics such as fixed cost, marginal cost, average total cost, and average variable cost. These breakdowns can provide additional insights that could impact the selection of the cost estimate.
Moreover, making an estimate is not just about picking a number; it involves using prior knowledge and sound reasoning. An estimation exercise could help improve physical intuition or provide 'sanity checks' to ensure the estimates are realistic and aligned with logical assumptions. Estimations can be crucial for challenging prevailing assumptions and aligning future projections with more plausible scenarios.
When in doubt, considering the bounds of estimates and operating with approximations rather than exact figures can often be sufficient. Estimations are about finding a ballpark figure, maintaining simplicity in the process, and verifying the sense and reasonability of the result. Ultimately, an estimation process combined with statistical and economic groundwork can lead to the best-informed decisions for future cost projections.