What should an organization rely on for fairly reliable cost estimates?

An organization should rely on past purchases of similar assets for fairly reliable cost estimates. This approach leverages historical data, which provides insights into the actual costs incurred in previous transactions. By analyzing the expenses associated with similar assets, organizations can develop a more accurate understanding of what to expect for new purchases. Historical data reflects not only the market conditions at the time of previous purchases but also nuances related to specific asset types, making it a practical benchmark for estimating costs.

Using past purchase information helps organizations factor in variations in pricing related to nuances such as economic conditions, supplier pricing trends, and any fluctuations in demand for similar assets. This method reduces the uncertainty typically associated with cost estimates, providing a data-driven foundation for budgeting and financial planning.