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Cost Efficiency Benchmarking for Operational Units with Multiple Cost Drivers
Author(s) -
Troutt Marvin D.,
Gribbin Donald W.,
Shanker Murali,
Zhang Aimao
Publication year - 2000
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.2000.tb00944.x
Subject(s) - benchmarking , benchmark (surveying) , computer science , activity based costing , operations research , unit (ring theory) , unit cost , set (abstract data type) , cost estimate , metropolitan area , total cost , cost driver , fixed cost , economics , microeconomics , engineering , mathematics , medicine , programming language , mathematics education , accounting , management , geodesy , pathology , geography
We consider the activity‐based costing situation, in which for each of several comparable operational units, multiple cost drivers generate a single cost pool. Our study focuses on published data from a set of property tax collection offices, called rates departments, for the London metropolitan area. We define what may be called benchmark or most efficient costs per unit of driver. A principle of maximum performance efficiency is proposed, and an approach to estimating the benchmark unit costs is derived from this principle. A validation approach for this estimation method is developed in terms of what we call normal‐like‐or‐better performance effectiveness. Application to longitudinal data on a single unit is briefly discussed. We also consider some implications for the more routine case when costs are disaggregated to subpools associated with individual cost drivers.