An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

H David Sherman
Northeastern University

Joe Zhu
Worcester Polytechnic Institute

Abstract: Benchmarking is a widely cited management accounting tool to identify and implement best-practices and is particularly valuable for services where it is difficult to develop engineered cost standards. Data envelopment analysis (DEA), an operations research linear-programming methodology, is a powerful benchmarking methodology for services where multiple inputs and outputs need to be assessed to identify best-practices and improve profitability. Most DEA benchmarking studies have excluded quality, limiting its practical value where service quality is critical to achieving performance objectives. Alternative methods incorporating quality in DEA are demonstrated and evaluated. A new quality-adjusted DEA (Q-DEA) to develop a more comprehensive benchmark sensitive to service quality and productivity is proposed that generates a low-cost high-quality benchmark. Applying Q-DEA to a U.S. bank’s 200-branch network helps the bank achieve real cost savings while preserving service quality.

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