Utilizing Data Mining and Factor Analysis for Identifying Activity Base Costing Cost Drivers in Iranian Bank

Most of firms are interested to know about the real cost of products and services they provide. In order to measure the real cost, several methods and techniques have been provided in literature. One of the most important and prominent methods is the Activity Based Costing (ABC) method. Determination of cost drivers in ABC is regarded as a very difficult and tiresome task. Although various methods have been introduced for this purpose but each method suffers from certain disadvantages. This paper introduces the Data Mining (DM) and Factor Analysis (FA) methods to improve the effectiveness of the ABC method. The proposed combined methods let decision makers to consider several cost drivers respect to their effects on costing, simultaneously. In 2010, we have applied the proposed method in Export Development Bank of Iran: EDBI (one of the Iranian leading banks). The results confirmed the usefulness and effectiveness of the proposed methods for bank ABC system and its economic decisions.