Data Envelopment Analysis (DEA)

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Efficiency and Productivity Measurement: Data Envelopment Analysis

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Presentation transcript:

Data Envelopment Analysis (DEA)

Measuring Service Productivity Branch Bank Example 1. ACCOUNTING RATIO: COST PER TELLER TRANSACTION HIGHER RATIO WOULD BE INEFFICIENT RELATIVE TO OTHERS, BUT COULD BE EXPLAINED BY: A. MIX OF OUTPUTS TRANSACTIONS (SELLING CD’S VS SIMPLE DEPOSITS) B. MIX OF INPUTS (USE OF ATM’S PLUS LIVE TELLERS) 2. BROAD BASED MEASURE: RETURN ON INVESTMENT OVERALL IMPORTANT BUT NOT SUFFICIENT TO EVALUATE OPERATING EFFICIENCY OF INDIVIDUAL DECISION MAKING UNIT (DMU) FOR EXAMPLE: A PROFITABLE BRANCH COULD BE THE RESULT OF HIGHER-THAN-AVERAGE PROPORTION OF REVENUE GENERATING TRANSACTIONS RATHER THAN COST-EFFICIENT USE OF RESOURCES.

THE DEA MODEL Fractional Form j =1,2,…,M i= 1,2,…,N

DEA in Standard LP Form (Scaling inputs to sum to 1.0)

Burger Palace Example

Burger Palace Productivity Frontier S1 (2,200) S2 (4,150) S3 (4,100) S4 (6,100) S5 (8,80) C (5.3, 88.9) S6 (10,50)

Summary of DEA Results

DEA and Strategic Planning Under-performing Benchmark potential stars group Problem Candidates Branches for divestiture High Profit Low Low High Efficiency