dea
TRANSCRIPT
![Page 1: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/1.jpg)
Performance Evaluation and Benchmarking Using DEA
Joe ZhuDepartment of ManagementWorcester Polytechnic InstituteWorcester, MA [email protected]
![Page 2: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/2.jpg)
Data Envelopment Analysis Joe Zhu
2
Outline
• What is DEA?• New Models/Uses
• Two-Stage Model• Context-dependent DEA• Benchmarking
• Books
![Page 3: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/3.jpg)
Data Envelopment Analysis Joe Zhu 3
DEA & Banking
The Banking industry has been the subject of DEA analysis by researchers in various areas and probably is the most heavily studied business Branches Banks across countries
Bank Branch
InputsFTE in dollarsPremise/IT expensesOther Expenses
OutputsLoan BalancesDeposit BalancesSecurities BalancesGross Revenue
Bank Branch
InputsFTE in dollarsPremise/IT expensesOther Expenses
OutputsLoan BalancesDeposit BalancesSecurities BalancesGross Revenue
Source: Paradi et al. 2004
![Page 4: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/4.jpg)
Data Envelopment Analysis Joe Zhu 4
DEA
Deals with multiple performance measures (inputs and outputs) in a single integrated model Includes any necessary measures related to the
characterization of banking performanceIdentifies a “base-line” for comparisons in
continuous improvement programProvides specific targets for improvement
(over time)
![Page 5: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/5.jpg)
Data Envelopment Analysis Joe Zhu 5
- Regression can accommodateMultiple inputs oroutputs but not both
- Regression requires afunctional relationshipbetween in/outputs
- Regression provides onlyaverage relationshipsnot best practice
Why DEA?DEA Best-Practice Frontier
Input
Output
6
6 6
6
6
66
6
66
6
6
6predicted average behavior
![Page 6: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/6.jpg)
Data Envelopment Analysis Joe Zhu 6
Basic DEA Benchmarking Information
DEA gives Efficiency rating, or score, for each DMU Efficiency reference set: peer group Target for the inefficient DMU Information on how much inputs can be
decreased or outputs increased to make the unit efficient – improving productivity & performance
![Page 7: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/7.jpg)
Data Envelopment Analysis Joe Zhu 7
DEA & Performance ImprovementDEA Best-Practice Frontier
Input
Output
6 6
6
6K
Input reduction
6
D
Output augmentation
D¢
D¢¢
![Page 8: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/8.jpg)
Data Envelopment Analysis Joe Zhu 8
Benefits
The establishment of the efficient frontier consisting of the best performing DMUs
A projection to the efficient frontier - a guide to “what to do” for the DMU managers
The identification of the peer group, a reasonable argument why it is a FAIR comparison
An indication of how important a particular DMU is as a role model
![Page 9: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/9.jpg)
Data Envelopment Analysis Joe Zhu 9
How DEA works?
5 branches Three (B1, B2 & B3 are efficient – best practice frontier) B4 and B5 are inefficient Target for B4 is T1 (decrease inputs)
B4
B5
B1
B2
B3
T1
0
50
100
150
200
250
300
350
400
450
0 20 40 60
Teller Hours
Su
pp
ly D
oll
ars
![Page 10: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/10.jpg)
Data Envelopment Analysis Joe Zhu 10
H4
H5
H1
H2
H3
T2
0
50
100
150
200
250
300
350
400
450
0 100 200 300 400 500
Sales
Ma
rke
t S
ha
re
5 branches Three (H1, H2 & H3 are efficient – best practice frontier) H4 and H5 are inefficient Target for B4 is T2 (increase outputs)
How DEA works?
![Page 11: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/11.jpg)
Data Envelopment Analysis Joe Zhu 11
More Information on DEA Web
www.deafrontier.com …
Books Cooper, W.W., Lawrence M. Seiford, and K. Tone. 2000. Data
Envelopment Analysis: A Comprehensive Reference Text with Models, Applications, References, and DEA-Solver Software. Kluwer Academic Publishers, Boston
Zhu, J. 2002. Quantitative Models for Performance Evaluation and Benchmarking: Data Envelopment Analysis with Spreadsheets. Kluwer Academic Publishers, Boston
… Softwares
DEA Excel Solver (DEAFrontier) …
![Page 12: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/12.jpg)
Data Envelopment Analysis Joe Zhu
12
DEA & IT• Indirect impact of IT on productivity• Two Stage DEA Model• Chen, Y. and Zhu, J., Measuring information technology’s indirect
impact on firm performance, Information Technology & Management Journal, Vol. 5, Issue 1-2 (2004), 9-22.
![Page 13: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/13.jpg)
Data Envelopment Analysis Joe Zhu 13
What is Benchmarking?
... a process of defining valid measures of performance comparison among peer units, using them to determine the relative positions of the peer units and, ultimately, establishing a standard of excellence.
![Page 14: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/14.jpg)
Data Envelopment Analysis Joe Zhu 14
Acceptance System Decision Rule
Trout et al. (1996, COR, Vol 23, 405-408)– acceptance/rejection of credit risks
Seiford & Zhu (1998, COR, Vol. 25, 329-332)
Benchmarking
![Page 15: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/15.jpg)
Data Envelopment Analysis Joe Zhu 15
ApproachDEA Best-Practice Frontier/Benchmarks
Input
Output
T
6 6
6
6
T
T
6T
6
l
new activities
![Page 16: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/16.jpg)
Data Envelopment Analysis Joe Zhu 16
Business Process Re-engineering
s s s s s s s
traditional best practice
performance
time
• Compare new bank branches to the traditional best-practice frontier.
![Page 17: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/17.jpg)
Data Envelopment Analysis Joe Zhu 17
Benchmarking results
Overall, new branches’ performance is improving
New branch best-practice
traditional branch best-practice
Cook, W.D., Seiford, L.M. and Zhu, Joe, Models for performance benchmarking: Measuring the effect of e-commerce activities on banking performance, OMEGA, Vol.32, Issue 4 (2004), 313-322.
![Page 18: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/18.jpg)
Data Envelopment Analysis Joe Zhu
18
Context-dependent DEA• Context-dependent
DEA• Consumer’s choice
is influenced by the context
• The performance of DMUs should also reflect “context”
![Page 19: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/19.jpg)
Data Envelopment Analysis Joe Zhu
19
Journal of Marketing Research
• Book Review– context-
dependent DEA (identifying possible moderating results) intriguing and, conceivably, breathtaking.
![Page 20: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/20.jpg)
Data Envelopment Analysis Joe Zhu
20
Service Productivity
• D. Sherman and J. Zhu, Service Productivity Management: Improving Service Performance Using Data Envelopment Analysis (DEA) Springer, Boston, 2006, ISBN 0-387-33211-1.
![Page 21: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/21.jpg)
Data Envelopment Analysis Joe Zhu
21
DEA HandbookW.W. Cooper, L.M. Seiford and J. Zhu Handbook on Data Envelopment Analysis, Springer, Boston, 2004, ISBN 1-4020-7797-1
![Page 22: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/22.jpg)
Data Envelopment Analysis Joe Zhu
22
Modeling Issues W.D. Cook and Joe
Zhu, Modeling Performance Measurement: Applications and Implementation Issues in DEA, Springer, Boston, 2005, ISBN 0-387-24137-X.
![Page 23: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/23.jpg)
Data Envelopment Analysis Joe Zhu
23
DEA & Finance• Mutual funds• CTAs• Hedge Funds
G. Gregoriou and Joe Zhu, Evaluating Hegde Funds and CTA Performance:
Data Envelopment Analysis Approach, John Wiley & Sons, New York, 2005,
ISBN 0-471-68185-7 .
![Page 24: Dea](https://reader035.vdocuments.us/reader035/viewer/2022062419/559007761a28ab185c8b46d0/html5/thumbnails/24.jpg)
Data Envelopment Analysis Joe Zhu
24