Data Envelopment Anylasis

Introduction

In a world where structures are changing rapidly, it is vital for firms to monitor their performance continuously. Although considerable academic research has been devoted to the development of effective analysis techniques for determining best practices, and measuring efficiency, the results have not found their way to the decision-makers' desks.

As a response to these conditions, the CMTE has undertaken an exciting research program focused on the application of these techniques to real problems facing the Canadian Financial Services Industry. The program's ultimate goal is to develop practical methodologies and computational tools that managers and analysts will truly use to monitor and enhance various aspects of their firm's performance.

 

Data Envelopment Analysis (DEA)

DEA is a powerful Operational Research methodology for organizing and analyzing data and for Identifying best practice frontiers. Technically, it represents the set of non-parametric, linear programming techniques developed to estimate the relative efficiency of production units. Largely the result of multi-disciplinary research in economics, engineering and management, DEA is a theoretically sound framework that offers many advantages over traditional efficiency measures such as performance ratios and regression. The most important feature of DEA is its ability to handle effectively the multidimensional nature (of inputs/outputs) in the production process; a prevalent characteristic of many industrial sectors.
A basic DEA study results in:
  • An efficient frontier, or envelopment surface, consisting of the "best practice" units.
  • An efficiency measure that reflects the distance from each unit to the frontier.
  • Projections of inefficient units to the efficient frontier (efficient targets for the inefficient units).
  • An efficiency reference set, or peer group, defined by a (small) subset of efficient units "closest" to the unit under evaluation; i.e. with similar mixes of inputs and outputs.
Other important results that can be obtained from advanced DEA analyses include:
  • Technical and Allocative inefficiencies
  • Economies of scale, & most productive scale size
  • Achievable targets and efficiency differentials
  • Managerial tradeoffs: marginal productivities, marginal rates of technical substitution and transformation.
  • Statistical Analysis of relationship to environmental variables, technological differences, etc.
  • Technological growth over time and individual unit's progress over time.
  • Profit potential.

For further knowledge on DEA visit: www.deazone.com

Research at the CMTE

The Centre devotes continuous effort both to applied projects in the service sector and to the development of practical tools, that will result in an effective implementation of performance measurement programs in the FSI.

Our extensive research program covers:
  • Performance in the Financial Services Industry & Impact of IT Investments.
  • Incorporating Quality into the Performance Measurement of Service Organizations
  • Design of Benchmarking and Continuous Improvement Programs
  • Development of Visual Interactive DEA and managerial Tools for Benchmarking.
  • Transfer of Technology to the FSI.