A note to ‘Enterprise risk management: a DEA VaR approach in vendor selection’: a response to Wei and Wang and model extension

Abstract

Enterprise risk management (ERM) has become an important topic in today's more complex, interrelated global business environment, replete with threats from natural, political, economic and technical sources. Wu and Olson (2010) [Wu, D.S. and Olson, D., 2010. Enterprise risk management: a DEA VaR approach in vendor selection. International Journal of Production Research 48 (16), 4919–4932] present a state-of-the-art overview of Enterprise risk management and discuss the possibility of constructing a value at risk measure at the data envelopment analysis (DEA) framework. Wei and Wang [Wei, G.W. and Wang, J.M., 2011. Value-at-risk and data envelopment analysis: comments on Wu and Olson (2010). International Journal of Production Research, 49 (23), 7189–7193] contend errors in the article. Wei and Wang suggest a model based on Li [Li, S.X., 1998. Stochastic models and variable returns to scales in data envelopment analysis. European Journal of Operational Research, 104, 532–548]. We show that the suggested model in Wei and Wang (2011) does not solve the problem completely. We provide alternative approaches to conduct performance evaluation with good discriminating power.