Business multicriteria performance analysis: a tutorial

Abstract

PurposeThe business performances of firms are measured on a set of indicators (Financial Ratio Analysis Indicators or Balanced Scorecard Key Performance Indicators). Traditional benchmark analysis considers a set of criteria, though it generally synthesizes all the results, taking into consideration only an aggregate performance criterion (reductio ad unum approach). This methodology has many disadvantages, both theoretical and empirical. The purpose of this paper is to illustrate the advantages, in terms of greater flexibility and realism, related to the application of a multicriteria methodology.Design/methodology/approachThe paper uses a tutorial approach. An exemplification of an outranking multicriteria methodology (ELECTRE type) is described.FindingsThe main findings of the paper can be summarized as: first, the evaluation of a business performance cannot generally be conducted by means of a unique criterion as in the traditional monocriterion benchmark analysis; second, when the evaluation of a firm is based on different genuine criteria, the performance has to be “satisfacing” and not maximizing; and third, the outranking methods are able to provide logically rigorous solutions to the genuine multicriteria benchmarking evaluation problems.Practical implicationsThe paper provides practical implications useful for evaluating firm performances in many cases, also when each stakeholder (managers, shareholders, banks, etc.) assigns different “weights” to the decision criteria.Originality/valueAs a multicriteria evaluation is generally incompatible with a profit maximizing approach, the paper proposes a multicriteria performance measure approach that offers Simon's satisfacing solutions. The paper shows that satisfacing solutions to a multicriteria evaluation problem may be rigorously obtained through an outranking methodology (already introduced by other scholars).