Context-dependent performance standards in DEA

Abstract

Data envelopment analysis (DEA) is a mathematical approach to measuring the relative efficiency of peer decision making units (DMUs). It is particularly useful where no a priori information on the tradeoffs or relations among various performance measures is available. However, it is very desirable if “evaluation standards,” when they can be established, be incorporated into DEA performance evaluation. This is especially important when service operations are under investigation, because service standards are generally difficult to establish. The approaches that have been developed to incorporate evaluation standards into DEA, as reported in the literature, have tended to be rather indirect, focusing primarily on the multipliers in DEA models. This paper introduces a new way of building performance standards directly into the DEA structure when context-dependent activity matrixes exist for different classes of DMUs. For example, two sets of branches, whose transaction times are known to be different from each other, usually have two different activity matrixes. We develop a procedure so that a set of standard DMUs can be generated and incorporated directly into the DEA analysis. The proposed approach is applied to a sample of 100 branches of a major Canadian bank where different sets of time standards exist for three distinct groups of branches.