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Process Benchmarking with Data Envelopment Analysis

Process Benchmarking with Data Envelopment Analysis. Chapter 11 Business Process Modeling, Simulation and Design. Overview. DEA: Tool for Benchmarking Relative Efficiency – Important Concepts Black-box model Graphical Analysis Efficiency calculations Linear Programming Formulation

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Process Benchmarking with Data Envelopment Analysis

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  1. Process Benchmarking with Data Envelopment Analysis • Chapter 11 • Business Process Modeling, Simulation and Design

  2. Overview • DEA: Tool for Benchmarking • Relative Efficiency – Important Concepts • Black-box model • Graphical Analysis • Efficiency calculations • Linear Programming • Formulation • Using the Excel Add-in

  3. DEA: Tool for Benchmarking • Successfully applied to assess the efficiency of various organizations and/or processes. • Process = Decision Making Unit (DMU) • The efficiency of a process is only relative to the performance of other processes in the set • Considers process as a black box and analyzes the relationships between its inputs and outputs

  4. Process as Black Box Figure 11.1 Black box model of a process Output Efficiency = Input • However, with multiple inputs and outputs, it becomes more difficult to evaluate the process efficiency.

  5. Calculating Efficiency • Clearly, process A is more efficient than process B, but... • A new assessment based on office space shows that process B is more efficient than process A, so…

  6. Calculating Efficiency • DEA offers a variety of models that use multiple inputs and outputs to compare the efficiency of two or more processes. • The ratio model is based on the following definition of efficiency: Weighted Sum of Outputs Efficiency = Weighted Sum of Inputs

  7. Graphical Analysis • Suppose we have the following input and output data: • We label the independent efficiency ratios x and y:

  8. Graphical Analysis • Then, we plot the relative position of each process: Efficient frontier

  9. P1 (x1,y1) (xv,yv) P2 (x2,y2) P0 (x0,y0) y = output2/input x = output1/input Efficiency Calculations • Relatively efficient processes are those on the efficient frontier: • Considered to have 100% efficiency. • What is the efficiency of the relatively inefficient processes? Projection of a relatively inefficient process

  10. P1 (x1,y1) (xv,yv) P2 (x2,y2) P0 (x0,y0) y = output2/input x = output1/input Efficiency Calculations • P1 and P2 are relatively efficient P0’s peer group. Define a and b such that: Then, we get the efficient virtual process corresponding to xv and yv: The efficiency of process P0 is: Projection of a relatively inefficient process

  11. Linear Programming • The ratio model measures the efficiency of a process by comparing to a hypothetical process that is a weighted linear combination of other processes. • Individual processes might value inputs and outputs differently. • Therefore, each process is allowed to adopt a set of weights to show it in the most favorable light. • Formulated as a sequence of linear programs (one for each process) to: • Maximize the efficiency of one process • Subject to the efficiency of all processes  100%

  12. Linear Programming • The variables are the weights assigned to each input and output: wout(j), win(i) • An LP formulation for a given processp is:

  13. Using the Excel Add-in NOTE: We recommend presenting/explaining the DEA Add-in, available on the CD that comes with the textbook, by running it directly in Excel. However, for your convenience, we have attached a selection of the figures/screenshots from Chapter 11 of the book as the basis for an in class presentation without access to a computer with the Excel Add-in installed.

  14. Using the Excel Add-in Creating a new DEA model

  15. Using the Excel Add-in New model dialog window

  16. Using the Excel Add-in Completed Example.Output worksheet

  17. Using the Excel Add-in Efficiency worksheet

  18. Using the Excel Add-in Best Practice worksheet

  19. Using the Excel Add-in Targets worksheet

  20. Using the Excel Add-in Virtual Output worksheet

  21. Using the Excel Add-in Virtual Output chart

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