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Data Envelopment Analysis (DEA)

Data Envelopment Analysis (DEA). Identifying Efficient Decision Making Units. Measuring Service Productivity Branch Bank Example. 1. ACCOUNTING RATIO : COST PER TELLER TRANSACTION HIGHER RATIO WOULD BE INEFFICIENT RELATIVE TO OTHERS, BUT COULD BE EXPLAINED BY:

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Data Envelopment Analysis (DEA)

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  1. Data Envelopment Analysis (DEA) Identifying Efficient Decision Making Units

  2. Measuring Service ProductivityBranch Bank Example 1. ACCOUNTING RATIO: COST PER TELLER TRANSACTION HIGHER RATIO WOULD BE INEFFICIENT RELATIVE TO OTHERS, BUT COULD BE EXPLAINED BY: 1. MIX OF OUTPUTS (SELLING CD’S VS SIMPLE DEPOSITS) 2. MIX OF INPUTS (USE OF ATM’S AND LIVE TELLERS) 2. BROAD BASED MEASURE: RETURN ON INVESTMENT OVERALL IMPORTANT BUT NOT SUFFICIENT TO EVALUATE OPERATING EFFICIENCY OF INDIVIDUAL DECISION MAKING UNIT (DMU) FOR EXAMPLE: A PROFITABLE BRANCH COULD BE THE RESULT OF HIGHER-THAN-AVERAGE PROPORTION OF REVENUE GENERATING TRANSACTIONS RATHER THAN COST-EFFICIENT USE OF RESOURCES.

  3. THE DEA MODELFractional Form j =1,2,…,M i= 1,2,…,N

  4. DEA in Standard LP Form(Scaling inputs to sum to 1.0)

  5. Burger Palace Example

  6. Burger Palace Productivity Frontier S1 (2,200) S2 (4,150) S3 (4,100) S4 (6,100) S5 (8,80) C (5.3, 88.9) S6 (10,50)

  7. Summary of DEA Results

  8. DEA and Strategic Planning Under-performing Benchmark potential stars group Problem Candidates Branches for divestiture High Profit Low Low High Efficiency

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