Introduction to Data Envelopment Analysis (DEA)
1. Benchmarking
Benchmarking is the process of comparing a company with its peers and finding out
which ones are performing better than others.
During this process, the best-practice companies will be identified. And for the ones
that are not best-practice, think of the areas that need improvements and how to
improve them.
2.What is DEA used for?
DEA is used for performance evaluation.
DEA is a non-parametric benchmarking tool. It allows users to measure the relative
performance of a set of decision-making units (DMUs).
An individual, a company, an organization, anyone and anything that can be evaluated
is called a decision-making unit.
3. How to define better performance?
Generating more output with as little input as possible. Mathematically, performance
can be expressed as a ratio between outputs generated and resources used.
4. Example Exercise
Jane and John are two workers at a local bakery. On Monday, Jane decorated 3 cakes
within an hour and John decorated 2 within an hour.
On Tuesday, both Jane and John decorated 6 cakes. However, John used 2 hours and
Jane used 2.5 hours.
On Wednesday, Jane decorated 9 cakes in 4 hours but messed up 1 cake (wasted raw
materials), John decorated 8 cakes in 3.5 hours with 2 messed up cake.
Who performed better?
5. DEA can be used when the decision is hard to make.