Dea analysis
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This document discusses Data Envelopment Analysis (DEA), a linear programming methodology used to measure the efficiency of decision-making units with multiple inputs and outputs. It provides a brief history of DEA, explaining that it was created to evaluate efficiency using an empirical production frontier. The document also outlines how DEA works by establishing an efficiency frontier using selected variables, defining the frontier, and giving each unit an efficiency coefficient. Finally, it discusses the advantages of DEA in handling multiple inputs/outputs without specifying a production function, as well as the disadvantages of being sensitive to input/output selection.
Dea analysis
- 1. Aamir Ansari SMBA13074 Himanshu Saigal SMBA13021 Ahmed Atif Abdullah SMBA13006
- 2. CONTENT What DEA is History of DEA How DEA works Advantages Disadvantages
- 3. What is DEA ? Data Envelopment Analysis (DEA) is a linear programming methodology to measure the efficiency of multiple decision-making units (DMU) when the production process presents a structure of multiple inputs and outputs.
- 4. What is DEA ? Increasingly popular management tool is commonly used to evaluate the efficiency of a number of producer It’s an extreme point method and it compares each producer with only the "best" producers producer is usually referred to as a decision making unit (DMU) DEA has been used for both production and cost data.
- 5. Why DEA was created? In microeconomic production theory a firm’s input and output combinations are depicted using a production function. Using such a function one can show the maximum output which can be achieved with any possible combination of inputs, that is, one can construct a production technology frontier. Some 30 yearsago DEA set out to answer the question of how to use thisprinciple in empirical applications whileovercoming the problemthat for actualfirms one cannever observe all the possible input- outputcombinations.
- 6. Why DEA was created? Building on the ideas of Farrell (1957), the seminal work "Measuring the efficiency of decision making units" by Charnes, Cooper & Rhodes (1978) applies linear programming to estimate an empirical production technology frontier for the first time. The main developments of DEA in the 1970s and 1980s are documented by Seiford&Thrall (1990).
- 7. How it works? Utilizing the selected variables, such as unit cost and output, DEA software searches for the points with the lowest unit cost for anygiven output, connectingthose points to form the efficiencyfrontier Any company not on the frontier is considered inefficient.
- 8. How it works? 1. Utilising some variable to establish the efficiency frontier: 1. Number of employees. 2. Service quality. 3. Environmental safety. 4. Fuel consumption.
- 9. How it works? 1. Utilising some variable to establish the efficiency frontier: 1. Number of employees. 2. Service quality. 3. Environmental safety. 4. Fuel consumption. 2. Define the efficiency frontier.
- 10. How it works? 1. Utilising some variable to establish the efficiency frontier: 1. Number of employees. 2. Service quality. 3. Environmental safety. 4. Fuel consumption. 2. Define the efficiency frontier. 3. A numerical coefficient is given to each firm, defining its relative efficiency.
- 11. The advantages of DEA no need to explicitly specify a mathematical form for the production function proven to be useful in uncovering relationships that remain hidden for other methodologies capable of handling multiple inputs and outputs capable of being used with any input-output measurement the sources of inefficiency can be analyzed and quantified for every evaluated unit
- 12. The disadvantages of DEA results are sensitive to the selection of inputs and outputs => we have to choose relevant criteria you cannot test for the best specification the number of efficient firms on the frontier tends to increase with the number of inputs and output variables
- 13. DEA analysis screen shot