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Overview
DEA: Tool for Benchmarking
Relative Efficiency Important Concepts
Black-box model
Graphical Analysis
Efficiency calculations
Linear Programming
Formulation
Using the Excel Add-in
Output
Process
Output
Input
Calculating Efficiency
Process
A
B
Labor Cost
($/week)
2,000
1,500
Throughput
(jobs/week)
1,500
1,100
Efficiency
(jobs/$)
0.750
0.733
Office Area
(ft2)
10,000
6,900
Throughput
(jobs/week)
1,500
1,100
Efficiency
(jobs/ft2)
0.15
0.16
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:
Efficiency =
Graphical Analysis
Suppose we have the following input and output data:
Process
Labor Cost
Throughput
A
B
C
D
E
F
10
15
12
22
14
18
10
30
36
25
31
27
Customer
Rating
10
12
6
16
8
7
Throughput
Labor
(x)
1
2
3
1.136
2.214
1.5
Rating
Labor
(y)
1
0.8
0.5
0.727
0.571
0.389
Graphical Analysis
Then, we plot the relative position of each process:
rating/labor
1.2
A
1
0.8
Efficient frontier
B
0.6
0.4
0.2
0
0
0.5
1.5
2.5
3.5
throughput/labor
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?
P1 (x1,y1)
(xv,yv)
y = output2/input
P2 (x2,y2)
P0 (x0,y0)
x = output1/input
Efficiency Calculations
P1 and P2 are relatively efficient P0s peer group.
Define a and b such that:
x1 y
y2 y1
x
2 y1
2
b
a
x2 x1
x2 x1
P1 (x1,y1)
(xv,yv)
y = output2/input
P2 (x2,y2)
P0 (x0,y0)
y a x b
y
a
x
0
2
x y
x y
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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%
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Linear Programming
The variables are the weights assigned to each input
and output: wout(j), win(i)
An LP formulation for a given process p is:
q
Maximize
out ( j, p) * wout ( j )
j 1
Subject to
m
in(i, k ) * win(i) 1
i 1
j 1
i 1
for k = 1, , n
wout(j) 0.0001
win(i) 0.0001
for j = 1, , q
for i = 1, , m
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13
14
15
16
Efficiency worksheet
17
18
Targets worksheet
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20
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