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Establishing the "practical frontier" in data envelopment analysis

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  • Sowlati, Taraneh
  • Paradi, Joseph C.

Abstract

Data envelopment analysis (DEA) assigns a score to each production unit (decision making unit--DMU) considered in the analysis. Such score indicates whether the unit is efficient or not. For inefficient units, it also identifies a hypothetical unit as the target and thus suggests improvements to their efficiency. However, for efficient units no further improvement can be indicated based on a DEA analysis. Nevertheless, it is important for management to indicate targets for their efficient units if the organization is to improve as a whole. Based on possible variations in the input and output levels of efficient DMUs, new units which are more efficient than DEA efficient units can be created to form a new improved frontier. This paper presents a linear programming model, P-DEA, and a methodology for improving the efficiency of empirically efficient units by defining a new "practical frontier" and utilizing management input. Available bank branch data was used to illustrate the applicability of this theoretical development. The sensitivity of the results to the parameters defined by management in the P-DEA model was also examined, which proved the robustness of the proposed model.

Suggested Citation

  • Sowlati, Taraneh & Paradi, Joseph C., 2004. "Establishing the "practical frontier" in data envelopment analysis," Omega, Elsevier, vol. 32(4), pages 261-272, August.
  • Handle: RePEc:eee:jomega:v:32:y:2004:i:4:p:261-272
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    References listed on IDEAS

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    Cited by:

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    2. Sunil Kumar & Rachita Gulati, 2009. "Did efficiency of Indian public sector banks converge with banking reforms?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 56(1), pages 47-84, March.
    3. Eskelinen, Juha & Halme, Merja & Kallio, Markku, 2014. "Bank branch sales evaluation using extended value efficiency analysis," European Journal of Operational Research, Elsevier, vol. 232(3), pages 654-663.
    4. Soares de Mello, João Carlos C.B. & Angulo Meza, Lidia & da Silveira, Juliana Quintanilha & Gomes, Eliane Gonçalves, 2013. "About negative efficiencies in Cross Evaluation BCC input oriented models," European Journal of Operational Research, Elsevier, vol. 229(3), pages 732-737.
    5. E. Grigoroudis & E. Tsitsiridi & C. Zopounidis, 2013. "Linking customer satisfaction, employee appraisal, and business performance: an evaluation methodology in the banking sector," Annals of Operations Research, Springer, vol. 205(1), pages 5-27, May.
    6. Paradi, Joseph C. & Zhu, Haiyan, 2013. "A survey on bank branch efficiency and performance research with data envelopment analysis," Omega, Elsevier, vol. 41(1), pages 61-79.

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