This guide introduces Data Envelopment Analysis (DEA), a performance measurement technique, in such a way as to be appropriate to decision makers with little or no background in economics and operational research. The use of mathematics is kept to a minimum. This guide therefore adopts a strong practical approach in order to allow decision makers to conduct their own efficiency analysis and to easily interpret results.
DEA helps decision makers for the following reasons:
- By calculating an efficiency score, it indicates if a firm is efficient or has capacity for improvement.
- By setting target values for input and output, it calculates how much input must be decreased or output increased in order to become efficient.
- By identifying the nature of returns to scale, it indicates if a firm has to decrease or increase its scale (or size) in order to minimize the average cost.
- By identifying a set of benchmarks, it specifies which other firms' processes need to be analysed in order to improve its own practices.