Envelopment Analysis (DEA) has become very important tool for quantitative
analysis to check and evaluate the performance of one, two or multiple firms
and to understand how the efficiencies of the firm can be improved with
reference to the benchmark firms. This approach can be applied to extensive
variety of activities with respect to the current requirement. Gradually DEA
utilization is increasing in the current market as it aids in meeting the todays
Envelopment Analysis (DEA) an extensive and useful technique was originally
developed by Rhodes and Charnes_Cooper in 1978 to majorly do the evaluation of public
sector organizations and NGOs. DEA has been utilized to improve the efficiency
to optimize the resources majorly in services which may not be easy to
calculate even based on the experience. Majority of service providers can take
advantage from this power technique and improve efficiency and productivity. More
people start using this it will help the research assistant to identify the
“benefits” and “banes” of this tool and may highlight the limitations, if any.
Research on DEA and its fetched result will help to identify the areas where
this tool may not be effective as desired. DEA approach is not user-friendly or
handy for managers to understand and implement the technique. This is one of
the bottleneck which is preventing DEA from entering the business. Aim is to focus on how this tool helps in
evaluating efficiency, to identify the areas to advance productivity, understand
limitations of DEA, and how to make use of this tool. This will assist applicators
to evaluate the importance of using it in services domain.
can be of help in the situations where a comparative performance of dissimilar
components is to be linked and assessed.
check for inconsistency or inefficiency in the operations.
Ø DEA can
deal with intricate relation between multiple inputs and multiple outputs.
techniques are associated to linear programming concepts.
calculate the efficiency of the various service units and demonstrate the same
is very critical and at the same time biggest concern on which technique to be
adopted. E.g. How to optimize the staff in big departmental stores, how to
aptly distribute the number of doctors/nurses on daily basis in hospital, how
to fix the no. of branches of banks in particular region etc.
= Output / Input
formula though looks simple becomes complicated based on the number of outputs
and inputs in the specified problem. If output is higher than the input it
suggests that efficiency is very high. Once the system/ unit reaches its
optimum efficiency level i.e. output /input ratio cannot be increased further,
it becomes evident that certain new method or technology needs to be adopted to
establish new benchmarks.
Technical and Scale Efficiency
example, in effectiveness of Portable charger, we might measure it as charging
rate i.e hours per full charge. We can define
the efficiency of “Charger” with the ideal chargers rate of charge. Let us take
that Full charge of I-phone 5S taken by Charger is 2 hours, however as
committed is 2.5 hours. We can say that charger is operating at 80% efficiency (2/2.5
Hours). To give the optimize results, charger shall perform at 125% (2.5/2
Hours) from its current level. This would reduce the time taken. Further, after
this efficiency is achieved for higher benchmarks, technology of charger needs
to be improved. It is to be ensured that charger of similar kinds are compared
to establish the realistic results.
Relative efficiency measurement
measurement of relative efficiency is used where there are numerous possible insufficient
inputs and outputs. A common measure for relative efficiency is,
Efficiency = Weighted sum of Outputs
Weighted sum of inputs
introducing the usual notation can be written as
of Unit = U1Y1j + U2Y2j +….
V1X1j + V2X2j +……
Weight of Output i
Amount of Output 1 from unit j
Wright given to input 1
Amount of input 1 to unit j
(Efficiency usually lie in the range