Introduction necessary for organisations to survive in the

IntroductionData Envelopment Analysis (DEA) is getting popular asa tool of management. It is basically a non parametric technique ofevaluation of performance and involves the comparative approach for identifyingperformance of number of producers. Whenever there is some transformation in anyorganisation, it involves some inputs, a value is added through some processand turns the input into output in the form of desired goods and services thatthe customer want. The inputs may be in the form of material, labour, energy,machines, assets, equity, employees and other resources and outputs may be inthe form of finished goods or services that in turn are converted into profitsor revenues.

Therefore the organisations are continuously evaluating theirperformance to improve their operations or processes. Data envelopment providesthe framework to evaluate their performance. This continuous evaluation ofperformance is necessary for organisations to survive in the competitive marketand prosper in the face of intense competition from domestic as well asinternational players. The firm may be interested in knowing whether the firmis able to make the best use of its resources to produce the outputs. It mayalso want to know the ways to produce more from the same input of itsresources. It may also try to know the amount or number by which the output willbe increasing.

The company might be willing to know which inputs it can reducewithout affecting the output to make its process more cost efficient. There maybe numerous such questions and DAE may be of some help in answering some ofsuch questions.Therefore DAE involves the comparison of each produceror firm with the best producer or the firm. In DEA literature each producer iscalled as Decision Making Units or DMU.

It is basically a benchmarking practicein which each decision making unit is compared with the best decision makingunit. It is also capable of measuring efficiency when there are multiple inputsand multiple outputs.Many a time various firms are concerned with theevaluation of performance of various organizations such as business entities,government bodies, academic institutions, hospital etc. The bases ofperformance evaluation may be profit/unit, cost/unit, and satisfaction/unit andso on. It can be observed that the performance evaluation is being carried outin the form of a ratio that can be represented as follows This measure of efficiency is commonly used. We canalso say that the productivity can also assume a ratio form to evaluate anemployee’s performance. Output per worker input is example with sales profit orother measures of output that may appear in the numerator.

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These measures arecalled as “partial productivity measure” which have only one input and oneoutput. This partial productivity is different from total productivity measurewhich takes account of all inputs and outputs. A firm which has higher outputfor same input is considered to be better than a firm which has lower outputfor same input. There are numerousinstitutes, firms and organizations such as banks, hospitals, railways, roadtransport corporations, airlines, government departments and local authoritiesare benefiting from Data Envelopment Analysis.

It is used by managers in theseorganizations to perform a number of tasks including:·        Resource allocation:reallocating from the inefficient to the efficient·        Identification of”best practice” for bench marking·        Identification of”poor practice” to improve productivity·        Setting of target·        Monitoring efficiencychanges over a period of time·        Rewards for goodperformance·        Planning of sitelocations for efficient performance However, with multipleinputs and outputs, it becomes more difficult to evaluate the processefficiency. In most of the cases a unit has a number of inputs and a number ofoutputs because there may be a number of factors which influence theoperational efficiency of the unit. To understand DEAmethodology we will first consider single input and single output case first.

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