Measuring efficiency to benchmark the performance of firms and organisations is important. In one of the recent projects, the analyst found Statistical Package for Social Science (SPSS) and MS Excel to be unsuitable to process data collected to measure efficiency. Thus, application of specific efficiency testing software is important and data envelopment analysis (DEA) program is one of them.
Although MS Excel can be used to benchmark performance of an organisation, it is not reliable as it does not show the actual value of efficiency since the variables may be biased. Furthermore, the MS Excel add-ins are developed to help in efficiency testing, have limitations. Despite online versions of the same program, limitations prevail because free versions only allow limited number of variables. On the other hand in the case of SPSS, there is no such efficiency test. All free versions have limitations related to the number of variable inputs in addition to licensing issues of the trial versions.
Data envelopment analysis program as a solution
Based on literature review, there are methods to evaluate key performance indicators and benchmark to measure efficiency (Beasley, 2017). Data envelopment analysis (DEA) is the most commonly used program for this purpose (Coelli, 2008). Tim Coelli from of University of New England (Centre for Efficiency and Productivity Analysis, Department of Econometrics, Australia) had uploaded the program in DOS based command which is in a zipped format along with guidelines on how to use it. However, the program did not indicate how one can use the DOS command to conduct the test. It only contained interpretations of the sample results. Nevertheless, online videos and instructions were helpful in running the program.
Installing and using data envelopment analysis program to measure efficiency
One can follow the steps below based on the software or program downloaded from the website of University of New England:
- Firstly, unzip the program.
- Creating a New Folder named “DEAP” and copy the executable file “DEAP.EXE”, start-up file “DEAP.000”, data.txt and data-ins.txt.
- Copy the variables from MS Excel to data.txt in order, output variable first and then input variables.
- Suppose the underneath variables need benchmarking value where four firms have been considered and their output and input variables have been represented in the image below.
- Copy and paste these numeric variables like this in notepad in “.txt” format
- Now the first two columns are output variables, while the last two are input variables.
- Then open the instruction file with the name “…-ins.txt
- As in the above image, PP1.txt is file location for data. You may give any name to output file. Here, no. of firms is the no. of columns. Number of time periods, here it is “one” because we are checking results for only one year. No. of output sand inputs are 2 as mentioned before. Here, “0” has been chosen as the analysis is input oriented and can be changed according to requirements. Similarly chose Constant returns to scale (CRS) or Variable returns to scale (VRS) according to the analysis requirement. However here we are using the constant return to scale model. It is recommended “Multistage” model be used to perform efficiency analysis.
- Open DEAP.EXE and type the instruction file name (e.g. PP1-ins.txt) and run.
- Lastly open the file result.txt
- In the next article we will present the results and their interpretations.
- Beasley, J. E. (2017). Data envelopment analysis. Retrieved from http://people.brunel.ac.uk/~mastjjb/jeb/or/dea.html.
- Chambers, J. M. (2008). Software for data analysis. Programming with R. https://doi.org/10.1007/978-0-387-75936-4.
- Coelli, T. J. (2008). A Guide to DEAP Version 2.1: A Data Envelopment Analysis (Computer) Program. CEPA Working Papers, 1–50. Retrieved from https://absalon.itslearning.com/data/ku/103018/publications/coelli96.pdf.