Using Data Envelopment Analysis (DEA) program for measuring efficiency

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:

  1. Firstly, unzip the program.
  2. Creating a New Folder named “DEAP” and copy the executable file “DEAP.EXE”, start-up file “DEAP.000”, data.txt and data-ins.txt.
  3. Copy the variables from MS Excel to data.txt in order, output variable first and then input variables.
  4. 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.
    data envelopment analysis is useful for measuring efficiency

    Importing data into data envelopment analysis for measuring efficiency

  5. Copy and paste these numeric variables like this in notepad in “.txt” format
    the input and output variables in DEA are saved as txt format

    Creating input and output variable in DEA

  6. Now the first two columns are output variables, while the last two are input variables.
    input and output variable in DEA along with the method

    Defining the input and output variable in DEA

  7. Then open the instruction file with the name “…-ins.txt
  8. 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.
  9. Open DEAP.EXE and type the instruction file name (e.g. PP1-ins.txt) and run.
    Executing the exe file after defining input and output variable

    Running the DEA software

  10. Lastly open the file result.txt
  11. In the next article we will present the results and their interpretations.

References:

Avishek Majumder

Avishek Majumder

Research Analyst at Project Guru
Avishek is a Master in Biotechnology and has previously worked with Lifecell International Private Limited. Apart from data analysis and biological research, he loves photography and reading. He loves to play football and basketball in his spare time with an avid interest in adventure and nature. He was also a member of the Scouts in his school and has attended Military training.
Avishek Majumder

Related articles

  • Solutions to the problems faced during statistical analysis using panel data In one of my recent projects I had to use panel data analysis. During the data analysis I faced some problems which may be the most common problems in panel data analysis. So here are some of the problems with their possible solutions that helped me.
  • Different statistical formulas used in hypothesis testing The article focuses on different inferential statistics tools which are used for hypothesis testing. This article introduces both the terms.
  • Breaking the code of writing a research paper Research paper writing is a challenging task. You have to deal with criticism as sportingly as you accept compliments. Writing a research paper is not like bulk content writing or general promotional or blog writing.
  • How to write critical review in a dissertation? Dissertation writing is an important part of most post graduation and doctorate programs. Dissertation is basically a research that is intended to test the student’s ability to apply the theory into practice.
  • Introduction to STATA STATA, like SPSS is a smart data analysis tool used for data management and analysis. It is a fast and easy to use, across all operating systems such as Windows, Unix and Mac.

Discuss

We are looking for candidates who have completed their master's degree or Ph.D. Click here to know more about our vacancies.