Using Data Envelopment Analysis (DEA) program for measuring efficiency
Measuring efficiency to benchmark the performance of organizations such as banks, financial firms, ports, hotels etc. 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, the application of specific efficiency testing software is important using the data envelopment analysis (DEA).Data envelopment analysis (DEA) is the most commonly used program for this purpose (Coelli, 2008). This software has been programmed and copyrighted by Tim Coelli from of University of New England (Centre for Efficiency and Productivity Analysis, Department of Econometrics, Australia). The software is a DOS-based command system and comes 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.
However, MS Excel can be used to benchmark the performance of an organization manually. But in many kinds of literature, it was found to be 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. On the other hand in the case of SPSS, there is no such efficiency test. However, large corporations can have access to other software, but this module is basically focused to help academicians in conducting their researches. Moreover, based on literature reviews, data envelopment analysis helps to evaluate key performance indicators and benchmarking analysis to measure efficiency (Beasley, 2017).
Installing the software
In order to install the software package; copy and paste the link to the address page on the browser or directly click on the link → http://www.uq.edu.au/economics/cepa/deap.php:
- After downloading, firstly unzip the program from the zipped folder and extract the contents to a new folder (Name it DEAP according to convenience).
- The zip folder contains four main files i.e., executable file “DEAP.EXE” (which is the main executable file and the DOS file), startup file “DEAP.000” (this file is linked to the executable file as it contains the algorithm to conduct efficiency test), data.txt (file name for notepad where dataset is to be pasted) and data-ins.txt (this includes the set of parameters, defining the scales and variables). These are the main file systems which will enable the researcher to perform efficiency test.
Defining the case study
A case study was considered, which will help to understand the importance of using data envelopment analysis. In this module, 10 banks will be benchmarked for efficiency on different input and output variables. Out of the 10 Indian banks considered for the study, where 5 each from the public sector and the private sector banks have been identified for the research. The main objective of the study was to find the efficiency levels of the banks and enable a comparative analysis for same. In the study, two input variables (Total Capital and Deposits) and two output variables (Total Loans and Profits) have been considered. The importance of taking Total Capital and Deposits as the input variables is because they act as the bank’s source of capital inflow which helps the banks for outflow i.e. Loans and Net Profits. Any finances that inflow in an organization to help improve services, compete and survive are input Here, the input variables and output variables were extracted from the Annual Reports of the respective banks of FY-2016. Moreover, literature can be consulted for more similar input variables and output variables of banking sectors.
In the next article, how to import data and define variables and files names will be shown in DEAP v2.0.
- 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.