Process Benchmarking with Data Envelopment Analysis

1
Process Benchmarking with Data Envelopment
Analysis

• Chapter 11
• Business Process Modeling, Simulation and Design

2
Overview

• DEA Tool for Benchmarking
• Relative Efficiency Important Concepts
• Black-box model
• Graphical Analysis
• Efficiency calculations
• Linear Programming
• Formulation
• Using the Excel Add-in

3
DEA Tool for Benchmarking

• Successfully applied to assess the efficiency of
  various organizations and/or processes.
• Process Decision Making Unit (DMU)
• The efficiency of a process is only relative to
  the performance of other processes in the set
• Considers process as a black box and analyzes the
  relationships between its inputs and outputs

4
Process as Black Box
Figure 11.1 Black box model of a process
Output Efficiency
Input

• However, with multiple inputs and outputs, it
  becomes more difficult to evaluate the process
  efficiency.

5
Calculating Efficiency

• Clearly, process A is more efficient than process
  B, but...

• A new assessment based on office space shows that
  process B is more efficient than process A, so

6
Calculating Efficiency

• DEA offers a variety of models that use multiple
  inputs and outputs to compare the efficiency of
  two or more processes.
• The ratio model is based on the following
  definition of efficiency

Weighted Sum of
Outputs Efficiency
Weighted Sum of Inputs
7
Graphical Analysis

• Suppose we have the following input and output
  data

• We label the independent efficiency ratios x and
  y

8
Graphical Analysis

• Then, we plot the relative position of each
  process

Efficient frontier
9
Efficiency Calculations

• Relatively efficient processes are those on the
  efficient frontier
• Considered to have 100 efficiency.
• What is the efficiency of the relatively
  inefficient processes?

Projection of a relatively inefficient process
10
Efficiency Calculations

• P1 and P2 are relatively efficient ?P0s peer
  group.

Define a and b such that
Then, we get the efficient virtual process
corresponding to xv and yv
The efficiency of process P0 is
Projection of a relatively inefficient process
11
Linear Programming

• The ratio model measures the efficiency of a
  process by comparing to a hypothetical process
  that is a weighted linear combination of other
  processes.
• Individual processes might value inputs and
  outputs differently.
• Therefore, each process is allowed to adopt a set
  of weights to show it in the most favorable
  light.
• Formulated as a sequence of linear programs (one
  for each process) to
• Maximize the efficiency of one process
• Subject to the efficiency of all processes ? 100

12
Linear Programming

• The variables are the weights assigned to each
  input and output wout(j), win(i)
• An LP formulation for a given process p is

13
Using the Excel Add-in
NOTE
We recommend presenting/explaining the DEA
Add-in, available on the CD that comes with the
textbook, by running it directly in
Excel. However, for your convenience, we have
attached a selection of the figures/screenshots
from Chapter 11 of the book as the basis for an
in class presentation without access to a
computer with the Excel Add-in installed.
14
Using the Excel Add-in
Creating a new DEA model
15
Using the Excel Add-in
New model dialog window
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Using the Excel Add-in
Completed Example.Output worksheet
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Using the Excel Add-in
Efficiency worksheet
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Using the Excel Add-in
Best Practice worksheet
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Using the Excel Add-in
Targets worksheet
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Using the Excel Add-in
Virtual Output worksheet
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Using the Excel Add-in
Virtual Output chart