Building performance standards into data envelopment analysis structures

Data Envelopment Analysis (DEA) is a mathematical approach to measuring the relative efficiency of peer Decision-Making Units (DMUs). DEA is particularly useful where no a priori information on the trade-offs or relations among various performance measures is available. However, it is very desirable if “evaluation standards,” when they can be established, be incorporated into DEA performance evaluation. This is particularly important when service operations are under investigation, because service standards are generally difficult to establish. A number of approaches have been developed to incorporate evaluation standards into DEA as reported in the literature. These approaches tend to be rather indirect, focusing primarily on the multipliers in the DEA models. This paper introduces a new way of building performance standards directly into the DEA structure. Based upon the conventional DEA model and an activity matrix, a set of standard DMUs can be generated and incorporated directly into the DEA analysis. The proposed approach is applied to a sample of 100 branches of a major Canadian bank where time standards are used to generate a set of standard bank branches.