Opening the black box of efficiency measurement: input allocation in multi-output settings
Cherchye, Laurens De Rock, Bram Dierynck, Bart Roodhooft, Filip
Cherchye, Laurens
De Rock, Bram
Dierynck, Bart
Roodhooft, Filip
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2013
Journal
Operations Research
Book
Publication Volume
61
Publication Issue
5
Publication Begin page
1148
Publication End page
1165
Publication NUmber of pages
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Abstract
We develop a new Data Envelopment Analysis (DEA)-based methodology for measuring the efficiency of Decision Making Units (DMUs) characterized by multiple inputs and multiple outputs. The distinguishing feature of our method is that it explicitly includes information about output-specific inputs and joint inputs in the efficiency evaluation. This contributes to opening the “black box” of efficiency measurement in two different ways. First, including information on the input allocation substantially increases the discriminatory power of the efficiency measurement. Second, it allows us to decompose the efficiency value of a DMU into output-specific efficiency values which facilitates the identification of the outputs the manager should focus on to remedy the observed inefficiency. We demonstrate the usefulness and managerial implications of our methodology by means of a unique data set collected from the Activity Based Costing (ABC) system of a large service company with 290 DMUs.
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Keywords
DEA, Input Allocation, Efficiency Decomposition, ABC Systems