Process Benchmarking with

Data Envelopment Analysis

Chapter 11
Business Process Modeling, Simulation and
Design

Overview
DEA: Tool for Benchmarking
Relative Efficiency Important Concepts
Black-box model

Graphical Analysis
Efficiency calculations

Linear Programming
Formulation
Using the Excel Add-in

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

Process as Black Box

Input

Output
Process

Figure 11.1 Black box model of a process

Efficiency =

Output
Input

However, with multiple inputs and outputs, it becomes

more difficult to evaluate the process efficiency.
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Calculating Efficiency
Process
A
B

Labor Cost
($/week)
2,000
1,500

Throughput
(jobs/week)
1,500
1,100

Efficiency
(jobs/$)
0.750
0.733

Clearly, process A is more efficient than process B,

but...
Process
A
B

Office Area
(ft2)
10,000
6,900

Throughput
(jobs/week)
1,500
1,100

Efficiency
(jobs/ft2)
0.15
0.16

A new assessment based on office space shows that

process B is more efficient than process A, so
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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:

Efficiency =

Weighted Sum of Outputs

Weighted Sum of Inputs

Graphical Analysis
Suppose we have the following input and output data:
Process

Labor Cost

Throughput

A
B
C
D
E
F

10
15
12
22
14
18

10
30
36
25
31
27

Customer
Rating
10
12
6
16
8
7

We label the independent efficiency ratios x and y:

Process
A
B
C
D
E
F

Throughput
Labor
(x)
1
2
3
1.136
2.214
1.5

Rating
Labor
(y)
1
0.8
0.5
0.727
0.571
0.389

Graphical Analysis
Then, we plot the relative position of each process:
rating/labor
1.2
A

1
0.8

Efficient frontier
B

0.6

0.4
0.2
0
0

0.5

1.5

2.5

3.5

throughput/labor

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?
P1 (x1,y1)
(xv,yv)

y = output2/input

P2 (x2,y2)
P0 (x0,y0)

x = output1/input

Projection of a relatively inefficient process

Efficiency Calculations
P1 and P2 are relatively efficient P0s peer group.
Define a and b such that:
x1 y
y2 y1
x
2 y1
2
b
a
x2 x1
x2 x1

P1 (x1,y1)
(xv,yv)

y = output2/input

P2 (x2,y2)
P0 (x0,y0)

Then, we get the efficient virtual

process corresponding to
xv and yv:

y a x b

y
a
x

The efficiency of process P0 is:

x = output1/input

Projection of a relatively inefficient process

0
2

x y
x y

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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%
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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:
q

Maximize

out ( j, p) * wout ( j )
j 1

Subject to
m

in(i, k ) * win(i) 1
i 1

j 1

i 1

out ( j, k ) * wout ( j ) in(i, k ) * win(i) 0

for k = 1, , n

wout(j) 0.0001
win(i) 0.0001

for j = 1, , q
for i = 1, , m

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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.

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Using the Excel Add-in

Creating a new DEA model

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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

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