Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
The fulltext of this document has been downloaded 411 times since 2006*
Users who downloaded this article also downloaded:
(2007),"Modeling the efficiency of GCC banks: a data envelopment analysis approach",
International Journal of Productivity and Performance Management, Vol. 56 Iss 7 pp. 623-643 http://
dx.doi.org/10.1108/17410400710823651
(2010),"Modeling bank branch profitability and effectiveness by means of DEA", International
Journal of Productivity and Performance Management, Vol. 59 Iss 5 pp. 432-451 http://
dx.doi.org/10.1108/17410401011052878
(2007),"Benchmarking top Arab banks' efficiency through efficient frontier analysis",
Industrial Management & Data Systems, Vol. 107 Iss 6 pp. 802-823 http://
dx.doi.org/10.1108/02635570710758734
Access to this document was granted through an Emerald subscription provided by emerald-
srm:534301 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald
for Authors service information about how to choose which publication to write for and submission
guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well
as providing an extensive range of online products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the
Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for
digital archive preservation.
Envelopment Analysis
Taqi N. Al-Faraj, Abdulaziz S. Alidi and 45
Khalid A. Bu-Bshait Received February 1992
Revised December 1992
King Fahd University of Petroleum and Minerals,
Dhahran, Saudi Arabia
Introduction
Downloaded by University of Ghana At 15:45 27 June 2016 (PT)
1, for all j
u, v 0
where also input vector Xj > 0 and output vector Yj > 0. The multipliers are
usually required to be strictly positive in the case of multi-input, multi-output.
However, the strict positivity requirements complicates the analysis without
providing much real benefit. Furthermore, the case where strict positive
multipliers are needed is not likely to be encountered in real-life applications.
Consequently non-negativity will be considered. The use of the multipliers,
u and v, will take care of possible differences in the units of measurement of
different inputs and outputs.
The efficiency measure of the light bulb demonstrates a single input, single Data
output case. But the DMUs might be schools where inputs are in terms of Envelopment
number of teachers, amount of materials, students, background measures, and Analysis
output in terms of performance scores of students in mathematics tests, language
tests, etc., i.e. multiple input and multiple output. In such situations, multi-
input, multi-output is reduced to virtual single input, single output, just like
the light bulb, through the use of virtual multipliers and sums. Explicitly, the
CCR measure of efficiency of the DMU for a specific DMU is given by the 47
following fractional linear programme:
Downloaded by University of Ghana At 15:45 27 June 2016 (PT)
subject to
48
In the case of evaluating the performance of bank branches, each branch will
be considered to be a DMU. The efficiency of any branch is calculated by forming
the ratio of a weighted sum of outputs to a weighted sum of inputs, where the
Downloaded by University of Ghana At 15:45 27 June 2016 (PT)
weights for both outputs and inputs are to be selected in a manner which
calculates the Pareto efficiency of the branch.
The original formulation of the efficiency ratio proposed by CCR[1], utilizing
physical levels of inputs and outputs, to determine the relative efficiency of the
jth branch, relative to the other n - 1 branches, on a scale of zero to one,
is given by the above transformed linear programme.
It is important to note that the DEA methodology defines a production frontier
for the efficient branch which, in an economic sense, represents the maximum
outputs attainable from any branch in the set, given the level of its inputs.
Moreover, the DEA methodology does not require the assumption of any
pre-specified functional form of the production function. Instead it approximates
an extremal production function in a piece-wise linear fashion and does not
require specification of a priori prices or weights. The actual weights are
calculated from the actual input and output observations for each branch.
The optimization procedure ensures that the particular branch being evaluated
is given the highest score possible by maximizing its relative efficiency ratio.
This is done, however, while maintaining equity for all other branches, since
the set of weights derived for a particular branch must be feasible for all of them.
Seven output factors, related to the branch relative efficiency, are considered.
They are as follows: the monthly average net profit, the monthly average balance
of current accounts, the monthly average balance of savings accounts, the
monthly average balance of other accounts, the monthly average of mortgages,
an index for loans, and the number of accounts. Data for the output factors
are shown in Table II.
Index for
Employees Highest Index for the Index for
with Average authority expenditure average other
Number college number of rank on decor- monthly operational
Branch/ of degree years of Location index ation salaries expenses
input employees (%) experience index (%) (%) (%) (%)
The selection of the output factors should represent the objectives of the
bank. It is also important to identify the input factors used to provide these
outputs. Additionally, increasing an input should increase one or more of the
outputs, if efficient process is assumed. Input and output measures are to be
designed so as not to favour either large or small DMUs. The above input
and output factors are based on extensive consultation and personal interviews
with administrators of several banks, who also indicated that profitability of
branches should not be the sole criteria to determine whether to close the
branch or not. Loss may be due to certain factors which may be controllable
and hence corrective action can be taken, which may transform the loss into
a profit.
In this study the relative efficiencies for 15 branches of the bank are evaluated.
The results are presented in Table III. Indices are used for some of the input
and/or output factors in order to incorporate several items of different weights
in a single input or output factor.
Branch name Efficiency Data
Envelopment
Dammam 1.00 Analysis
Khobar 1.00
Dhahran 1.00
Thuqbah 1.00
Abdulaziz Street 1.00
51
Industrial Dammam 0.66
Al-Hassa 1.00
Hafar Al-Batan 1.00
Jubail 1.00
Industrial Jubail 1.00
Airbase 1.00
Suwaikat 0.16
Downloaded by University of Ghana At 15:45 27 June 2016 (PT)
As shown in Table III, the relative efficiency of 12 branches is one, which means
that those branches are performing very well. The Industrial Dammam branch
has an efficiency of 0.66; hence this branch is attaining only 66 per cent of the
level of outputs of the efficient branches with the same level of resources. For
this branch to be efficient, every output factor should be simultaneously increased
by 34 per cent of its current value. Similarly, every input factor may be
simultaneously decreased by the same percentage. The same analysis can be
applied to other inefficient branches.
1. Asmita Chitnis Statistics and Quantitative Techniques, Symbiosis Institute of International Business,
Hinjewadi, India Omkarprasad S Vaidya Operations Management Group, Indian Institute of
Management, Lucknow, Lucknow, India . 2016. Efficiency ranking method using DEA and
TOPSIS (ERM-DT): case of an Indian bank. Benchmarking: An International Journal 23:1, 165-182.
[Abstract] [Full Text] [PDF]
2. Dan LuoEfficiency Analysis of the Chinese Banking Sector 25-88. [CrossRef]
3. David Gallear, Abby Ghobadian, Yanhong Li, Nicholas ORegan, Paul Childerhouse, Mohamed
Naim. 2014. An environmental uncertainty-based diagnostic reference tool for evaluating the
performance of supply chain value streams. Production Planning & Control 25:13-14, 1182-1197.
[CrossRef]
4. Aude Deville, Gary D. Ferrier, Herv Leleu. 2014. Measuring the performance of hierarchical
organizations: An application to bank efficiency at the regional and branch levels. Management
Accounting Research 25:1, 30-44. [CrossRef]
Downloaded by University of Ghana At 15:45 27 June 2016 (PT)
35. Allen N. Berger, John H. Leusner, John J. Mingo. 1997. The efficiency of bank branches. Journal
of Monetary Economics 40:1, 141-162. [CrossRef]
36. Andreas C. SoteriouUniversity of Cyprus, Nicosia, Cyprus Yiannos StavrinidesUniversity of Cyprus,
Nicosia, Cyprus. 1997. An internal customer service quality data envelopment analysis model for bank
branches. International Journal of Operations & Production Management 17:8, 780-789. [Abstract]
[Full Text] [PDF]
37. Allen N. Berger, David B. Humphrey. 1997. Efficiency of financial institutions: International
survey and directions for future research. European Journal of Operational Research 98:2, 175-212.
[CrossRef]
38. Michael DOBLE. 1995. MEASURING AND IMPROVING TECHNICAL EFFICIENCY IN UK
POST OFFICE COUNTERS USING DATA ENVELOPMENT ANALYSIS. Annals of Public
and Cooperative Economics 66:1, 31-64. [CrossRef]
39. G. Creamer, T. Noe, P. SpindtEfficiency, performance and value-at-risk of Latin American banks
in a process of economic integration 92-96. [CrossRef]
40. Mehmet Hasan Eken, Sleyman KaleBank Branch Efficiency with DEA 626-667. [CrossRef]
41. mit Hacolu, Hasan Diner, zlem OlguEvaluation of Branch-Based Efficiency in Turkish
Deposit Banks: 64-74. [CrossRef]