Reconciling ratio analysis and DEA as performance assessment tools

Wen-Chih Chen*, Leon F. McGinnis

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

16 Scopus citations

Abstract

The assessment of operational performance remains a fundamental challenge both in practice and in theory. Data envelopment analysis (DEA) is one method developed in production economic theory and applied by researchers to study groups of enterprises. In practice, individual enterprises almost universally rely on simple output-input ratios. Each approach has its strengths and weaknesses, but the theoretical connection between the two has not been fully articulated. This paper uses the framework of DEA to establish a mathematical relationship between DEA efficiency scores and corresponding ratio analysis. The relationship can be expressed as a product of seven components: technical efficiency, technical change, scale efficiency, input slack factor, input substitution factor, output slack factor and output substitution factor.

Original languageEnglish
Pages (from-to)277-291
Number of pages15
JournalEuropean Journal of Operational Research
Volume178
Issue number1
DOIs
StatePublished - 1 Apr 2007

Keywords

  • Data envelopment analysis
  • Efficiency
  • Partial productivity
  • Ratio analysis

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