The higher the ratio of an output to input the more efficient a branch is in producing that output.

The
branch with the highest ratio of Personal Transactions/Staff is Glasgow and consequently this branch is
the most efficient in processing transactions on personal accounts. However, the branch with the highest
ratio of Business Transactions/Staff is Manchester and so this branch is the most efficient in processing
transactions on business accounts. In this situation, the picture of efficiency is less clear. Which measure
should be used? The Frontier Graph is a method of resolving this graphically by plotting Personal
Transactions/Staff against Business Transactions/Staff for all the branches. This is shown in the following
‘frontier graph’:

This diagram shows the  which is the fundamental concept of DEA. The “Cardiff” and “intersection” labels
indicate the items referenced in the text. In the Frontier Analyst software, simply move the cursor over
the data points to see this detail in the status line of the main window.

The positions on the graph represented by Glasgow and Manchester demonstrate a level of performance
which is superior to all the other branches. A line can be drawn on the graph between Glasgow and
Manchester which, together with the straight lines from Glasgow to the Y axis and Manchester to the X
axis, represent what is called the efficiency frontier. The efficiency frontier, derived from the most
efficient branches in the data-set, represents a standard of best achieved performance. As a result it can
be used as a threshold against which to measure the performance of all the other branches. (This does
not imply that the branches on the frontier cannot improve their performance but that there is no
demonstrable basis to measure the extent to which they can do so.)

The efficiency frontier ‘envelops’ the inefficient units within it and clearly shows the relative efficiency of
each branch. Branches which are located on the frontier are performing better than any branches below
the frontier. Any branch on the frontier is considered 100% efficient and any branch below it is relatively
less efficient and has an efficiency rating of less than 100%. In this example Glasgow and Manchester
are therefore considered 100% efficient: Glasgow because it is the most efficient at processing personal
transactions and Manchester because it is the most efficient at processing business transactions. The
other branches are not 100% efficient as they are not on the frontier.

Cardiff, for example, could become efficient if it increased its outputs, in the same proportions, whilst
keeping its input the same. If it did this it would eventually reach the efficiency frontier at the point
marked (“intersection”). Alternatively, it could reduce its input while keeping its outputs constant which
would have the same effect. Its actual efficiency is calculated simply by the ratio of its distance from the
origin over the distance from the origin to the point marked. This gives Cardiff an efficiency of 41%.
Similarly London is 75% efficient, Leeds 71% and Birmingham 46%. Frontier Analyst automatically
generates these efficiency scores for you. If there are only two active inputs and one output, or one
active input and two outputs, then Frontier Analyst is able to display a “frontier graph” a 2-dimensional
representation of this.

When more than two outputs and one input or one output and two inputs are active the problem
becomes ‘multidimensional’ and is no longer suitable to be represented graphically. In this situation the
analysis is much more complicated and Frontier Analyst becomes a requirement. In addition, Frontier
Analyst is able to determine the potential improvements and other information from the mix of data, to
provide a good insight into efficiency.

Efficiency Scores
The Efficiency Scores window is now displayed which shows the efficiency of the bank branches in
descending order of efficiency. It can be seen that Glasgow and Manchester are found to be 100%
efficient with the other branches having efficiency scores of less than 100%.

Frontier Analyst enables you to sort the order in which the units and their efficiency scores are displayed.
If you click the button on the Efficiency Scores window toolbar called “Sort 1-9” the bank branches will be
sorted in ascending order of efficiency. “Sort A-Z” orders the branches alphabetically and “Unsort” orders
the branches in the order they were entered into the data set.

The buttons on the Efficiency Scores window toolbar called “Show All”, “100%” and “<100%” enable you
to choose whether to display either:

* all the branches

* only those which are 100% efficient

* or only those which are inefficient and hence have an efficiency rating of less than 100%.

The Frontier Plot

In an efficiency analysis where only one input and two outputs have been used the results can be
displayed graphically, in a “frontier plot”.

Each point on the plot represents a branch in the analysis. One of the inefficient branches is currently
highlighted in red. If you move the cursor over this red diamond the name of this branch and its
efficiency will be displayed in the panel at the bottom of the window. A line has been drawn on the plot
from the origin through Birmingham to a red star located on the efficiency frontier. This red star indicates
the position on the efficiency frontier that the Birmingham branch would reach if it either:

* reduced the amount of the input staff it is currently using, or

* increased both of its outputs in the same proportions by a sufficient amount until it arrived at this point
on the frontier. It would then be 100% efficient.

If you place the cursor over any diamond on the plot that branches name and efficiency will be shown in
the panel at the bottom of the window. If you click any diamond then a line will be drawn from the
origin, through that branch, and onto the frontier.

Looking at an Inefficient Unit

Frontier Analyst graphically displays performance information relating to inefficient units and shows the
difference between their performance and the “best practice” (100% efficient) units to which they have
been compared.
Performance information on any inefficient unit can be obtained from the Efficiency Scores window. This
window shows that Cardiff has an efficiency score of 40.7%. It also contains three ‘tabs’ labelled
“Potential Improvements”, “Reference Comparison” and “Reference Contributions”. The tab which is
initially visible is Potential Improvements.

Potential Improvements
An efficiency study not only provides an efficiency score for each unit but also indicates by how much and
in what areas an inefficient unit needs to improve in order to be efficient. This information can enable
targets to be set which could help guide inefficient units to improved performance.

If a unit is found to be inefficient then it should be able to produce its current level of outputs with fewer
inputs (input minimisation) or generate a higher level of outputs given the same inputs (output
maximisation). The Potential Improvements graph shows what percentage a unit needs to either
decrease its inputs or increase its outputs in order to become 100% efficient. For the Cardiff branch the
graph shows it needs to reduce its number of staff by nearly 60% while maintaining the same level of
outputs in order to become efficient.

The target data for the Cardiff branch is also displayed in a table which can be viewed by clicking on the
“Table” button.

This table shows the inputs and outputs used in the analysis. The “Actual” column shows the values of
the inputs used and the values of the outputs actually produced by Cardiff. The “Target” column shows
the amount of inputs and outputs that Cardiff should be using or producing in order to be efficient. The
“Potential Improvement” column shows how much, in percentage terms, Cardiff’s use of inputs or
production of outputs needs to change by in order for it to be efficient. The table shows that Cardiff
should reduce its use of staff from 10 to 4, a reduction of almost 60%, in order to become as efficient as
either Glasgow or Manchester. It is of course important to realise that this is just a guide to improvement
potential. There may be reasons why a unit will find it hard to ever match the best performers, but such
indicators can help make the best of your resources.

If the assessment of a unit as inefficient is felt to be justified then the information provided can be used
as a basis for setting targets for the unit. As a first step in setting targets, the inefficient unit should be
compared with the units in its reference set.

The Reference Set is the set of efficient branches to which the unit has been most directly compared
when calculating its efficiency rating. Cardiff has efficient branches Glasgow and Manchester in its
reference set and is only operating 40% as efficiently as they are. The reference set of a unit can help in
providing an insight into why it is under-performing and show clearly the areas in which it is weak.

The efficient branches forming Cardiff’s reference set are listed on the left. Glasgow is currently
highlighted and the graph shows a comparison between Glasgow and Cardiff. Click on Manchester in the
list in order to view the comparison between Manchester and Cardiff.

The input and output values for Cardiff have all been scaled to equal 100%. Manchester’s values for its
input and outputs are then expressed as a percentage of Cardiff’s values thus making for an easy
comparison between the branches. The bars representing Cardiff’s values are all coloured blue and the
bars representing the values of the efficient branch it is being compared with are red.

If you now use the mouse to place the cursor over the red bar representing Manchester’s input of staff
the status panel of the main window will show “Manchester uses 120% of Staff compared with Cardiff”. It
can be seen that Manchester is using 20% more staff than Cardiff is. Manchester has 12 members of
staff employed and Cardiff 10.
Although Manchester is only using 20% more of the input staff than Cardiff is the graph shows that the
output it achieves is substantially more then 20% higher than Cardiff’s. Use the mouse to move the arrow
over the bars representing Manchester’s personal and business transactions. You will find that
Manchester is achieving 239% of Cardiff’s output of personal transactions, more than double, and is
achieving 375% of Cardiff’s output of business transactions.