FAKULTAS TEKNIK SIPIL DAN LINGKUNGAN

SI-5101
Engineering Analysis
DATA
ENVELOPMENT
ANALYSIS

BIEMO W. SOEMARDI
b.soemardi@itb.ac.id 1
 DECISION MAKING – Measuring Effectiveness
▪ The underlying principle of decision making is the perception of decision maker
toward the variable involved in making decision, which he or she is trying to
optimize. This decision maker’s perception is called utility function.
▪ In reality, it is difficult to combine utility functions, since the utility function of one
variable does not have any relationship with other variable, and therefore making it
difficult to compare one decision to another or making comparison of one decision
maker to others.
▪ To assess or measure how good of a decision that comprises of multiple utility
functions, in practice, it is common to use efficiency measure, or cost
effectiveness that is the measure of cost of unit produce.
▪ Cost effectiveness measurement requires combining variables of the sources of cost
into a single measure of cost and the products and services into a single measure of
effectiveness.

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 DECISION MAKING – Measuring Effectiveness
▪ In a more general form, instead of costs and effectiveness, the
variables may be identified as "input" and "output". The efficiency ratio
is then no long characterized as cost effectiveness but as "output/input"
▪ Yet, it is practically non-existence that the performance of any
production unit is measured using single criteria.
▪ In microeconomic production theory, a firm’s (or production unit) input
and output combinations are depicted using a production function.
Using such a function one can show the maximum output which can be
achieved with any possible combination of inputs, that is, one can
construct a production technology frontier.

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 Data Envelopment Analysis
▪ It is a management tool used to evaluate the performance of multiple production
units, called decision making units – DMUs, by comparing relative efficiency.
▪ DEA is a linear programming method to measure efficiency of DMUs by calculating
the ratio of multiple-output over multiple-inputs.
▪ DEA (application of linear programming) was introduced by Charnes, A., Cooper
and Rhodes (1978), based on the work by Farrell, (1957)
▪ DEA is an extreme point method and it compares each production unit with only
the "best" production units

▪ Farrell, M.J. (1957), “The Measurement of Productive Efficiency,” Journal of the Royal Statistical Society vol. 120, pp. 253–281.
▪ Charnes, A., W. Cooper , & E., Rhodes (1978), “Measuring the efficiency of decision-making units,” European Journal of
Operational Research vol. 2, pp. 429–444.

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 Return to Scale
▪ What happens as the scale of production increases in the long run, when all
input levels are changed?
▪ RtoS explains the behavior of the rate of increase in output (production)
relative to the associated increase in the inputs (the factors of production) in
the long run. In the long run all factors of production are variable and subject
to change due to a given increase in size (scale)
▪ Law of Increasing Returns to Scale:
– If output increases by that same proportional change as all inputs change then there
are constant returns to scale (CRS).
– If output increases by less than that proportional change in inputs, there
are decreasing returns to scale (DRS).
– If output increases by more than the proportional change in inputs, there
are increasing returns to scale (IRS)
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 Data Envelopment Analysis

PROCESS

INPUT Decision Makin Unit OUTPUT

BLACK BOX PROCESS

▪ However, with multiple inputs and outputs, it becomes more difficult to

evaluate the process efficiency.

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 Data Envelopment Analysis
▪ Data Envelopment Analysis (DEA) measures the relative efficiencies of production
units or organizations with multiple inputs and multiple outputs.
▪ DEA assigns weights to the inputs and outputs of a DMU that give it the best
possible efficiency. It thus arrives at a weighting of the relative importance of the
input and output variables that reflects the emphasis that appears to have been
placed on them for that particular DMU.
▪ At the same time, though, DEA then gives all the other DMUs the same weights and
compares the resulting efficiencies with that for the DMU of focus.
▪ If the focus DMU looks at least as good as any other DMU, it receives a maximum
efficiency score. But if some other DMU looks better than the focus DMU, the
weights having been calculated to be most favorable to the focus DMU, then it will
receive an efficiency score less than maximum.
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 Data Envelopment Analysis
Calculating Efficiency

• DEA model use multiple inputs and outputs to compare tow or more production unit
• DEA model is represented in ratio of weighted inputs and outputs:

• DEA method searches for the points with the lowest unit input for any given output,
connecting those points to form the efficiency frontier
• Any DMU not on the frontier is considered inefficient.

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7
 Data Envelopment Analysis
Calculating Efficiency
Labor Cost Throughput Cost-Effectiveness
Production
($/day) (tons/day) Efficiency
A 5,000 3,200 1.56 $/ton
B 6,500 3,500 1.86 $/ton
Based on the production cost, production A is more efficient than B, but...

Floor Area Throughput Floor

Production
(sqm) (tons/day) Efficiency
A 14,300 3,200 0.22 tom/sqm
B 11,100 3,500 0.31 ton/sqm

Production B is more efficient in using the floor area than production A

So, which production system is better? What is the difference?
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8
 Measuring Efficiency
The following are input and output data for production proces:
Customer
Process Labor Cost Throughput
Rating
A 10 10 10
B 15 30 12
C 12 36 6
D 22 25 16
E 14 31 8
F 18 27 7

Throughput Rating
Calculate independent efficiency ratios x and y: Process Labor Labor
(x) (y)
A 1 1
B 2 0.8
C 3 0.5
D 1.136 0.727
E 2.214 0.571
F 1.5 0.389

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 Measuring Efficiency – Graphical Representation
The following are input and output data for production process:
rating/labor
1.2
A
1
B
0.8 D

0.6 E C

0.4 F

0.2

0
0 0.5 1 1.5 2 2.5 3 3.5
throughput/labor

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 Another example of Data Envelopment Analysis
Labor service rate
DMU labor hrs. #cust. #cust/hr.
1 100 150 1.50
#cust. 2 75 140 1.87
3 120 160 1.33
4 100 140 1.40
5 40 50 1.25
200
x3
x2 x1
x4
100

DMU’s 1,3,4,5 are

x5 dominated by DMU 2.

50 100 labor hrs.

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 Productivity with multiple outputs ...

Consider 8 M.D.’s working at Shouldice Hospital for the same 160 hrs. in a month.
Each performs exams and surgeries.
Doctor #Exams #Surgeries
Which ones are most “productive”? 1 48 68
2 12 80
3 35 76
4 31 71
5 20 70
6 20 105
7 36 53
8 15 65

Note: There is some “efficient” trade-off between the number of surgeries and
exams that any one M.D. can do in a month, but what is it?A
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 Scatter plot of outputs:
Efficient M.D.’s: These two M.D.’s
(#1 and #6) define the most efficient
120 trade-off between the two outputs.
#6
100

80
#1
#Surgeries

60

40

20 These points are dominated

by #1 and #6.
0
0 10 20 30 40 50 60
#Exams

“Pareto-Koopman efficiency” along the frontier - cannot increase an output (or decrease an input) without
compensating decrease in other outputs (or increase in other inputs).
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 Analyzing inefficient DMUs – Measuring the Gap
How efficient is Doctor #5 and where is the gap?

120
#6
100 Efficiency frontier
Efficiency score DMU5= 73.4%
80 #5
#Surgeries

#1
60

40

20

0
0 10 20 30 40 50 60
#Exams

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 Analyzing inefficient DMUs – Measuring the Gap
“Nearest” efficient points define a reference set and a linear combination of the reference set
inputs and outputs defines a hypothetical composite unit (HCU)

120
Reference set for #5 is {1,6}
#6
100

80 #5
#Surgeries

#1
60

40 HCU
20

0
0 10 20 30 40 50 60
#Exams

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16
 Data Envelopment Analysis

▪ DEA uses an efficient frontier to define multiple I/O productivity

▪ Frontier defines the (observed) efficient trade-off among inputs and outputs
within a set of DMUs.
▪ Relative distance to the frontier defines efficiency
▪ “Nearest point” on frontier defines an efficient comparison unit (hypothetical
comparison unit (HCU))
▪ Differences in inputs and output between DMU and HCU define productivity
“gaps” (improvement potential)

How do we do this analysis systematically?

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 Efficiency Calculation
• Relatively efficient processes are those on the efficient frontier:
– Considered to have 100% efficiency.
– What is the efficiency of the relatively inefficient processes?
y = output2/input

P1 (x1,y1)

(xv,yv)

P2 (x2,y2)

P0 (x0,y0)

x = output1/input
Projection of a relatively inefficient process
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 Efficiency Calculation
P1 and P2 are relatively efficient →P0’s peer group.
Define a and b such that:
y = output2/input
P1 (x1,y1) a=
y −y
2 1
b=
x y −x y
2 1 1 2

x −x
2 1 x −x 2 1
(xv,yv)
Then, we get the efficient virtual
P2 (x2,y2) process corresponding to
xv and yv:
P0 (x0,y0)
b
xv = y y = a x +b
v v
0
−a
x
0

The efficiency of process P0 is:

x = output1/input
2
x0 +
2

Projection of a relatively
y
E0 = 0
2
x +y
2
inefficient process v v

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DEA Formulation - Linear Programming
s OUTPUT

v
maximum
k ykp
max p = k =1
m

u x
j =1
j jp minimum

INPUT

v y k ki
subject to k =1
m
 1 i vk , u j  o k , j,
u x
j =1
j jp

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DEA Formulation - Linear Programming
s
max p =  vk ykp subject to
k =1 m

u x
j =1
j p =1 i
s m
where,
v
k =1
k y ki −  u j x ji  0
j =1
p = relative efficiency score of DMUi
s = number of output factors;
m = number of input factors;
vk , u j  o k , j , vk = output weight k;
uj = input weight j;
yki = number of output k by DMUi ;
xji = number of input j by DMUi

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 Basic Linear Programming Model

▪ This optimization problem is transformed into a linear programming problem,

schematically displayed as:

μ ν Min
λ Yi -Xi < 0 PRIMAL
a -1 < -1
b -1 < -1
> >
Max Yk -Xk
minimum input, uj xji

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 Basic Linear Programming Model

▪ This optimization problem is transformed into a linear programming problem,

schematically displayed as:

μ ν Min
λ Yi -Xi < 0
a -1 < -1
b -1 < -1
> >
Max Yk -Xk
maximum output, vk jki
DUAL

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 Orientation to Input

12

10

0
0 2 4 6 8 10 12

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 Orientation to Output

25

20

15

10

0
0 2 4 6 8 10 12

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 Solving DEA with DEA Solver - Spreadsheet
▪ Free DEA add-in MS Excel spreadsheet at
http://www.deafrontier.net/frontierfree.html
▪ This license allows you to use the software for educational and research
purposes only, not for commercial purposes, including consulting.
▪ Can be used for up to 20 DMUs

Reading Material
▪ Soemardi, B.W., and Kartika, S. (2000), Kajian Model Penilaian Efektivitas Penyerapan
Dana Bantuan Luar Negeri Terhadap Kinerja Proyek Konstruksi, Jurnal Teknik Sipil, Institut
Teknologi Bandung, ISSN 0853-2982, Vol. 7 No. 4, Oktober 2000, pp.143-155
▪ Soemardi, B.W., and Fajri, A.R (2013), Alternative Performance Measurement for Road
Management Agencies Using Data Envelopment Analysis Method, Jurnal Teknik Sipil,
Institut Teknologi Bandung, ISSN 0853-2982, Vol. 20 No. 3, Desember 2013, pp.161-171
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end note

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