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A decision-oriented approach to performance measurement

Providing an insight into the DEA efficiency of banking institutions

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Minh Hanh Le

Within the performance measurement theme, this book contributes a new decision-oriented perspective to evaluate the efficiency of organizations. This perspective defines an efficient organization as the one which attains the rationality in the operating process to generate its desired values. From this angle, the book identifies the pitfalls regarding the input-output specification in bank efficiency assessments using Data Envelopment Analysis (DEA) models. It introduces the Decision-oriented Performance Measurement framework grounded in management rationality concepts as a solution to avoid these pitfalls. For empirical evidence, the book presents a goal-oriented DEA efficiency analysis of German savings bank sector.
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Abstract

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This research was triggered by the gap in current literature regarding the specification of bank performance criteria in Data Envelopment Analysis (DEA) measurement models. There has been no broad consensus among researchers about an appropriate way to determine such criteria. As a specific example, whether deposits should be assigned as banks’ input or output factors in DEA models remains an on-going debate. The present research takes a decision- oriented perspective to approach this issue and reveals the drawbacks of the use of input and output factors as direct performance criteria. The research is built on the view that performance measurement needs to reflect the criteria upon which organizations make decisions. To this end, the objective of this research is three-fold.

The first objective is to identify the pitfalls resulted from the use of input and output factors as direct performance criteria to model bank efficiency in DEA applications. An extensive literature review reveals that the pitfalls can yield DEA results which hardly reflect how banks perform against the goals they decide to pursue. The pitfalls were found to be associated with the implicitly fixed preference structure, flexible weight determination and limited explanatory power concerning input and output factors in DEA models.

The second objective is to propose a framework to integrate multiple decision making criteria into performance measurement to provide an approach to avoid the identified pitfalls. Taking organizations as decision makers striving for rationality, the Decision-oriented Performance Measurement (DPM) framework was proposed to...

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