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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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Chapter 3: Development of Decision-oriented Performance Measurement framework and its application for measuring bank efficiency

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Abstract This chapter proposes the Decision-oriented Performance Measurement (DPM) framework in an attempt to integrate multiple decision making criteria into the assessment of organizational performance. An organization is taken as a decision maker striving for rationality. The framework aims to address the rationality of the organization in performing its actual goals against the expected values given the motivation and cognitive constraints. The actual goals are specified through the strategies and behavior model of the organization while the expected values are derived from the fundamental values of both primary stakeholder and secondary stakeholder groups. The framework derives direct performance criteria as a rationality-based structure of objectives containing not only primary objectives and necessary resources but also positive and negative side effects. Such objectives reflect the correspondence between the accomplishment of actual goals of the organization and its stakeholder values. On the basis of those direct performance criteria, the framework suggests a goal rationality efficiency measure of organizational performance. Within the framework, the procedure to derive performance criteria is designed as a four-step process based on rationality concepts of decision making. Additionally, this chapter provides an application of the DPM framework to propose practical frameworks for measuring performance of commercial banks in general case regarding their four main behavior models. The application illustrates an approach to convert the input and output factors specified by bank behavior models into the performance criteria applicable for measurement models such as DEA. To this end, the chapter proposes a solution to the pitfalls relating...

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