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A decision-oriented approach to performance measurement

Providing an insight into the DEA efficiency of banking institutions


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 4: Deriving performance criteria for German savings banks: An application of the DPM framework to integrate decision making criteria into DEA efficiency assessment



Abstract This study provides an empirical framework to integrate decision making criteria into DEA efficiency assessment based upon the findings in previous chapters. The framework is developed as a combination of the Decision-oriented Performance Measurement (DPM) framework initiated in Chapter 3 and the Generalized Data Envelopment Analysis (GDEA) approach developed by Dyckhoff and Allen (2001) and Dyckhoff and Ahn (2010). The DPM framework derives objectives as direct performance criteria through a comprehensive goal system developed from rationality concepts. In the meantime, the GDEA approach permits objectives to be performance criteria in DEA models and facilitates the measurement of efficiency in a value-focused approach. The framework is illustrated through a practical application for deriving performance criteria for a customized DEA efficiency analysis of German savings banks. The primary aim of the framework is to customize DEA assessments so that DEA efficiency estimates can reflect comprehensive goal systems of organizations in the true sense.

4.1 Introduction

Taking technical production theory assumptions, the conventional DEA models address the input-output transforming process, not the goal accomplishing process directly. It is the use of input and output factors as direct performance criteria that cause DEA models to be deficient in capturing behavioral objectives of the organizations (Dyckhoff and Ahn 2010). Chapter 2 has identified the respective pitfalls of DEA in measuring bank efficiency. For the banking industry which holds different behavior models, it was shown that the conventional DEA models are unable to capture bank behaviors and thus...

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