Data Envelopment Analysis: A Practical Tool to Measure Performance

This paper describes a productivity method, data envelopment analysis (DEA), and how it can be used to measure performance using multiple performance measures. DEA compares organisations or parts of organisations that share common goals and use similar resources to produce similar products, and calculates the technical efficiency with which firms convert bundles of inputs into bundles of outputs. DEA has been used in both public and private settings, and the paper describes some of its applications within Australasia. A case study of New Zealand dairy farms is used to demonstrate the benchmarking capability of DEA. While built upon solid theoretical foundations, DEA is essentially a practical tool that can be used by academics for research as well as by managers and practitioners for improved performance measurement and accountability.