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Sensitivity analysis of network DEA illustrated in branch banking

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  • N. Avkiran

    ()
    (CEPA - School of Economics, The University of Queensland)

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    Abstract

    Users of data envelopment analysis (DEA) often presume efficiency estimates to be robust. While traditional DEA has been exposed to various sensitivity studies, network DEA (NDEA) has so far escaped similar scrutiny. Thus, there is a need to investigate the sensitivity of NDEA, further compounded by the recent attention it has been receiving in literature. NDEA captures the underlying performance information found in a firm?s interacting divisions or sub-processes that would otherwise remain unknown. Furthermore, network efficiency estimates that account for divisional interactions are more representative of a dynamic business. Following various data perturbations overall findings indicate positive and significant rank correlations when new results are compared against baseline results - suggesting resilience. Key findings show that, (a) as in traditional DEA, greater sample size brings greater discrimination, (b) removing a relevant input improves discrimination, (c) introducing an extraneous input leads to a moderate loss of discrimination, (d) simultaneously adjusting data in opposite directions for inefficient versus efficient branches shows a mostly stable NDEA, (e) swapping divisional weights produces a substantial drop in discrimination, (f) stacking perturbations has the greatest impact on efficiency estimates with substantial loss of discrimination, and (g) layering suggests that the core inefficient cohort is resilient against omission of benchmark branches. Various managerial implications that follow from empirical findings are discussed in conclusions.

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    File URL: http://www.uq.edu.au/economics/cepa/docs/WP/WP122010.pdf
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    Bibliographic Info

    Paper provided by School of Economics, University of Queensland, Australia in its series CEPA Working Papers Series with number WP122010.

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    Date of creation: Dec 2010
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    Handle: RePEc:qld:uqcepa:58

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    1. SIMAR, Léopold & WILSON, Paul, 1995. "Sensitivity Analysis to Efficiency Scores : How to Bootstrap in Nonparametric Frontier Models," CORE Discussion Papers 1995043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Léopold Simar & Paul Wilson, 2000. "Statistical Inference in Nonparametric Frontier Models: The State of the Art," Journal of Productivity Analysis, Springer, vol. 13(1), pages 49-78, January.
    3. Tortosa-Ausina, Emili & Grifell-Tatje, Emili & Armero, Carmen & Conesa, David, 2008. "Sensitivity analysis of efficiency and Malmquist productivity indices: An application to Spanish savings banks," European Journal of Operational Research, Elsevier, vol. 184(3), pages 1062-1084, February.
    4. SHOKOUHI, Amir H. & HATAMI-MARBINI, Adel & TAVANA, Madjid & SAATI, Saber, . "A robust optimization approach for imprecise data envelopment analysis," CORE Discussion Papers RP -2215, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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