A COMPARISON OF DATA ENVELOPMENT ANALYSIS AND RATIO ANALYSIS AS TOOLSFOR PERFORMANCE ASSESSMENT

This paper compares data envelopment analysis (DEA) and ratio analysis as alternative tools for assessing the performance of organisational units such as bank branches and schools. Such units typically use one or more resources to secure one or more outputs, the inputs and/or out puts being possibly incommensurate, The assessment of District Health Authorities in England on the provision of perinatal care is used as a vehicle for comparing the two methods, The comparison focuses on how well the two methods agree on the performance of a unit relative to th at of other units, and on the estimates of targets each method provide s for improving the performance of units. It is found that provided th e performance indicators capture all variables used in the DEA assessm ent the two methods agree reasonably closely on the performance of the units as a whole, though this depends on the way the performance indi cators are combined into a summary figure of performance. The two meth ods can disagree substantially on the relative performance of individu al units, Ratio analysis, unlike DEA, is not found to be suitable for setting targets so that units can become more efficient, This is mainl y due to the fact that DEA takes simultaneous account of all resources and outputs in assessing performance while ratio analysis relates onl y one resource to one output at a time, However, the two methods can s upport each other if used jointly, Ratios do provide useful informatio n on the performance of a unit on specific aspects and they can suppor t the communication of DEA results to non-specialists when the two met hods agree on performance. Copyright (C) 1996 Elsevier Science Ltd.