An application reference for data envelopment analysis in branch banking: helping the novice researcher

Abstract

Demonstrates the application of data envelopment analysis (DEA) in examining the efficiency of bank branches relative to other branches. Shows that accounting variables can be complemented by non‐accounting variables controllable by management. The process of generating and interpreting relative efficiency scores and potential improvements is discussed in a language that will be particularly appreciated by managers, consultants and novice researchers. The theory needed to use DEA and the key model design considerations are addressed. The discussion includes such issues as appropriate sample size, strengths and weaknesses of DEA, analysis options, and an application checklist. DEA can be applied to benchmarking best practice branches. Management can use DEA to test the established knowledge of branches and initiate investigations when contradictions arise.