Data envelopment analysis and its use in banking

Data envelopment analysis (DEA) is a linear-programming-based method for assessing the performance of homogeneous organizational units and is increasingly being used in banking. The unit of assessment is normally the bank branch. Studies are mostly centered on deriving a summary measure of the efficiency of each unit, on estimating targets of performance for the unit, and on identifying role-model units of good operating practice. Additional uses for DEA in banking include the measurement of efficiency in light of resource and output prices, the estimation of operating budgets that are conducive to efficiency, the assessment of financial risk at bank-branch level, and the measurement of the impact of managerial change initiatives on productivity.