Category: Frequently Asked Question

BCC

Introduced by Banker, Chames and Cooper (1984), this model measures technical efficiency as the convexity constraint ensures that the composite unit is of similar scale size as the unit being measured. The resulting efficiency is always at least equal to the one given by the CCR model, and those DMUs with the lowest input or …

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Window analysis

Tabular method for examining the changes in the efficiencies of a set of units over time. A set of time periods (1 ..t) is chosen and the efficiency of each unit (1..n) is computed separately for each period so that the efficiency of a given unit over each period is treated as a new unit …

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Primal (CCR) model

The primal model allows the DMU being measured to determine the set of optimal weights for each of its factors (outputs are denoted by y. and inputs by x in the following model) so as to maximise its efficiency. The solution consists of a set of weights (for outputs and y for inputs) chosen so …

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Virtual input(output)

Virtual input is obtained for each input by taking the product of the input’s value and its corresponding optimal weight as given by the solution to the primal model. Virtual outputs are obtained analogously. A virtual input or output describes the importance attached to the given factor. The virtual inputs always add up to the …

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Outlier

Generally taken to mean an odd unit with an input-output mix that significantly differs from the rest of the units. This can be due to a measurement error, or as a result of the outlier having different operating practices. Outliers that are efficient can introduce bias into the analysis. See Epstein and Henderson (1989). [Epstein …

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Most productive scale size (MPSS)

MPSS is a unit (point) on the efficiency frontier that maximises the average productivity for its given input-output mix and after which decreasing returns to scale set in. See Banker & Kemerer (1989) on how to compute the MPSS. [Banker R and Kemerer C (1989) ‘Scale economies in new software development’, IEEE Trans. On Softw. …

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Technology/Production technology

The operational practices (a combination of the management and engineering knowledge) that determine how a DMU’s inputs are transformed into outputs.

Slacks

The additional improvement (increase in outputs and/or decrease in inputs) needed for a unit to become efficient.

Technical efficiency

An efficiency measure that ignores the impact of scale-size by comparing a DMU only to other units of similar scale. Technical efficiency is computed using the BCC model. Overall efficiency is sometimes referred to as technical efficiency as closely follows the concept of technical efficiency developed by Farrell (1957), which technical efficiency as defined here, …

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Projected point

Refers to an inefficient DMU’s composite unit to emphasise that geometrically it involves the projection of the inefficient DMU onto the efficiency frontier (Ali and Seiford 1993). [Ali A and Seiford L (1993), ‘The mathematical programming approach to efficiency analysis’, in: Fried H, Knox C A K and Schmidt S (editors), The measurement of productive …

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