Share This Article:

Using DEA and AHP for Ratio Analysis

Abstract Full-Text HTML XML Download Download as PDF (Size:1170KB) PP. 268-279
DOI: 10.4236/ajor.2014.44026    3,531 Downloads   5,160 Views   Citations

ABSTRACT

This research proposes an integrated approach to the Data Envelopment Analysis (DEA) and Analytic Hierarchy Process (AHP) methodologies for ratio analysis. According to this, we compute two sets of weights of ratios in the DEA framework. All ratios are treated as outputs without explicit inputs. The first set of weights represents the most attainable efficiency level for each Decision Making Unit (DMU) in comparison to the other DMUs. The second set of weights represents the relative priority of output-ratios using AHP. We assess the performance of each DMU in terms of the relative closeness to the priority weights of output-ratios. For this purpose, we develop a parametric goal programming model to measure the deviations between the two sets of weights. Increasing the value of a parameter in a defined range of efficiency loss, we explore how much the deviations can be improved to achieve the desired goals of the decision maker.This may result in various ranking positions for each DMU in comparison to the other DMUs. An illustrated example of eight listed companies in the steel industry of China is used to highlight the usefulness of the proposed approach.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

Pakkar, M. (2014) Using DEA and AHP for Ratio Analysis. American Journal of Operations Research, 4, 268-279. doi: 10.4236/ajor.2014.44026.

References

[1] Sigaroudi, S. (2010) Incorporating Ratios in DEA—Applications to Real Data. Master Thesis, University of Toronto, Toronto.
[2] Cooper, W.W., Seiford, L.M. and Zhu, J. (2004) Handbook on Data Envelopment Analysis. Kluwer Academic Publishers, Norwel.
[3] Wu, D., Liang, L., Huang, Z. and Li, S. (2005) Aggregated Ratio Analysis in DEA. International Journal of Information Technology & Decision Making, 4, 369-384.
http://dx.doi.org/10.1142/S0219622005001593
[4] Despic, O., Despic, M. and Paradi, J.C. (2007) DEA-R: Ratio-Based Comparative Efficiency Model, Its Mathematical Relation to DEA and Its Use in Applications. Journal of Productivity Analysis, 28, 33-44.
http://dx.doi.org/10.1007/s11123-007-0050-x
[5] Wei, C.K., Chen, L.C., Li, R.K. and Tsai, C.H. (2011) Using the DEA-R Model in the Hospital Industry to Study the Pseudo-Inefficiency Problem. Expert Systems with Applications, 38, 2172-2176.
http://dx.doi.org/10.1016/j.eswa.2010.08.003
[6] Saaty, T.S. (1980) The Analytic Hierarchy Process. McGraw-Hill, New York.
[7] Vaidya, O.S. and Kumar, S. (2006) Analytic Hierarchy Process: An Overview of Applications. European Journal of Operational Research, 169, 1-29.
http://dx.doi.org/10.1016/j.ejor.2004.04.028
[8] Entani, T., Ichihashi, H. and Tanaka, H. (2004) Evaluation Method Based on Interval AHP and DEA. Central European Journal of Operations Research, 12, 25-34.
[9] Lee, A.H.I., Lin, C.Y., Kang, H.Y. and Lee, W.H. (2012) An Integrated Performance Evaluation Model for the Photovoltaics Industry. Energies, 5, 1271-1291.
http://dx.doi.org/10.3390/en5041271
[10] Liu, C.M., Hsu, H.S., Wang, S.T. and Lee, H.K. (2005) A Performance Evaluation Model Based on AHP and DEA, Journal of the Chinese Institute of Industrial Engineers, 22, 243-251.
http://dx.doi.org/10.1080/10170660509509294
[11] Takamura, Y. and Tone, K. (2003) A Comparative Site Evaluation Study for Relocating Japanese Government Agencies out of Tokyo. Socio-Economic Planning Sciences, 37, 85-102.
http://dx.doi.org/10.1016/S0038-0121(02)00049-6
[12] Tseng, W., Yang, C. and Wang, D. (2009) Using the DEA and AHP Methods on the Optimal Selection of IT Strategic Alliance Partner. Proceedings of the 2009 International Conference on Business and Information (BAI 2009), 6, 1-15.
[13] Kong, W. and Fu, T. (2012) Assessing the Performance of Business Colleges in Taiwan Using Data Envelopment Analysis and Student Based Value-Added Performance Indicators. Omega, 40, 541-549.
http://dx.doi.org/10.1016/j.omega.2011.10.004
[14] Premachandra, I.M. (2001) Controlling factor weights in data envelopment analysis by Incorporating decision maker’s value judgement: An approach based on AHP, Journal of Information and Management Science, 12, 1-12.
[15] Shang, J. and Sueyoshi, T. (1995) Theory and Methodology—A Unified Framework for the Selection of a Flexible Manufacturing System. European Journal of Operational Research, 85, 297-315.
http://dx.doi.org/10.1016/0377-2217(94)00041-A
[16] Lozano, S. and Villa, G. (2009) Multiobjective Target Setting in Data Envelopment Analysis Using AHP. Computers & Operations Research, 36, 549-564.
http://dx.doi.org/10.1016/j.cor.2007.10.015
[17] Azadeh, A., Ghaderi, S.F. and Izadbakhsh, H. (2008) Integration of DEA and AHP with Computer Simulation for Railway System Improvement and Optimization. Applied Mathematics & Computation, 195, 775-785.
http://dx.doi.org/10.1016/j.amc.2007.05.023
[18] Ertay, T., Ruan, D. and Tuzkaya, U.R. (2006) Integrating Data Envelopment Analysis and Analytic Hierarchy for the Facility Layout Design in Manufacturing Systems. Information Sciences, 176, 237-262.
http://dx.doi.org/10.1016/j.ins.2004.12.001
[19] Jyoti, Banwet, D.K. and Deshmukh, S.G. (2008) Evaluating Performance of National R&D Organizations Using Integrated DEA-AHP Technique. International Journal of Productivity and Performance Management, 57, 370-388.
http://dx.doi.org/10.1108/17410400810881836
[20] Korpela, J., Lehmusvaara, A. and Nisonen, J. (2007) Warehouse Operator Selection by Combining AHP and DEA Methodologies. International Journal of Production Economics, 108, 135-142.
http://dx.doi.org/10.1016/j.ijpe.2006.12.046
[21] Lin, M., Lee, Y. and Ho, T. (2011) Applying Integrated DEA/AHP to Evaluate the Economic Performance of Local Governments in China. European Journal of Operational Research, 209, 129-140.
http://dx.doi.org/10.1016/j.ejor.2010.08.006
[22] Ramanathan, R. (2007) Supplier Selection Problem: Integrating DEA with the Approaches of Total Cost of Ownership and AHP. Supply Chain Management, 12, 258-261.
http://dx.doi.org/10.1108/13598540710759772
[23] Yang, T. and Kuo, C. (2003) A Hierarchical AHP/DEA Methodology for the Facilities Layout Design Problem. European Journal of Operational Research, 147, 128-136.
http://dx.doi.org/10.1016/S0377-2217(02)00251-5
[24] Raut, R.D. (2011) Environmental Performance: A Hybrid Method for Supplier Selection Using AHP-DEA. International Journal of Business Insights & Transformation, 5, 16-29.
[25] Ho, C.B. and Oh, K.B. (2010) Selecting Internet Company Stocks Using a Combined DEA and AHP Approach. International Journal of Systems Science, 41, 325-336.
http://dx.doi.org/10.1080/00207720903326902
[26] Jablonsky, J. (2007) Measuring the Efficiency of Production Units by AHP Models. Mathematical & Computer Modelling, 46, 1091-1098.
http://dx.doi.org/10.1016/j.mcm.2007.03.007
[27] Sinuany-Stern, Z., Mehrez, A. and Hadad, Y. (2000) An AHP/DEA Methodology for Ranking Decision Making Units. International Transactions in Operational Research, 7, 109-124.
http://dx.doi.org/10.1111/j.1475-3995.2000.tb00189.x
[28] Chen, T.Y. (2002) Measuring Firm Performance with DEA and Prior Information in Taiwan’s Banks. Applied Economics Letters, 9, 201-204. http://dx.doi.org/10.1080/13504850110057947
[29] Cai, Y.Z. and Wu, W.J. (2001) Synthetic Financial Evaluation by a Method of Combining DEA with AHP. International Transactions in Operational Research, 8, 603-609.
http://dx.doi.org/10.1111/1475-3995.00336
[30] Feng, Y.J., Lu, H. and Bi, K. (2004) An AHP/DEA Method for Measurement of the Efficiency of R&D Management Activities in Universities. International Transactions in Operational Research, 11, 181-191.
http://dx.doi.org/10.1111/j.1475-3995.2004.00450.x
[31] Kim, T. (2000) Extended Topics in the Integration of Data Envelopment Analysis and the Analytic Hierarchy Process in Decision Making. Ph.D. Thesis, Agricultural & Mechanical College, Louisiana State University, Baton Rouge.
[32] Liu, C. and Chen, C. (2004) Incorporating Value Judgments into Data Envelopment Analysis to Improve Decision Quality for Organization. Journal of American Academy of Business, Cambridge, 5, 423-427.
[33] Saen, R.F., Memariani, A. and Lotfi, F.H. (2005) Determining Relative Efficiency of Slightly Non-Homogeneous Decision Making Units by Data Envelopment Analysis: A Case Study in IROST. Applied Mathematics and Computation, 165, 313-328.
http://dx.doi.org/10.1016/j.amc.2004.04.050
[34] Pakkar, M.S. (2014) An Integrated Approach Based on DEA and AHP. Computational Management Science.
http://dx.doi.org/10.1007/s10287-014-0207-9
[35] Pakkar, M.S. (2012) An Integrated Approach to the DEA and AHP Methodologies in Decision Making. In: Charles, V. and Kumar, M., Eds., Data Envelopment Analysis and Its Applications to Management, Cambridge Scholars Publishing, Newcastle upon Tyne, 136-149.
[36] Liu, W.B., Zhang, D.Q., Meng, W., Li, X.X. and Xu, F. (2011) A Study of DEA Models without Explicit Inputs. Omega, 39, 472-480.
http://dx.doi.org/10.1016/j.omega.2010.10.005
[37] Mozaffari, M., Gerami, J. and Jablonsky, J. (2014) Relationship between DEA Models without Explicit Inputs and DEA-R Models. Central European Journal of Operations Research, 22, 1-12.
http://dx.doi.org/10.1007/s10100-012-0273-4
[38] Sahoo, B.K. and Meera, E. (2008) A Comparative Application of Alternative DEA Models in Selecting Efficient Large Cap Market Securities in India. International Journal of Management Perspectives, 1, 62-75.
[39] Charnes, A., Cooper, W.W. and Rhodes, E. (1978) Measuring the Efficiency of Decision Making Units. European Journal of Operational Research, 2, 429-444.
http://dx.doi.org/10.1016/0377-2217(78)90138-8
[40] Mavi, R.K., Mavi, N.K. and Mavi, L.K. (2012) Compromise Programming for Common Weight Analysis in Data Envelopment Analysis. American Journal of Scientific Research, Issue 45, 90-109.
[41] Hashimoto, A. and Wu, D.A. (2004) A DEA-Compromise Programming Model for Comprehensive Ranking. Journal of the Operation Research Society of Japan, 47, 73-81.
[42] Podinovski, V.V. (2004) Suitability and Redundancy of Non-Homogeneous Weight Restrictions for Measuring the Relative Efficiency in DEA. European Journal of Operational Research, Amsterdam, 154, 380-395.
http://dx.doi.org/10.1016/S0377-2217(03)00176-0
[43] Romero, C. and Rehman, T. (2003) Multiple Criteria Analysis for Agricultural Decisions. 2nd Edition, Elsevier, Amsterdam.
[44] Li, H.Y., Zhang, C. and Zhao, D. (2010) Stock Investment Value Analysis Model Based on AHP and Gray Relational Degree. Management Science and Engineering, 4, 1-6.

  
comments powered by Disqus

Copyright © 2019 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.