Using data envelopment analysis to benchmark activities

This paper investigates the use of data envelopment analysis (DEA) for activity-based management. We analyze the pros and cons of DEA as applied to benchmark activities. Firstly, DEA merely requires activity information which can be easily gained, resulting in low information cost. Secondly, in benchmarking activities, DEA does not require any financial evaluations. This allows to benchmark activities of decision making units (DMUs) that differ in their capacity costs. Thirdly, DEA extends the benchmarking basis by combining observed activities. This might result in improvements for DMUs which are not directly dominated by observed DMUs. However, we will also show that the information that DEA provides for inefficient DMUs is in general not sufficient to improve their activities. To improve inefficient activities it is still necessary to analyze them in detail. Therefore, the main advantage of the proposed procedure is that it identifies critical activities without requiring too much information.