An efficiency score unification method in data envelopment analysis using slack-based models with application in banking

Abstract

Providing a unique estimation model of the efficiency score for a bank branch has long been a primary concern for bank managers, who frequently reject efficiency studies because they contend that a single perspective evaluation cannot adequately display the multifunctional nature of decision-making units (DMUs). This paper presents a unification model for efficiency scores in the banking industry. The proposed model evaluates the efficiency of decision-making units through a two-stage method from different perspectives. This study calculates efficiency scores from several aspects and various inputs/outputs in the first stage, so an expanded space is used in the second stage. All viewpoints are transferred into a new space, creating a new efficient frontier in the expanded space. This model presents the unified efficiency score from DMUs by applying the slack-based model (SBM), which proposes enhancement guidelines. A unified efficiency score is created by considering three perspectives: production, profitability, and intermediary. Unlike the average score, the results show that the unified efficiency score can reflect the performance difference between the three scores achieved from the three perspectives. Additionally, this method demonstrates that DMUs cannot achieve overall efficiency if they are inefficient in at least one of the three aspects.