Benchmarking within a DEA framework: setting the closest targets and identifying peer groups with the most similar performances (2001.06258v1)

Abstract: Data Envelopment Analysis (DEA) is widely used as a benchmarking tool for improving performance of organizations. For that purpose, DEA analyses provide information on both target setting and peer identification. However, the identification of peers is actually a by-product of DEA. DEA models seek a projection point of the unit under evaluation on the efficient frontier of the production possibility set (PPS), which is used to set targets, while peers are identified simply as the members of the so-called reference sets, which consist of the efficient units that determine the projection point as a combination of them. In practice, the selection of peers is crucial for the benchmarking, because organizations need to identify a peer group in their sector or industry that represent actual performances from which to learn. In this paper, we argue that DEA benchmarking models should incorporate into their objectives criteria for the selection of suitable benchmarks among peers, in addition to considering the setting of appropriate targets (as usual). Specifically, we develop models having two objectives: setting the closest targets and selecting the most similar reference sets. Thus, we seek to establish targets that require the less effort from organizations for their achievement in addition to identifying peer groups with the most similar performances, which are potential benchmarks to emulate and improve.