PB-P11

PB-P11
PGDM 2011-13: Term-V

Productivity Benchmarking
Xavier Institute of Management, Bhubaneswar

Course Instructor

: Biresh K. Sahoo

No. of Credits

: 3

Nature of Course

: Elective

Area

: Economics

OBJECTIVE

The pursuit for greater efficiency and productivity is never ending as firm managers are always under pressure to improve the performance of their organizations. The onus is, therefore, on managers to achieve better results from the resources available to them. Furthermore, for businesses organizations seeking to gain the edge over their competitors, productivity benchmarking is a popular tool that has been used over years to compare performance. This course elegantly presents the techniques and theory to empirically explain how performance indices and rankings are developed, and how they can be used to improve the organizations’ efficiency, productivity and profitability by the practitioners. Data envelopment analysis (DEA) has been found a very powerful productivity benchmarking methodology. This methodology has been internationally acclaimed as a leading-edge method of performance measurement that supports benchmarking, continuous improvement and strategic analysis. One can use this methodology to assist managers in making comparative efficiency analysis that will offer more accurate and richer insights than purely financial measures of performance. The objective of this course is, first, to look at real-world examples of performance evaluation practices, and then, to interpret them as special instances of DEA. This will, in turn, provide the opportunity to introduce DEA concepts, results, techniques, and formulations to the practitioners in a familiar language. Interpreting standard performance practices using DEA has the potential to multiply the power and practical value of practitioners’ analysis. Finally, what the students will gain from this course is an appreciation of the principles underlying productivity benchmarking tool, issues arising in using it and some familiarity with

DEA-Solver software

for implementing comparative performance assessments.

WHO SHOULD OPT FOR

Students from various areas of management such as

General Management

Finance and Accounting

Risk Management

Marketing

Operations Management

, and

Strategy

POTENTIAL BENEFITS

Students will learn how to:

Measure performance in a multi-input, multi-output industry.

Decompose performance measures into components (e.g., technical and allocative efficiencies).

Identify role models that can serve as benchmarks for programs of productivity improvement.

Identify the output and input changes necessary for an organization to achieve best practice.

Estimate various measures of performance such as customer satisfaction efficiency, consumer welfare index, credit rating/risk, audit risk, bankruptcy, stock selection, ratio analysis, human development index, macroeconomic policy performance, socio-economic performance, environmental performance, etc.

Measuring the overall efficiency of a company in terms of both profitability and marketability (Here, one will get to know by how much each of these two factors contributes to the overall efficiency of the company).

Identifying various drivers of the total factor productivity (TFP), cost and profit of companies.

Critically evaluate a performance study.

There are

two

modules in this course

MODULE 1

: DEA methodology in performance measurement

MODULE 2

: Application of DEA methodology.

MODULE 1

offers in-depth training drawn from the latest research developments in DEA methodology, as applied to comparative efficiency assessment and more generally to performance management.

This module reviews

The concept of relative efficiency in broader and specific contexts.

Basic economic concepts needed for a proper understanding of productivity and efficiency measurement.

Basic DEA models for measuring efficiency in multi-input multi-output situations.

Introducing to recent development in DEA including weights restrictions, assessment under variables returns to scale and target setting.

CONTENTS OF [MODULE 1]

[MODULE 1 (A)] THEORETICAL PART

[6 sessions]

a) BASIC ECONOMIC CONCEPTS for understanding efficiency and productivity. The concepts include: Technology, Isoquant, Production Function, etc.

b) TYPES OF EFFICIENCY - Technical Efficiency (TE), Cost Efficiency (CE), Revenue Efficiency (RE), Allocative Efficiency (AE), and Profit Efficiency (PE)

c) BASIC DEA MODELS – CCR, BCC, ADDITIVE, SBM and FDH for the estimation of efficiency.

d) RETURNS TO SCALE

e) DEA MODELS with restricted multipliers: Assurance Region Method, and Cone-Ratio Method

f) DISCRETIONARY, NON-DISCRETIONARY and CATEGORICAL VARIABLES

g) DEA ALLOCATION MODELS – Cost, Revenue and Profit Models for measuring cost efficiency, revenue efficiency and profit efficiency respectively

h) MALMQUIST INDEX for measuring

total factor productivity growth

(TFPG) and its drivers such as

technical efficiency

scale efficiency

and

technical change

[MODULE 1 (B)] APPLICATION PART

[9 sessions]

Here we will be examining how DEA can be used in various other measures of performance of companies such as

a) Measuring CREDIT RATING/RISK

b) Measuring AUDIT RISK

c) Measuring BANKRUPTCY

d) Evaluate STOCK SELECTION (where to invest money)

e) Aggregation of individual financial ratios (RATIO ANALYSIS). This is very much useful when different ratios give conflicting signals on the financial health of a company.

f) Measuring profitability and marketability of a stock/company.

g) Measuring CUSTOMER SATISFACTION EFFICIENCY

h) Measuring CONSUMER WELFATE INDEX

i) Measuring HUMAN DEVELOPMENT INDEX

j) Measuring MACROECONOMIC POLICY PERFOTMANCE and SOCIO-ECONOMIC PERFORMANCE

k) Measuring ECOLOGICAL (ENVIRONMENTAL) PERFORMANCE

l) Determining the drivers of COST/PROFIT CHANGE and CAPACITY UTILIZATION of a company.

MODULE 2

looks at the broader organizational context and the issues arising in implementing the technical methods covered in MODULE 1_B. Some real life case studies in the area of Finance and Accounting, Risk Management, Marketing, Operations Management, Strategy and Applied Economics will be discussed.

[5 sessions]

EVALUATION METHOD

Quizzes : 10%

End-term examination : 30%

Project Report (Group) : 40%

Project Presentation (Group) : 20%

Total : 100%

Note:

I will be forming various groups, and each group will be given, depending upon their interest, two case studies to prepare a project report. The goal of the report is to briefly summarize the major points of the case study. The guiding questions to be followed for preparing the report are: “What is unique about this case study”, “What are the strengths and weaknesses of the approach followed?”, “What was the basic application model developed in terms of inputs, outputs, etc.”, “What are the learning from the study”, and at the end of the report, mention two innovative application areas where DEA can be used (here one has to specify a goal and then to achieve this goal, has to indicate what could be the possible inputs and outputs). Finally, each group has to present the report in the class.

REFERENCE BOOKS

Cooper, W. W., Seiford, L. M. and Tone, K. (2000),

Data Envelopment Analysis: A Comprehensive Text with Models, Applications, References and DEA-Solver Software

, Boston: Kluwer Academic Publisher.

Gregoriou, G. N. and Zhu, J. (2005),

Evaluating Hedge Fund and CTA Performance: Data Envelopment Analysis Approach

, New Jersey: John Wiley & Sons.

Sherman, D. H. and Zhu, J. (2006),

Service Productivity Management: Improving Service Performance Using Data Envelopment Analysis (DEA)

, New York: Springer.

Fox, K. J. (2002),

Efficiency in the Public Sector

, Boston: Kluwer Academic Publishers.

Created By: Debasis Mohanty on 08/11/2012 at 10:28 AM
Category: PGDM-II Doctype: Document

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