Efficiency Frontier Determination by Constrained Facet Analysis

Assessing the efficiency of organizational units has long been recognized as an important management problem but an extremely difficult one to solve, especially when one considers the multiplicity of resources and services or products associated with these units operating in a variety of industries. Data Envelopment Analysis (DEA), a promising approach for addressing this problem, is extended in this paper. The proposed extension, called Constrained Facet Analysis (CFA), provides a lower bound efficiency measure for organizational units that have a mix of resources and/or outputs that is different from any frontier point. In addition, CFA yields marginal rates of productivity and substitution associated with the lower bound efficiency measure. This lower bound analysis, combined with the upper bound efficiency analysis provided by the DEA, broadens the applicability of the DEA theory and methodology.