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Technical Efficiency Measurement by Data Envelopment Analysis

of flexible manufacturing systems. Sueyoshi (1994) developed a model for evaluating the efficiencies of 24 public telecommunication companies in 23 countries.

In this study DEA methodology has been used to mea- sure the technical efficiency of state road transport un- dertakings in India. The transportation system of the country is one of the engines to growth, creating skills and wealth for the nation and generating employment for millions of people both in rural and urban areas. The development of any country takes place around such activity generators. Substantial contribution to the city’s efficiency is possible only when the people and materials are transported at minimal investment and operating cost. Thus an able, adequate and effi- cient transportation system permits cities and towns to become catalysts for economic, social and industrial development.

mean efficiency score under VRS assumption. For scale efficiency the average score is found to be 93.4%, which means that on an average the actual scale of pro- duction has diverged from the most productive scale size by 6.6%. Only eight STUs are found to have unity scale efficiency score, which means they oper- ate at most productive scale size. To test the stabil- ity of the results obtained, a few efficient STUs were deleted and again efficiency scores were computed and the results are found to be stable. The efficiency scores (CRS, VRS and Scale) are given for individual STUs in Table 3 along with the direction of return to scale. An interesting point in the results is that STUs working as companies are found to be relatively more efficient than others.


Data and Variables for the Study

In this study, three input variables and one output vari- able are considered for efficiency measurement. Input variables include fleet size, average kilometers trav- eled per bus per day and cost per bus per day. The output variable considered for the study was revenue per bus per day. Cost and Revenue data is given in Indian Rupees (One Indian Rupee [Rs] = 0.022 US$ approximately). The study involves the application of DEA to assess the efficiency of 44 STUs during the year 2000-01 (Table 1).

In this paper an introduction to efficiency measure- ment of decision making units and the DEA method- ology of measuring the same is given. With the help of a set of input and output variables from state road transport undertakings technical efficiency scores were computed both under CRS and VRS assumption along with scale efficiencies. It was found that only a small portion of STUs were scale efficient. However, the use of these efficiency scores must be made more cautiously. The set of input and output variables se- lected may be made more exhaustive by adding a few more relevant variables in the efficiency measurement, which may make the measure more robust.

The data used for assessment was obtained from the Association of State Road Transport Under- takings and also from the Central of Road Trans- port, Pune (Table 2). The analysis was conducted by using a computer program DEAP (Coelli, T., 1996), which is available free in the webpage www.uq.edu.au/economics/cepa/software.htm.


Banker, R. D., Charnes, A., and Cooper, A. A. (1984). Some models for estimating technical and scale inef- ficiencies in data envelopment analysis. Management Science, 9, 1078–092

Findings of the Study – Efficiency Scores:

Under the assumption of VRS, it was found that av- erage technical efficiency score for STUs is 89.4%, which implies that on an average STUs could have used 10.6% fewer resources to produce the same amount of output. Under the CRS assumption, the average efficiency score is 83.4%, which is less than

Charnes, A., Cooper, W.W., and Rhodes, E. (1978). Measuring the efficiency of Decision Making Units. European Journal of Operational Research, 2, 429– 444.

Coelli, T. (1996). A guide to DEAP Version 2.1: A Data Envelopment Analysis (Computer) Program,” CEPA Working Paper 96/08, University of New Eng- land, Australia.

Alliance Journal of Business Research


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