Data Envelopment Analysis: Partial survey and applications for management accounting.

Abstract Controlling cost in the organization is an essential element of the managerial accounting function. One important factor for controlling costs is the ability to measure the ex post efficiency performance of the firm (or department) either over time or by comparison to other firms (departments) in the Industry. Data Envelopment Analysis (DEA) is a practical yet theoretically powerful tool for measuring ex-post efficiency performance. Moreover, since the application of DEA requires only physical input-output data—market prices are irrelevant—it is applicable to not-for-profit as well as profit-seeking organizations. This paper provides an intuitive description of the DEA methodology and shows how DEA is related to neoclassical production theory. DEA is then applied to an example in order to illustrate the simplicity of application. The DEA literature is partially surveyed and potential applications to management accounting emphasized. The strengths and weaknesses of DEA are analyzed.