The benefit of performance indicators in efficiency assessment using data envelopment analysis

ABSTRACT Performance indicators (PIs) are important parameters in the management of water services. Regulators have developed empirical analysis utilising PIs to rank an urban water utility (UWU) in a competitive scenario. Empirical analyses employ assumptions that, on the other hand, contribute to the chances of favouritism. Data envelopment analysis (DEA) is a non-parametric approach used in assessing the efficiency of a decision-making unit. However, the DEA benchmarking technique makes many UWUs efficient, limiting regulators to discern who is the best performer because even a weakly performing UWU identified in empirical analysis can be efficient. This study presents a consistency analysis of the conventional DEA and DEA for ratios through the DEA approach in a network form that benchmarks a UWU in a competitive scenario using absolute and ratio information. The assessment indicates that DEA for ratios contributes to the management of UWUs. When DEA for ratios is applied in UWU efficiency assessment, the results of efficient and inefficient UWUs can be used to compare their indicators achievements and develop relevant policies to improve operations. Thus, a weak-performing UWU can adopt management incentives used by the efficient UWU and enhance performance in the next assessment period.