Centralized resource reduction and target setting under DEA control

Data Envelopment Analysis (DEA) is a powerful tool for measuring the relative efficiency of decision making units (DMUs). In centralized decision-making systems, management normally imposes common resource constraints such as fixed capital, budgets for operating capital and staff count. In consequence, the profit or net value added of the units subject to resource reductions will decrease. In terms of performance evaluation combined with resource allocation, the interest of central management is to restore the general efficiency value of the DMUs. The paper makes four contributions: (1) we consider the performance evaluation of the centralized budgeting of hierarchical organizations; (2) we address the evaluation problems that the central decision maker does not desire to deteriorate the efficiency score of the DMUs after input and/or output reduction; (3) we develop a common set of weights (CSW) method; (4) we extend a new approach to optimize the inputs and/or outputs contraction such that the efficiency of all DMUs will get bigger than or equal to the efficiency of previous change.