Evaluating relative productivity and efficiency of hospitality properties using data envelopment analysis

The concept of productivity and efficiency is essential to any hospitality company as such companies usually face severe competition and operate in an ever-changing business environment. Purely financial measures of evaluating hospitality efficiency and productivity are not sufficient in the long-term. This study makes an attempt to evaluate the productivity and efficiency of hospitality operations using a nonparametric technique called Data Envelopment Analysis (DEA). DEA is a special linear programming model for deriving the comparative efficiency of multiple-input multiple-output decision-making units. In many industries, the use of DEA helped properties identify millions of dollars of annual expense savings not identifiable with traditional financial and operating ratio analysis. This study selects a set of inputs and outputs for two geographical groupings of casino operations and examines the nature of information obtained from the DEA procedure. The study then focuses on the interpretation and practical usefulness of such information for the hospitality industry. The results of this study will help hospitality managers and consultants understand how the DEA approach can be used to identify weaknesses and strengths of a hospitality property and evaluate its efficiency and productivity.