Muhittin Oral

An empirical study on measuring operating efficiency and profitability of bank branches

Abstract This paper discusses the methodology of an empirical study that was employed to measure the operating efficiencies of a set of 20 bank branches of a major Turkish Commercial Bank offering relatively homogeneous products in a multi-market business environment. The methodology was based on the concepts and principles of Data Envelopment Analysis (DEA). The results of the study have indicated that this kind of approach is not only complementary to traditionally used financial ratios but also a useful bank management tool in reallocating resources between the branches in order to achieve higher efficiencies. It has been also observed that the service-efficient bank branches were also the most profitable ones, suggesting the existence of a relationship between service efficiency and profitability.

Model validation in operations research

Abstract Numerous articles have appeared in the literature expressing different degrees of concern with the methodology of OR in general and with the validation of OR models in particular. Suggestions have been formulated to remove some of the shortcomings of the methodology as currently practised and to introduce modifications in the approach because of the changing nature of the problems tackled. Advances in modeling capabilities and solution techniques have also had considerable impact on the way validation is perceived. Large scale computer-based mathematical models and especially simulation models have brought new dimensions to the notion of validation. Terms like ‘confidence’, ‘credibility and reliability’, ‘model assessment and evaluation’, ‘usefulness and usability of the model’ have become rather common. This paper is an attempt, through an interpretation of the literature, to put model validation and related issues in a framework that may be of use both to model-builders and to decision-makers.

On the optimization of supply chain networking decisions

Companies strive to position themselves to maximize the value they add to the supply chains in which they are embedded. This raises strategic questions such as: Which durable resources should be developed to enhance current core competencies? Which activities should be externalized and to which potential partner should they be given? Which internal activities should be preserved and developed? How should the resources of the enterprise be allocated to activities? The aim of this paper is to propose a mathematical programming model of the extended enterprise which can be used to investigate this type of strategic networking issues. A number of general network modeling constructs are first proposed. A model to optimize the supply chain structure under specific assumptions on the nature of production, cost and value functions in typical production/distribution companies is then derived. A heuristic to obtain solutions from the model is also presented. Finally, an example based on a refrigerator company is used to illustrate the usefulness of the approach. ” 2001 Elsevier Science B.V. All rights reserved.

A credit scoring approach for the commercial banking sector

Abstract For managing credit risk, commercial banks use various scoring methodologies to evaluate the financial performance of client firms. This paper upgrades the quantitative analysis used in the financial performance modules of state-of-the-art credit scoring methodologies. This innovation should help lending officers in branch levels filter out the poor risk applicants. The Data Envelopment Analysis-based methodology was applied to current data for 82 industrial/manufacturing firms comprising the credit portfolio of one of Turkeys largest commercial banks. Using financial ratios, the DEA synthesizes a firms overall performance into a single financial efficiency score—the “credibility score”. Results were validated by various supporting (regression and discriminant) analyses and, most importantly, by expert judgments based on data or on current knowledge of the firms.

A linearization procedure for quadratic and cubic mixed-integer problems

Several techniques of linearization have appeared in the literature. The technique of F. Glover, which seems to be the most efficient, linearizes a binary quadratic integer problem of n variables by introducing n new continuous variables and 4n auxiliary linear constraints. The new technique proposed in this paper is not only useful in linearizing binary quadratic and cubic integer problems, but also applicable to the case of quadratic and to a certain class of cubic “mixed-integer” problems. It is shown that the new technique further reduces the number of auxiliary linear constraints from 4n to n, while keeping the number of new continuous variables at n for the binary quadratic integer problem of n variables. And, it requires, in the case of a certain class of cubic mixed-integer problems having 2n of 0–1 variables, only 3n auxiliary linear constraints and the same number of new continuous variables. The analytical superiority of the new linearization technique has also been observed, in terms of the nu...

A Taxonomy for Data Envelopment Analysis

This paper presents a scheme for classifying the Data Envelopment Analysis (DEA) literature. The taxonomy allows one to distinguish articles on the basis of the data source used (D) if any, the type of envelopment (E) invoked, the approach to analysis (A) used, and the nature (N) of the paper. Each of the above attributes D, E, A and N (DEAN) are further subdivided to obtain a detailed description of each article comprising this rather wide-ranging field of knowledge. Sample articles are classified to illustrate the descriptive power and the parsimony of this taxonomy.

The facets of the modeling and validation process in operations research

Abstract The present paper suggests a way of exploring the process of modeling and validation in Operations Research (OR). This will be achieved by providing an interpretation for each facet of the modeling-validation tetrahedron formed by the quartet ‘managerial situation’, ‘conceptual model’, ‘formal model’, and ‘decision’. Such an approach not only leads to a contextual classification of OR problems, albeit in general terms, but also helps to identify the types of validation needed and their relative importance. The real world problems which OR is currently trying to tackle are rather complex in nature and vast in scope. This inevitably forces OR scientists and practitioners to position themselves somewhere on the ‘scientific perspective’ - ‘practice perspective’ spectrum. The proposed tetrahedron of the modelling-validation process is also instrumental in positioning OR workers with respect to the nature of their work.

Model legitimisation in operational research

Abstract This paper suggests that model validation and model legitimisation are two overlapping but nevertheless distinct activities, and that it takes more than being valid for an OR model to be organizationally acceptable: it has to be legitimate. The paper forwards the idea that the implementation of a model is necessarily part of a change process and hence has impact on the organization. It discusses how organizational contract and legitimacy are related to one another, and how, in a change process, a model can be used in different modes by different stakeholders. Concrete suggestions for model legitimisation are proposed. The paper concludes by linking model legitimisation and model validation.

A methodology for competitiveness analysis and strategy formulation in glass industry

Abstract The increasingly important role of global competition in shaping long-term strategies of industrial firms has been recognized by managers, planners, politicians and academicians alike. This has prompted recently an increase in the number of studies explicitly dealing with competitiveness analysis. The studies done in this respect however are usually descriptive in nature, providing only checklists of factors with few measurement guidelines, and hence difficult to make them operational. The present paper is an attempt to meet this attested need by proposing a model-based approach to competitiveness analysis and discusses its multi-phased implementation in a large glass company. The practice experience gained with this approach indicates that mathematical models can provide an analytical framework for the analysis of industrial competitiveness and can yield useful insight for competitive strategy formulation.

An estimation model for country risk rating

Abstract Several statistical models, such as multiple regression, logistic regression (LOGIT), classification and regression tree (CART), etc. have been suggested in the literature and used in practice to explain and predict country risk ratings as a function of some selected social, political, but mostly economic factors or indicators. Such models, however, seem to have some important shortcomings. First, the same set of parameter values are usually assumed to apply to all countries, regardless of whether a particular political-economic factor carries more weight in the case of some countries. Second, the level of data adjustability is achieved only within the context of the optimization techniques inherent in the statistical models chosen a priori. This paper proposes, and applies to a group of 70 countries, a procedure that employs a generalized logit model (G-LOGIT) to link country risk rating and political-economic indicators. The estimates for the parameters of the G-LOGIT model are obtained through an independently developed mathematical programming model, rather than relying on classical optimization techniques as do most statistical models. The performance results of the proposed procedure are compared with two widely used statistical models: LOGIT and CART. The results indicate that the new procedure is superior to the statistical models, with respect to both estimation and validation errors.