How to create indices for bank branch financial performance measurement using MCDA techniques: an illustrative example

Abstract

Most banks have been negatively affected by the recent economic recession, which has forced them to evaluate their operating performance including the financial performance of bank branches. Approaches that have been applied to address the financial performance evaluation of bank branches include: optimization techniques, simulations, stochastic tools, fuzzy logics and decision support systems. Although recent improvements have been made in assessing financial performance, the potential for significant further improvement remains since the recent world economic crisis is adding pressure on business margins. The purpose of this paper is to construct an exemplificative evaluation index for bank branch financial performance by integrating cognitive maps with measuring attractiveness by a categorical based evaluation technique. We aim to apply this methodology constructively to serve as a learning mechanism and introduce transparency in the decision making process. Practical applications, strengths and weaknesses of the proposed evaluation index are also discussed.

Keywords:

• bank branch
• decision support
• financial performance
• cognitive maps
• multiple criteria decision analysis
• trade-offs

JEL Classification:

• A12
• E44
• G20

Additional information

Notes on contributors

Fernando A. F. Ferreira

Fernando A. F. FERREIRA is an Assistant Professor at the ISCTE Business School of the University Institute of Lisbon, Portugal, and Adjunct Research Professor at the University of Memphis, TN, USA. He holds a PhD in Quantitative Methods Applied to Economics and Management from the University of Algarve, Portugal, and received his MSc in Economic and Business Sciences from the University of Algarve and the Technical University of Lisbon, Portugal. In 2009, he was granted with a Calouste Gulbenkian Foundation fellowship for Post-Doctoral studies at the Fogelman College of Business and Economics of the University of Memphis. He has authored books, book chapters, peer-reviewed papers and made many conference presentations. He has practical experience as a group facilitator, and has focused principally on strategic decision making and risk analysis.

Sérgio P. Santos

Sérgio P. SANTOS is an Assistant Professor at the Faculty of Economics of the University of Algarve, and member of the Center for Advanced Studies in Management and Economics of the University of Évora, Portugal. He holds a PhD in Management Science from the University of Strathclyde, and a MA in Economics and Econometrics from the University of Manchester, UK. His main research interests include performance measurement and management in both the private and public sectors. He has published some of his research in international journals such as Omega, International Journal of Production and Operations Management, Journal of the Operational Research Society and Health Care Management Science.

Paulo M. M. Rodrigues

Paulo M. M. RODRIGUES is an economist at the Economics and Research Department of the Banco de Portugal, and Professor of Econometrics at NOVA School of Business and Economics, Universidade Nova de Lisboa, Portugal. He received his PhD and MA from the University of Manchester, UK. Previously he was Associate Professor at the University of Algarve, Portugal, a Jean Monnet Fellow at the European University Institute in Florence, Italy, and Visiting Scholar at the University of Navarra, Spain, the Institute for Advanced Studies in Vienna, Austria, and the University of British Columbia, Vancouver, Canada.

Ronald W. Spahr

Ronald W. SPAHR is a Professor and Former Chairman in the Department of Finance, Insurance and Real Estate of the Fogelman College of Business and Economics of the University of Memphis, TN, USA. He received his PhD and MBA from the University of Wisconsin-Madison, MS in Operations Management from the University of Southern California and BS in Mechanical Engineering from South Dakota State University. Previously, he was the National City Bank Distinguished Professor of Banking and Finance at the University of Illinois, Belk Distinguished Professor of Finance at the University of North Carolina and Professor of Finance at the University of Wyoming. He has also lectured at a number of European universities.