ASSESSMENT OF COST EFFICIENCY IN THE WATER SUPPLY COMPANY USING DATA ENVELOPMENT ANALYSIS METHOD

Abstract

The prices of services provided by water management companies are regulated at a national level. By applying the Data Envelopment Analysis (DEA) technique, the efficiency of each activity in water management can be evaluated, thus assessing whether costs are being used efficiently. In order to determine the cost-effectiveness of UAB „N” (Ltd.), a literature review was examined to identify the resource and outcome variables to be included in the DEA model, to develop a research methodology and to carry out the study. Cost efficiency is measured not only by the revenue generated, but also by the number of customers, the length of networks and other outcomes. The analysis of literature showed that expenses incurred obtain the costs of investment and depreciation of assets as the most common factors included in pricing. It was identified that water management companies in small municipalities face the greatest difficulties, as their average costs of production are higher than in municipalities with a larger population. The empirical research of the selected water management company UAB „N” (Ltd.) proved that other activities contain deficiency due to the cost of raw materials, wages and the number of users. The efficient activities of UAB „N” (Ltd.) are the core activities of water supply and wastewater management. The efficiency of water supply activities was higher than that of the wastewater management. It is concluded that only these two activities (water supply and wastewater management) were cost-effective. The results of the study allow further investigation to identify and detect problems of the company which lead to financial inefficiencies of some activities.