An Application of Data Envelopment Analysis and Machine Learning Approach to Risk Management

• Main Authors: Suriyan Jomthanachai, Wai-Peng Wong, Chee-Peng Lim
• Format: Article
• Language: English
• Published: IEEE 2021-01-01
• Series: IEEE Access
• Subjects: Data envelopment analysis (DEA); DEA cross-efficiency; machine learning (ML); artificial neural network (ANN); failure mode and effect analysis (FMEA); risk management
• Online Access: https://ieeexplore.ieee.org/document/9448528/

An integrated method comprising DEA and machine learning for risk management is proposed in this paper. Initially, in the process of risk assessment, the DEA cross-efficiency method is used to evaluate a set of risk factors obtained from the FMEA. This FMEA-DEA cross-efficiency method not only overcomes some drawbacks of FMEA, but also eliminates several limitations of DEA to offer a high discrimination capability of decision units. For risk treatment and monitoring processes, an ML mechanism is utilized to predict the degree of remaining risk depending on simulated data corresponding to the risk treatment scenario. Prediction using ML is more accurate since the predictive power of this model is better than that of DEA which potentially contains errors. The motivation for this study is that the combination of the DEA and ML approaches gives a flexible and realistic choice in risk management. Based on a case study of logistics business, the results ascertain that the short-term and urgent solutions in service cost and performance are necessary to sustainable logistics operations under the COVID-19 pandemic. The prediction findings show that the risk of skilled personnel is the next concern once the service cost and performance strategies have been prioritised. This approach allow decision-makers to assess the risk level for handling forthcoming events in unusual conditions. It also serves as a useful knowledge repository such that appropriate risk mitigation strategies can be planned and monitored. The outcome of our empirical evaluation indicates that the proposed approach contributes towards robustness in sustainable business operations.