ABSTRACT
This chapter examines the reflective and formative composite measures and describes various approaches to deriving a composite measure. While these approaches differ, they all require some system of weights and/or prices and include ratio analysis, total factor productivity (TFP), the Lee method and Data Envelopment Analysis (DEA). Composite measures are familiar to most of us and can incorporate many different aspects of performance such as a technology achievement index of country performance, school league tables, Bhutan's Gross Happiness Index and university rankings. The most common approach to combining multiple measures of performance to construct a composite measure is to use fixed weights applied to each measure. Many of the criticisms of composite measures relate to the subjective nature of the construction process. This subjectivity can be reduced where performance is modelled using productivity analysis. The increased use of composite measures and extension to aspects of daily life indicate that there is demand for such measures.
