Data Envelopment Analysis (Charnes et al, 1978) is a technique used to evaluate the relative efficiency of any process or an organization. The efficiency evaluation is relative, which means it is compared with other processes or organizations. In real life situations different processes or units seldom operate in similar environments. Within a relative efficiency context, if units operating in different environments are compared, the units that operate in less desirable environments are at a disadvantage. In order to ensure that the comparison is fair within the DEA framework, a two-stage framework is presented in this thesis. Fuzzy clustering is used in the first stage to suitably group the units with similar environments. In a subsequent stage, a relative efficiency analysis is performed on these groups. By approaching the problem in this manner the influence of environmental variables on the efficiency analysis is removed. The concept of environmental dependency index is introduced in this thesis. The EDI reflects the extent to which the efficiency behavior of units is due to their environment of operation. The EDI also assists the decision maker to choose appropriate peers to guide the changes that the inefficient units need to make. A more rigorous series of steps to obtain the clustering solution is also presented in a separate chapter (chapter 5). / Master of Science