Environment
Environment
Cost
Cost
Management
Management
CHAPTER
1.
Discuss the importance of measuring
environment costs.
2.
Explain how environmental costs are
assigned to products and processes.
3.
Describe the life-cycle cost assessment
model.
4.
Compare and contrast activity- and
strategic-based environmental control.
Objectives
Objectives
Objectives
Objectives
After studying this
After studying this
chapter, you should
chapter, you should
be able to:
be able to:
After studying this
After studying this
chapter, you should
chapter, you should
be able to:
Ecoefficiency
essentially
maintains that organizations
can produce more useful
goods and services while
simultaneously reducing
negative environmental
impacts, resource
consumption, and costs.
Incentives and causes for increased
efficiency:
1)
Customers are
demanding products
that are
Incentives and causes for increased
efficiency:
1)
Customers are
demanding products
that are
environmental
friendly
2)
Employees prefer to
work for
Causes and
Incentives for
Ecoefficiency
For Cleaner Products
For Cleaner Products
Cost Reduction and
Cost Reduction and
Competitive
Competitive
Advantage
Advantage
Lower Cost of
Lower Cost of
Capital and Lower
Capital and Lower
Insurance Insurance Innovations and Innovations and New Opportunities New Opportunities Better Employees Better Employees and Greater and Greater Productivity Productivity ECOEFFICENCY ECOEFFICENCY
Significant Special Benefits
Significant Special Benefits
Leading to Improved Image
Environmental Quality
Cost Model
Environmental costs
are costs that are incurred
because poor environmental quality exists or may
exist.
Environmental costs can be classified in four
categories: prevention costs, detection costs, internal
failure costs, and external failure costs.
Environmental costs can be classified in four
Evaluating and selecting suppliers
Evaluating and selecting pollution control equipment Designing processes
Designing products
Carrying out environmental studies Auditing environmental risks
Developing environmental management systems Recycling products
Obtaining ISO 14001 certification
Classification of Environmental
Costs by Activity
Classification of Environmental
Costs by Activity
Auditing environmental activities Inspecting products and processes
Developing environmental performance measures Testing for contamination
Verifying supplier environmental performance Measuring contamination levels
Classification of Environmental
Costs by Activity
Operating pollution control equipment Treating and disposing of toxic waste Maintaining pollution equipment
Licensing facilities for producing contaminants Recycle scrap
Classification of Environmental
Costs by Activity
Cleaning up a polluted lake Cleaning up oil spills
Cleaning up contaminated soil
Settling personal injury claims (environmentally related) Restoring land to natural state
Losing sales due to poor environmental reputation Using materials and energy inefficiently
Receiving medical care due to polluted air (S)
Losing employment because of contamination (S)
Numade Corporation
Numade Corporation
Environmental Cost Report
Environmental Cost Report
For the Year Ended December 31, 2004
For the Year Ended December 31, 2004
Percentage ofPercentage of Environmental Costs Operating Costs
Environmental Costs Operating Costs
Prevention costs:
Training employees $ 60,000 Designing products 180,000
Selecting equipment 40,000 $280,000 1.40% Detection costs:
Inspecting processes $240,000
Developing measures 80,000 320,000 1.60
Continued
Continued Continued
Internal failure costs: Operating pollution
equipment $400,000 Maintaining pollution
equipment 200,000 $ 600,000 3.00% External failure costs:
Cleaning up lake $900,000 Restoring land 500,000 Incurring property
damage claim 400,000 1,800,000 9.00 Totals $3,000,000 15.00%
Percentage ofPercentage of Environmental Costs Operating Costs
Environmental benefits:
Cost reductions, contaminants
$ 300,000
Cost reductions, hazardous waste disposal
400,000
Recycling income
200,000
Energy conservation cost savings
100,000
Packaging cost reductions
150,000
Total environmental benefits
$1,150,000
Numade Corporation
Numade Corporation
Environmental Financial Statement
Environmental Financial Statement
For the Year Ended December 31, 2004
For the Year Ended December 31, 2004
Continued
Continued Continued
Numade Corporation
Numade Corporation
Environmental Financial Statement
Environmental Financial Statement
For the Year Ended December 31, 2004
For the Year Ended December 31, 2004
Environmental costs:
Prevention costs
$ 280,000
Detection costs
320,000
Environment Product Costs
The environmental costs of
processes that produce,
market, and deliver products
and the environmental
postpurchase costs caused by
the use and disposal of the
Full environmental
costing
is the
assignment of all
environmental costs,
both private and
societal, to products.
Full environmental
costing is the
assignment of all
environmental costs,
Full private
costing
is the
assignment of
only private cost
to individual
products.
Full private
costing is the
assignment of
only private cost
to individual
products.
Private costing is probably a good starting point
for many firms.
Evaluate and select suppliers $0.20$ 0.05 Design processes (to reduce pollution) 0.100.10 Inspect processes (for pollution problems) 0.250.15 Capture and treat chlorofluorocarbons 0.051.00 Maintain environmental equipment 0.000.50 Toxic waste disposal 0.101.75 Excessive materials usage 0.08 0.25
Environmental cost per unit $0.78$ 3.80 Other manufacturing costs (nonenvironmental) 9.02 16.20
Unit cost $9.80$20.00
Units produced 100,000100,000
ABC Environmental Costing
ABC Environmental Costing
ABC Environmental Costing
ABC Environmental Costing
Product stewardship
is the
practice of designing,
manufacturing,
maintaining, and
recycling products to
Life-cycle assessment
identifies the
environmental
consequences of a product
through its entire life
cycle, and then searches
for opportunities to obtain
Life-cycle cost assessment
assigns costs and benefits to the environmental
Raw Raw Materials Materials Packaging Packaging Disposal Disposal Recycling Recycling Controlled by Supplier Controlled by Manufacturer Production Production
Inventory analysis
Impact analysis
Improvement
analysis
Assessment Stages
Inventory analysis
specifies the types and
quantities of materials
and energy inputs
needed and the resulting
environmental releases
in the form of solid,
liquid, and gaseous
residues.
Inventory Analysis
Materials usage per cup:
Wood and bark (g) 33.00.0 Petroleum (g) 4.13.2 Finished weight (g) 10.011.5
Utilities per mg of material:
Steam (kg) 9,000-12,0005,000 Power (GJ) 3.50.4-0.6 Cooling water (m3) 50154
Water effluent per mg of material:
Volume (m3) 50-1900.5-2.0 Suspended solids (kg) 35-60trace
BOD (kg) 30-500.07
Organochlorides (kg) 5-70 Metal salts (kg) 1-2020
Air Emissions per mg of material:
Chlorine (kg) 0.50 Sulfides (kg) 2.00 Particulates (kg) 5-150.1 Pentane (kg) 035-50
Recycle potential:
Primary user PossibleEasy After use LowHigh
Ultimate disposal:
Heat recovery (Mj/kg) 2040 Mass to landfill (g) 10.111.5 Biodegradable YesNo
PAPER CUP POLYFORM CUPPAPER CUP POLYFORM CUP
Material usage
$0.010
$0.004
Utilities
0.012
0.003
Contaminant-related
resources
0.008
0.005
Total private costs $0.030
$0.012
Recycling benefits
(societal)
-0.001
-0.004
Environmental cost
Impact analysis
assesses
the environmental effects
of competing designs and
provides a relative
ranking of those effects.
Impact Analysis
Improvement analysis
has
the objective of reducing
the environmental impacts
revealed by the inventory
and impact steps.
Improvement Analysis
Five core objectives for the environmental perspectives:
Minimize the use of raw or virgin materials
Minimize the use of hazardous materials
Minimize energy requirements for production and use of
the product
Minimize the release of solid, liquid, and gaseous
residues
Maximize opportunities to recycle
Environmental Perspective
Environmental Perspective
Environmental Perspective
Inspecting processes $ 200,000 $ 240,000 Operating pollution equipment 350,000 400,000 Maintaining pollution equipment 200,000 200,000 Cleaning up water pollution 700,000 900,000 Property damage claim 300,000 400,000
Totals $1,750,000 $2,140,000
NONVALUE-ADDED YEAR
1 2 3 4 5 6 7 8 Environmental
Costs/Sales
0 20 40 60 80 100
2001 2002 2003 2004
Pounds emitted
Incinerated
Deep-well injected Landfilled
Recycled Treated
Incinerated 35.0%
Deep-well injected 20.0%
Landfilled 25.0% Recycled 5.0%
The End
The End
The End
The End
Chapter Twelve
