Environment Cost Management
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Transcript of Environment Cost Management
12 -1
Environment Cost
Management
CHAPTER
12 -2
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.
ObjectivesObjectives
After studying this chapter, you should
be able to:
After studying this chapter, you should
be able to:
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Ecoefficiency essentially maintains that organizations
can produce more useful goods and services while simultaneously reducing negative environmental
impacts, resource consumption, and costs.
The Benefits of Ecoefficiency
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Incentives and causes for increased efficiency:
1) Customers are demanding products that are environmental friendly
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Incentives and causes for increased efficiency:
1) Customers are demanding products that are environmental friendly
2) Employees prefer to work for environmentally respective firms
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Causes and Incentives for Ecoefficiency
Causes and Incentives for Ecoefficiency
12 -7 Customer DemandFor Cleaner Products
Cost Reduction and Competitive Advantage
Lower Cost of Capital and Lower
Insurance
Innovations and New Opportunities
Better Employees and Greater Productivity
ECOEFFICENCY
Significant Special Benefits Leading to Improved Image
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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 categories: prevention costs, detection costs, internal
failure costs, and external failure costs.
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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
Prevention Activities
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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
Detection Activities
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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
Internal Failure Activities
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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)
External Failure Activities
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Numade CorporationEnvironmental Cost Report
For the Year Ended December 31, 2004 Percentage ofEnvironmental Costs Operating Costs
Prevention costs:Training employees $ 60,000Designing products 180,000Selecting equipment 40,000 $280,000 1.40 %
Detection costs:Inspecting processes $240,000Developing measures 80,000 320,000 1.60
ContinuedContinued
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Internal failure costs:Operating pollution equipment $400,000Maintaining pollution equipment 200,000 $ 600,000 3.00%
External failure costs:Cleaning up lake $900,000Restoring land 500,000Incurring property damage claim 400,000 1,800,000 9.00
Totals $3,000,000 15.00%
Percentage ofEnvironmental Costs Operating Costs
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Environmental benefits:
Cost reductions, contaminants $ 300,000
Cost reductions, hazardous waste disposal400,000
Recycling income 200,000
Energy conservation cost savings 100,000
Packaging cost reductions 150,000
Total environmental benefits $1,150,000
Numade CorporationEnvironmental Financial Statement
For the Year Ended December 31, 2004
ContinuedContinued
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Numade CorporationEnvironmental Financial Statement
For the Year Ended December 31, 2004Environmental costs:
Prevention costs $ 280,000
Detection costs 320,000
Internal failure costs600,000
External failure costs 100,000
Packaging cost reductions 1,800,000
Total environmental costs $1,150,000
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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 products are examples of
environmental product costs.
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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,
both private and societal, to products.
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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.
Private costs can be assigned using data created inside the firm.
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Evaluate and select suppliers $0.20 $ 0.05
Design processes (to reduce pollution) 0.10 0.10
Inspect processes (for pollution problems) 0.25 0.15
Capture and treat chlorofluorocarbons 0.05 1.00
Maintain environmental equipment 0.00 0.50
Toxic waste disposal 0.10 1.75
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 100,000 100,000
ABC Environmental CostingABC Environmental Costing
Activities Cleanser A Cleanser B
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Product stewardship is the practice of
designing, manufacturing,
maintaining, and recycling products to
minimize adverse environmental impacts.
12 -22
Life-cycle assessment identifies the
environmental consequences of a product
through its entire life cycle, and then searches
for opportunities to obtain environmental improvements.
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Life-cycle cost assessment assigns costs and benefits to the environmental consequences and
improvements.
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RawMaterials
Packaging
DisposalRecycling
Controlledby Supplier
Controlled byManufacturer
Production
Controlled by Customer
ProductUse and
Maintenance
Product-Life Cycle Stages
Product-Life Cycle Stages
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Inventory analysis
Impact analysis
Improvement analysis
Assessment Stages
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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
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Materials usage per cup:
Wood and bark (g) 33.0 0.0
Petroleum (g) 4.1 3.2
Finished weight (g) 10.0 11.5
Utilities per mg of material:
Steam (kg) 9,000-12,000 5,000
Power (GJ) 3.5 0.4-0.6
Cooling water (m3) 50 154
Water effluent per mg of material:
Volume (m3) 50-190 0.5-2.0
Suspended solids (kg) 35-60 trace
BOD (kg) 30-50 0.07
Organochlorides (kg) 5-7 0
Metal salts (kg) 1-20 20
PAPER CUP POLYFORM CUP
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Air Emissions per mg of material:
Chlorine (kg) 0.5 0
Sulfides (kg) 2.0 0
Particulates (kg) 5-15 0.1
Pentane (kg) 0 35-50
Recycle potential:
Primary user Possible Easy
After use Low High
Ultimate disposal:
Heat recovery (Mj/kg) 20 40
Mass to landfill (g) 10.1 11.5
Biodegradable Yes No
PAPER CUP POLYFORM CUP
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PAPER CUP POLYFORM CUP
Material usage $0.010 $0.004
Utilities 0.012 0.003
Contaminant-relatedresources 0.008 0.005
Total private costs $0.030 $0.012
Recycling benefits(societal) -0.001 -0.004
Environmental cost per unit $0.029 $0.008
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Impact analysis assesses the environmental effects of competing designs and provides a relative ranking of those effects.
Impact Analysis
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Improvement analysis has the objective of reducing the environmental impacts revealed by the inventory and impact steps.
Improvement Analysis
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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 PerspectiveEnvironmental Perspective
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Inspecting processes $ 200,000 $ 240,000
Operating pollution equipment 350,000400,000
Maintaining pollution equipment 200,000200,000
Cleaning up water pollution 700,000 900,000
Property damage claim 300,000 400,000
Totals $1,750,000 $2,140,000
NONVALUE-ADDED YEARENVIRONMENTAL ACTIVITY 2004 2003
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Environmental Cost Trend Graph
1 2 3 4 5 6 7 8
Environmental Costs/Sales
Periods
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0
20
40
60
80
100
2001 2002 2003 2004
Pounds emitted
Bar Graph for Trend Analysis
CFC Emissions
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Hazardous Waste Pie Chart
Incinerated
Deep-well injected
LandfilledRecycledTreated
Incinerated 35.0%
Deep-well injected 20.0%
Landfilled 25.0%
Recycled 5.0%
Treated 15.0%
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The EndThe End
Chapter Twelve
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