ENVIRONMENTAL

COST
MANAGEMENT

1 INTRODUCTION
1
LEARNING
LEARNING OBJECTIVES
OBJECTIVES

After studying this

chapter, you should be
able to:

2
LEARNING
LEARNING OBJECTIVE
OBJECTIVE

Compare & contrast

activity- & strategic-
based environmental
control.

3
 LO 4

• A strategic-based environmental management

system provides an operational framework for
improving environmental performance.

• The Balanced Scorecard framework supplies

objectives and measures that are integrated to
achieve the overall goal of improving
environmental performance

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 LO 4

ENVIRONMENTAL PERSPECTIVE

• 5 objectives for environmental perspective

• Minimize use of raw or virgin materials
• Minimize use of hazardous materials
• Minimize energy requirements for production, use
of product
• Minimize release of solid, liquid, gaseous residues
• Maximize opportunities to recycle

5
 LO 4

OBJECTIVES & PERSPECTIVES

Companies need
measures to
evaluate whether
objectives of the
environmental
perspective are
being met.

6
The role of activity management

• Identifying environmental activities and assessing their costs are

prerequisites for activity-based environmental costing. Knowing
the environmental costs and what products and processes are
causing them is absolutely essential as a first step for control.
Environmental activities must be classified as value-added and
non-value-added.
• Non-value-added environmental costs are the costs of non-
value-added activities. These costs represent the benefit that
can be captured by improving environmental performance.
• The key to capturing these benefits is identifying root causes for
non-value-added activities and then redesigning products and
processes to minimize and ultimately eliminate these non-value-
added activities.

7
 LO 4

Are environmental activities

non-value-added?

Because environmental pollution

is equivalent to economic
inefficiency, all failure activities
are non-value-added.

8
Design for the environment
• This special design approach is called design
for the environment. It touches products,
processes, materials, energy, and recycling.
• The entire product life cycle and its effects
on the environment must be considered.
• Redesign of a process can eliminate the
production of such residues.

9
Financial measures
• Environmental improvements ought to
produce significant and beneficial financial
consequences. This means that the firm has
achieved a favorable trade-off among failure
activities and prevention activities.
• If ecoefficient decisions are being made,
then total environmental costs should
diminish as environmental performance
improves.

10
Financial measures
• Environmental cost trends are an important
performance measure.
• One possibility is preparing a non-value-added
environmental cost report for the current period
and comparing these costs with the non-value-
added costs of the prior period.
• Another possibility is computing total
environmental costs as a percentage of sales and
tracking this value over several periods.

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12
 LO 4

ENVIRONMENTAL COST TREND

GRAPH
Costs as a
percentage of sales
trend downward
% over time.

13
 LO 4

BAR GRAPH FOR TRENDS

Emissions trend
downward over
time.

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 LO 4

HAZARDOUS WASTE PIE CHART

Pie chart depicts
proportional
hazardous
wastes.

15
 REFERENCE
Hansen, D.R. and M. Mowen. 2007. Management
Accounting. 8th Edition. New York: Thompson Learning.

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