Environmental influences on cost Management practices26th February 2021
Environmental cost management enables your business to control the costs associated with the environmental impact of your company’s business operations. Your company may impact the environment in a number of ways, including air pollution, manufacturing emissions, wet land impact and waste disposal.
Environmental costs include current and future environmental impacts your company is responsible for and labor costs associated with accounting for environmental costs. Effective control of environmental costs and promotion of environmental benefits will increase your business’s overall profitability.
Management information included:
- Identifying and estimating the costs of environment-related activities
- Identifying and monitoring the use and cost of resources such as water, electricity and fuel, so costs can be reduced
- Making sure environmental considerations form part of capital investment decisions
- Assessing the likelihood and impact of environmental risks
- Including environment-related indicators as part of routine performance monitoring
- Benchmarking activities against environmental best practice.
- Improving sales or reducing sales erosion: consumer awareness of products and services’ environmental impact is increasingly influencing their preferences and buying behaviours.
- Reducing costs: reducing wasteful consumption of input resources has a direct positive impact on reducing costs. Also, improvements to processes can bear down on costs.
- Reducing the cost of failure: investing in processes that reduce the likelihood and cost impact of failure, such as the need to process waste or clean up environmental impacts.
- Improving the image of the organisation: this can enable it to attract better talent, reduce talent attrition and charge higher prices.
Trying to manage environmental costs on the spur of the moment will eventually lead to a serious mistake that will cause significant damage to the environment. Effective planning is best accomplished through the efforts of well-designed teams that have the resources available to research all of the possible ramifications of every action the company may take over the next year, and maybe over the next five years.
Environmental planning includes making assessments, studies, evaluating safety features and cost evaluations. Once all of the possible environmental ramifications have been considered, you can make an accurate determination of how much your company’s environmental impact will cost. For example, a new construction project may cause excessive run-off and potential flooding which is easier and less expensive to correct with proper drainage in advance.
Preventing Environmental Damage
When business operations cause significant environmental damage, the costs of recovery may be great enough to cause your company to fail and may bring about lawsuits that may take years to close. Preventing environmental damage is a matter of educating everyone in the company on how to do their job without harming the environment.
Establish policies that clearly outline how you expect the job to be done, while at the same time protecting the environment. This can be as simple as establishing guidelines on proper disposal of chemicals and other waste products. When you achieve these goals, you will increase the potential value of your company.
Begin by evaluating all of your internal and external operations. If protecting the environment is a company priority or subject of regulations, you will need to make sure that business operations that negatively impact the environment are eliminated or mitigated. Engage your employees in the environmental priorities you have set for the company.
As an example, if your company has an impact on water resources, it is important for your employees to ensure every action the company takes does not allow toxins to leave your facility and enter nearby streams and aquifers. Remember, there are significant costs associated with environmental cleanup if toxins are inadvertently released into the environment.
Integrated Accounting Activities
Controlling environmental impact costs is best accomplished by integrating all of your accounting activities. Costs you need to control include labor costs related to your environmental impact, material costs, cost related to administration activities and costs related to manufacturing activities. All of these costs should be brought together into a single accounting system that produces reports that allow you to consider and manage all of your environmental costs through understandable graphs and metrics.
Environmental costs can be categorised as follows:
- Prevention costs: costs associated with preventing adverse environmental impacts.
- Appraisal costs: costs of assessing compliance with environmental policies.
- Internal failure costs: costs of eliminating environmental impacts that have been created by the organisation.
- External failure costs: costs incurred after environmental damage has been caused outside the organisation.