Environmental Management Accounting Procedures and Principles

Environmental Management Accounting
Procedures and Principles
2. Seen from the ecological perspective, flow cost accounting systematically focuses cost
cutting on attempts to reduce the quantities of materials and energy used, thus leading to
positive ecological effects (avoidance of waste, effluent and emissions) and to
environmental benefits. Flow cost accounting is thus an important instrument in
implementing an integrated environmental management system and in raising ecological
efficiency. Indeed, the environment will benefit from the ecological effects of flow cost
accounting - even in cases where this may not be the company’s conscious intention.
Production-integrated measures to relieve stress on the environment and
to cut costs can only be systematically implemented if the material and
energy flows – in terms of quantities and the associated values and costs -
are transparent end-to-end.
6.4.2. The basic idea of flow cost accounting
The instrument of flow cost accounting 12 shifts a company’s in-house material flows into the
centre of cost analysis and attempts to make these flows transparent end-to-end in terms of
their effects on costs. This transparency can contribute to clarifying the complex relationships
of effects operating within the material flow system and thus create a comprehensive database
for evaluating measures for improvement and realizing saving potentials.
Flow cost accounting may reveal that a measure designed to raise efficiency in a production
system leads not only to lower costs in material consumption but also to lower costs in
materials handling and waste disposal. Changing to a new colorant for example may lead not
only to different absorption levels but also to reduced costs for water treatment.
In order to assess the cost effects of planned measures comprehensively and reveal potential
savings, the effect of each measure on the whole material flow system must be calculated and
evaluated. Previously the evaluation of measures has often been inadequate. This leads,
firstly, to environmentally damaging and uneconomical measures being implemented and,
secondly, to numerous environmentally positive and cost-cutting measures being dismissed or
overlooked because, with previous conventional assessments, the benefits are underestimated.
In flow cost accounting, in order to attain this transparency, the values and costs of the
material flows are divided up into the following categories:
• Material,
• System, and
• Delivery and disposal.
12
See also Wagner and Strobel (1999), Hessisches Ministerium für Wirtschaft (1999), Strobel (2000).
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