Environmental management accounting to reduce costs

Identify environmental costs


You can find much of the information needed to prepare environmental management accounts in your business' general ledger. A review will show you the costs of materials, utilities and waste disposal, and it will help you to identify the best opportunities for immediate cost savings.

However, as environmental costs tend to be treated as a general overhead rather than being allocated to individual products this can distort the full costs of different products. Accountants can help to determine the true value of environmental costs.

How to identify environmental costs

Departmental managers and senior employees should understand the individual processes in detail and be able to help you identify how large costs are broken down across different activities. In addition, these managers can provide guidance and information that will help you identify the best way to make changes, and over what timescales they can be implemented.

Face-to-face meetings with managers are also important in providing an understanding of physical quantities eg raw materials and waste, rather than purely financial costs. This kind of information is important when setting targets because operational managers don't often have cost information, and may find it easier to measure physical quantities.

Departmental managers can also help identify internal costs and where savings can be made. For example, although the general ledger and supplier invoices will show the cost of disposing of a skip full of waste, departmental managers will know how long it takes to fill the skip. These costs need to be included in environmental management accounts.

You can use activity-based costing to develop a detailed understanding of costs and identify cost drivers which reflect the links between causes and effects of environmental impacts. You can then use this information to recalculate the costs of products, processes and services - see how to allocate environmental costs to specific processes.