This chapter presents the overall findings of this research and discusses the extent to which environmental information is covered in each product category. The findings are organized by 'life-cycle stages considered', 'type of costs considered', 'method of cost estimation', 'generation of financial indicators' and 'recommendations to vendors'. This chapter also includes general recommendations to users of the software systems and tools.
Cost estimation involves determining the quantity of and predicting or forecasting, within a defined scope, costs required to construct and equip a facility to manufacture goods or to furnish a service (Martin, 1992).
Cost estimation involves determining the quantity and predicting or forecasting, within a defined scope, of costs required to construct and equip a facility to manufacture goods or to furnish a service (Martin, 1992). Cost estimation is a standard exercise in business management, whereby rough and detailed estimates of project costs are estimated for various purposes. Cost estimation software systems may be used for capital budgeting and procurement purposes and for estimating and comparing different project costs. Cost-estimating software systems help users use, control, and manipulate data in a manner that simulates reality as closely as possible. They can do this much faster and more efficiently than any manual method. One of the most important facets of a cost-estimating system, from the point of view of incorporating environmental information, is its flexibility and versatility.
Tables Table 3-1. Overview of Life-Cycle Stages and Costs Considered by Software Systems and Tools (excluding abbreviated profiles) and Table 3-2. Information on Software for Project Management provide information on the cost-estimation systems that are profiled or summarized in this guide. Eighteen systems are included, of which nine were profiled and the rest summarized in abbreviated profiles. Table 3-2. Information on Software for Project Management shows that most of the cost-estimating products profiled allow medium to high levels of user customization. However, the amount of flexibility required of a system depends on the application and the complexity of the project. The available software comes in a wide price range: from $995 for G2 Abacus to$5,300 for COSTPRO. This wide range of prices reflects the varied abilities and features of these systems in terms of flexibility and user customization.
Many in industry define LCC as having an internal corporate focus and including costs incurred during capital investment, material acquisition, and cost allocation. Our definition goes beyond this internal focus to include other "life-cycle stages" that may not otherwise be considered. The stages start at extraction of raw materials and proceed to manufacturing and processing of materials, then to use and reuse of materials and products, and finally to waste management or recycling. Some products, such as Composer Gold, that have LCA components or modules use a definition of the term "LCA" that is not consistent with ours. These products are more consistent with "total cost assessment" which is defined as "long-term comprehensive financial analysis of the full range of internal (private) costs and savings of an investment" (Spitzer et al., 1993).
The life-cycle stages considered by a management or decision-support product depends on the focus area. The stages vary with the products, processes, and projects being analyzed. Different project components will be in different stages of their individual life cycles. Most cost-estimating software systems are not designed for the specific purpose of life-cycle cost estimation and analysis. For simplicity and consistency it is indicated that these products are typically designed to consider the manufacturing stage of operations(construction, setting up process plants, etc.).
It is important to distinguish between a project life-cycle versus the life-cycle stages of a product or material.
Table 3-1. Overview of Life-Cycle Stages and Costs Considered by Software Systems and Tools (excluding abbreviated profiles) indicates that all nine cost-estimation software systems profiled cover the manufacturing stage of the life cycle. Three out of nine additionally consider the use/reuse stage of the life cycle. Once again, corporations consider this stage with respect to their internal operations. The use/reuse stage will not, for instance, include costs associated with use/reuse of a product by consumers. Software that considers this stage is limited to use/reuse/maintenance costs that companies directly incur. All four stages were checkmarked in the case of one product-the FAST system. However, consideration of these stages is not integrated in one system. Different stand-alone FAST models / systems address each of these stages. A complete range of environmental costs are not considered in any of these stages. Again, this system was not originally designed for LCC.
Upstream effects of raw material extraction and downstream impacts of disposal of wastes provide important information on the environmental impacts of manufacturing.
Many cost-estimation software systems can potentially be modified to include life-cycle cost information. For example, life-cycle stages can be distinguished through different Work Breakdown Structure (WBS) levels. Some products have restrictions on the number of WBS levels that can be considered, in which case this option may be limited. Users need to develop additional life-cycle cost information because this information cannot be derived from any of the existing cost databases. More importantly, information on environmental impact costs cannot be derived from existing cost databases.
Cost-estimating software typically use databases of costs that are used to enter actual cost data or algorithms to estimate costs. Without these cost data or algorithms, an estimating system is essentially an application for managing and organizing data. It cannot generate reliable information without these costs. Most cost-estimating products allow users to enter information on environmental costs in some manner. The important question is how these costs can be estimated. Section 3.1.3 on "methods of cost estimation" discusses this issue further.
Many of the cost-estimating software systems profiled have been developed for estimating construction and site preparation costs. The cost databases that vendors provide generally contain this type of cost information. Recently, databases such as the Army Corps of Engineers Unit Price Book and others have been attempting to broaden their focus by adding costs of maintenance and repair, waste management, and pollution control equipment. Thus, developers are beginning to incorporate some conventional costs and hidden costs associated with environmental management into their databases. However, the focus still remains on conventional costs, on items such as equipment, materials, labor, etc. Table 3-1. Overview of Life-Cycle Stages and Costs Considered by Software Systems and Tools (excluding abbreviated profiles) shows that all nine cost-estimation software systems help with estimating conventional costs. Three out of nine products additionally cover some aspects of hidden costs. The hidden costs typically include repair and maintenance costs and costs associated with waste management.
As mentioned above, databases typically do not provide information on costs of environmental compliance (e.g., permitting, monitoring, reporting),contingent environmental costs, and less-tangible costs. Users typically estimate contingency as a percentage of total estimated project costs, which does not necessarily factor in contingent costs that can arise due to liabilities associated with environmental damages or noncompliance with regulations. Image and relationship costs (a type of hidden cost) can include costs of environmental reporting and other costs incurred to boost corporate "green"images. These costs themselves are not intangible, but the benefits that accrue as a result of these often are. Databases and algorithms should be developed to provide users with estimates of hidden costs as well. Finally, there are external or social costs whose values would need to be imputed using various techniques (e.g., the social "cost" of air pollution as a result of siting a refinery). There are conflicting opinions on methods of treatment and estimation of less-tangible costs. Also, data on this subject may not be widely documented. Thus, incorporating external or social cost information into databases or project costs will require further research.
Estimating software typically comes with a specific format for entering and organizing cost information with or without the option for modification. These systems have not been designed to include all the cost categories we discuss in this guide. Creating distinct cost categories for conventional, hidden, contingent, and less-tangible costs may or may not be possible. Determining whether these costs can be made transparent (i.e., not clustered along with other cost elements) is important because cost elements that are not visible cannot be controlled. Changes in these cost elements through changes in project elements and directions should be identifiable. Many hidden costs have traditionally been lumped into overhead accounts, which made controlling them individually or identifying the cost drivers difficult. However, even if cost elements are transparent, users may not want to include them. For instance, businesses currently may not find it acceptable to make go/no-go decisions based on increases/decreases in total project costs arising because of including social (less-tangible) costs into the project totals.
It will be useful to give users the option to compute and compare different project totals based on including or excluding different cost elements. Including environmental costs in estimating software has two aspects: the manner in which these cost data should be included, and the development of unit cost data or algorithms to estimate these costs. Environmental costs could be included in cost estimating software systems in two broad ways.
Both these options are related and the best strategy would probably be to adopt a combination of these two methods.
All the cost-estimating software profiled and summarized use either the unit cost or the parametric cost-estimation method. Some products, such as Composer Gold, Success, and Precision Estimating Plus, offer a combination of these two estimating techniques. The cost databases provided and the default algorithms in estimating systems also address conventional costs. As mentioned earlier, some additional conventional and hidden environmental costs are being added to these databases.
However, most estimating software and databases provided by vendors do no tgive information on environmental costs or on methods for estimating them. Environmental costs include, for example, regulatory costs, liability costs, and environmental impact costs. Some products give users the option to create their own database of costs or to add to the existing cost database. Existing databases (provided with or compatible with the system) may or may not allow users to append additional information. However, creating a database of costs for use in estimating environmental costs is not an easy task. The system's ability to use data from other software systems may be a consideration when creating a cost database. All the systems profiled are network compatible. Although most systems allow direct input of data, the source of the cost data is not always apparent. Here, annotation capabilities in the system can be helpful(e.g., project level, estimate level). Composer Gold (MCACES) allows users to attach information on the data source used for an estimate.
Another possibility for estimating environmental costs is to develop relationship models or algorithms within the system that would define the values of certain cost elements. For instance, users may be able to define a relationship saying that the permitting costs for a particular activity depend on the quantity of material X used. The values of these costs could depend on quantities or elements that are not included in the traditional analysis, in which case, users would also need to estimate these quantities. Again, this is not an easy task. Developers of parametric-estimating software systems such as FAST should research environmental cost estimation (e.g., estimates for hidden costs or contingent costs) using basic parameters.
Four primary financial indicators are identified in this guide: NPV, IRR, benefits cost ratio, and payback period. These indicators have advantages and disadvantages related to their simplicity and reliability. Conflicts in ranking projects can occur between mutually exclusive projects in the useful life, size of cash outflows, and timing of cash flows. The NPV method is generally recognized as being the most reliable method, because it measures the absolute value of all discounted cash inflows at the required discount rate. However, the NPV is also one of the most difficult to calculate because it takes time and requires some financial analysis skills even if computer programs are available.
The comparison of the IRRs of two or more mutually exclusive projects will not necessarily lead to the correct choice. The IRR method is biased in favor of projects that yield high rates of return on money "borrowed" early in the life of the project. Projects with large negative future cash flows are not attractive investments but yield abnormally high IRRs. Projects with future cash flows that switch from positive to negative (or vice versa) have multiple IRR solutions. A project with a higher cost can have a higher NPV than a cheaper project but have a much lower IRR (Winston, 1995). However, many industries employ the IRR as an indicator to meet the requirement that selected projects have returns beyond a predetermined "hurdle" rate.
The benefits cost ratio only looks at the ratio of total (discounted or undiscounted) benefits over total costs. It gives no indication of the increase in net wealth and is not a good method for ranking projects. For example, this indicator would give a project (assuming time = 1 year) with total benefits of$40 and total cost of $10 (BC ratio = 4) preference over a project that has total benefits of $2,000 and a total cost of $1,000 (BC ratio = 2) although the latter clearly increases net wealth more. This method is useful mainly as a rough indicator of whether project benefits exceed project costs.
The payback period, whether discounted or undiscounted, ignores the cashflows occurring after the payback period. This method is often biased against environmental projects that typically have long gestation periods. The main attribute of this method is its simplicity and ease of calculation.
Many cost-estimating software systems (especially those that can be used to generate rough estimates) are used in capital budgeting processes. However, none of the systems profiled had any internal functions with which to perform financial analyses for comparing different projects or for evaluating different options in the same project. However, data export and import capabilities of the systems may allow transfer of cost data to other packages, such as MS Excel that perform financial functions.
Software vendors can take different steps toward meeting the challenges offered by the changing nature of business activity and requirements and toward addressing the need to make environmental costs part of the decision-making system. These steps include the following:
Developers of reports and methodologies (tools) on the subject of environmental costing can also collaborate with cost estimating software system developers to develop methods to include environmental costs in the estimation process. The comprehensiveness of costs covered will depend on the objectives of the estimating process as well. Order-of-magnitude estimating, for example, will not require detailed inclusion of environmental costs. Similarly budget estimates and definitive estimates will require different levels of detail.[1] Thus, appropriate methodologies need to be developed to estimate and include environmental costs in different stages of the cost-estimating process and also to support different cost-estimating methods.
Scheduling refers to assigning the estimated duration and desired start and finish times to each activity in a project within the overall time period required for completing the project (Martin, 1992). Cost control includes minimizing costs and keeping expenditures within budget.
A project schedule needs to be set up and managed or monitored to prevent deviations from the project plan. Scheduling refers to assigning the estimated duration and desired start and finish times to each activity in a project within the overall time period required for completing the project (Martin, 1992). Cost control, which forms part of monitoring and performance measurement, involves minimizing costs and keeping expenditures within budget (track and calculate cost and schedule performance). Project monitoring and performance measurement are the systematic applications of methods and procedures to monitor performance against the plan (Parker, 1994).
Table 3-2. Information on Software for Project Management displays information about the scheduling and cost control software systems covered in this guide. Of the eight scheduling software systems covered, seven have been fully profiled. Of the five cost control software systems included, four have been fully profiled. Scheduling software systems come in various levels of sophistication and include methods for inputting and editing project data, diagramming methods, and calendars. More sophisticated scheduling systems have resource scheduling algorithms that allow users to split activities or use alternate resources, for example (Winston,1995). The level of customization permitted and the flexibility in specifying costs also vary. This difference is indicated by dividing the scheduling software systems into three categories: high-end, low-high end, and low-end scheduling. Users need to select these systems based on project size, complexity, and other specific requirements. The cost control software systems covered are typically designed to work with scheduling products and have features such as earned value analysis, trend, summary, and exception reporting. Two products are slightly different-Cost Time Management and Easy ABC Plus. The former uses a diagnostic technique called a "cost-time profile" toanalyze and optimize project time and costs. The latter, Easy ABC Plus, is a product for developing and modifying ABC models. It has applications beyond project tracking and reporting. It uses the ABC technique to analyze and compare costs at project planning and post-project stages.
LCC does not necessarily play a part in the scheduling and performance measurement functions. In these phases, the area of interest is limited to cost and time requirements during the course of a project. LCC can be employed for cost minimization and analysis during the project planning, analysis, and cost-estimation phases that precede scheduling. Thus, if a cost analysis application is used for project planning and analysis, it may be useful for it to have an LCA component. Life-cycle information can be factored in the same manner as described under the section on cost-estimating software systems. As Table 3-1. Overview of Life-Cycle Stages and Costs Considered by Software Systems and Tools (excluding abbreviated profiles) shows, we check marked the manufacturing stage of the life-cycle under each of the scheduling and cost control software systems for simplicity and consistency. The only exception is Cost Time Management, which was designed for analyzing environmental projects and has been used for analysis in the manufacturing, use/reuse, and waste management stages of the life-cycle. The product considers these stages for different types of analysis, not for LCC, andt hese life-cycle stages are not necessarily integrated.
Life-cycle cost information may not be relevant for scheduling and project cost control software systems, but considering a full range of environmental costs (that impinge on project costs) is definitely an important factor. For example, performance measurement may reveal that project costs for particular activities have exceeded the budget, possibly due to a hidden environmental cost such as environmental health and safety costs. If the cost driver cannot be identified, taking the appropriate corrective action and predicting or preventing future occurrences will be difficult. For this reason, activities related to environmental management need to be factored into project costs and schedules.
For users, the manner of inclusion of environmental costs is similar to that discussed in Section 3.1.1 on cost-estimating software systems. The more sophisticated scheduling software systems usually afford greater flexibility, allowing users to account for environmental costs through amore significant breakdown of project activities. Sorting and coding functions and WBS levels can be used to keep these activities and associated costs distinct. However, most of the products (especially the lower-end scheduling software) do not permit the inclusion of additional cost categories.
Scheduling and cost control and analysis systems are not designed for cost estimation. All cost information has to be entered by users or imported from cost-estimating software.
None of the scheduling or cost control systems have internal functions that generate the financial indicators listed in the profiles. Most project cost control software systems, however, do perform earned value analysis. Since the financial indicators we have listed are primarily used in the capital budgeting process, they are not relevant in the case of these software systems. It would be useful for products such as Easy ABC Plus that are used in the pre-project cost analysis stage to have such functions.
Vendors can either make their products flexible enough to include environmental costs into projects (at users' discretion) or include these cost categories in their standard formats. Vendors are unlikely to follow the latter course unless an accepted or standard methodology is in place. Developers of reports and methodologies (tools) for environmental costing or management can help in developing appropriate methodologies in collaboration with industry partners. Vendors of scheduling and cost / performance evaluation software systems can play a role in educating and encouraging users to account for environmental costs. Some of the steps vendors can take include the following.
Project risk management covers the measurement and interpretation of risk and includes techniques such as sensitivity analysis, decision trees, and Monte Carlo approaches.
Determining risk is an integral part of project planning and estimation. Assessments of risks and uncertainties need to be factored into project cost estimates. Project risk management covers the measurement and interpretation of risk and includes techniques such as sensitivity analysis, decision trees, and Monte Carlo approaches.
Table 3-2. Information on Software for Project Management provides some information on the risk assessment software systems covered in this guide. Four software systems were fully profiled and one abbreviated under this section. Of the products fully profiled, one is a generic risk assessment product (for company-wide application), and the remaining three have been developed specifically for estimating project risks and contingencies. The Woodward Clyde software (ERMIS) and tools for estimating environmental liability costs has been abbreviated because no specific information was available on the software used in the liability assessment process. This is because Woodward Clyde performs the risk analyses for their clients, with the software only playing a small part of the entire process. However, risk assessment software, similar to those described in the guide, plays a part along with expert information, in environmental liability costing.
Many generic risk estimation software systems, similar to MOUSE, are offered in the market and are usually very moderately priced. Users can estimate uncertainties associated with static mathematical models developed for a variety of purposes (including environment-related). ICECAN and Primavera's Monte Carlo have more specific functions for analyzing project risks and contingency. For example, Range Estimating quantifies and ranks project risks.
LCC is not relevant in relation to risk assessment software systems(although it can form a part of LCC). Thus, as Table 3-1. Overview of Life-Cycle Stages and Costs Considered by Software Systems and Tools (excluding abbreviated profiles) indicates, no life-cycle stages have been check marked against any of these software systems.
Table 3-1. Overview of Life-Cycle Stages and Costs Considered by Software Systems and Tools (excluding abbreviated profiles) provides information on the costs considered by the different systems. Developers of REP advise users to account for conventional, hidden, and contingent costs. However, these are not necessarily "environmental" costs. Indeed, none of the examples provided in the product documentation refer to environmental costs and the need to include them in risk analyses.
Most project cost estimates include contingency estimates. ICECAN and REP are designed to produce contingency estimates based on variable data entered by users. However, contingency estimates do not usually account for potential environmental liability (contingent) costs, such as penalties and fines or legal expenses. These costs can play an important role in assessing the accuracy of project cost estimates. Manufacturers of products such as REP add that contingency estimates can factor in environmental variables. Thus, users will need to define these variables and include them in their analysis as desired. Only the Woodward Clyde software and tools are designed specifically for assessing risks or contingent costs as a result of environmental variables.[2] They indicate that estimating liabilities may not be as simple as plugging in numbers and variable information into a risk/contingency estimating software system. Woodward Clyde points out that site specificity can make it difficult to design generic systems geared specifically for the estimation of environmental liabilities. Their method relies heavily on expert knowledge and site data, which they feel is more crucial to the accuracy of estimates than a software system alone.
Risk assessment software systems are not meant for cost estimation. However, they can be used to add to project cost estimates and refine them by incorporating the element of risk. They do so by evaluating the uncertainties in project cost estimates and by estimating cost contingencies based on variables identified by users.
There are no internal functions for generating financial indicators in any of these products. This function is beyond the scope of these software systems.
Developers of risk analysis software systems and methodologies for environmental risk management can take steps to provide users with information on how to factor in environmental considerations into their software systems:
Developing expert systems (if possible) designed specifically for the estimation of environmental liabilities will take time primarily because research in this area is relatively new, and standard, accepted methodologies have not yet been developed for liability costing.
Remediation products handle various phases of environmental remediation projects such as, estimating costs, tracking costs, or choosing appropriate remediation technologies.
Remediation products are developed with the specific purpose of handling various phases of environmental remediation projects. Software products designed for remediation projects typically handle estimating costs, tracking costs, or choosing appropriate remediation technologies. The products covered under remediation projects have been grouped under sub-categories for cost estimation and/or scheduling (three products), products for RI/FS (Remedial Investigation / Feasibility Study) planning and risk analysis (one product), and products for cost tracking (one product). Table 3-2. Information on Software for Project Management provides information on the software systems covered. The characteristics of these software systems are inmost ways similar to more general purpose products that have been designed to address the same areas.
Since all these products are designed to support various stages and requirements of remediation projects, they loosely cover the waste management stage of the life cycle. However, this information on this stage is not covered with the objective of doing an LCA or LCC; thus many of the project components could actually be in different stages of their individual life cycles. Other stages including use/reuse could also be partially covered.
Most remediation products cover conventional and some upfront hidden costs, such as site preparation and other costs associated with other remediation project stages. RAAS is the only product that covers only direct conventional costs. These software systems need to be extended to include other cost categories as well.
The estimating software systems covered use the parametric estimation technique to estimate remediation costs or remediation technology costs. These software systems do not allow users to add their own algorithms to estimate other cost types. However, some do allow direct data input. This option, as mentioned earlier in the case of the cost-estimating software systems, can restrict cost control because it does not link with other project parameters. These products also restrict the addition of cost categories.
None of the products profiled have any internal functions for the generation of financial indicators. Since some of these products are also used in the project planning phases, such options will be useful. Alternatively, the products can be made to facilitate efficient (without distortion) data transfer to other software packages that do have financial functions.
In the first case of the cost-estimating/scheduling and cost tracking software systems, the recommendations are similar to those already covered in the sections on cost-estimating software systems and scheduling and cost control/ analysis software systems. We have included only one product in the remaining category-RAAS. RAAS allows users to make decisions based on conventional costs and qualitative criteria that address environmental risk. The qualitative factors provide important information that may not be captured in numbers. However, quantifying these factors into the more familiar monetary values would be very useful. Software systems such as RAAS should attempt to include estimates of hidden, contingent, and less-tangible costs for remedial technologies. This would give users choices based on quantitative factors that are more objective as well as more intuitive.
Environmental management and regulatory compliance software systems typically help companies keep track of chemical use, waste tracking, etc., for the purpose of complying with various environmental regulations, and more recently, for facilitating areas of corporate environmental management and environmental health and safety. Table 3-1. Overview of Life-Cycle Stages and Costs Considered by Software Systems and Tools (excluding abbreviated profiles), Table 3-3. Information about Environmental Management and Regulatory Compliance Software Systems (Class 4), and Table 3-4 Features of Environmental Management and Regulatory Compliance Software Systems (Class 4) provide information on the features of the software systems covered under this section. The environmental management and regulatory compliance software systems are divided into two broad categories:
Environmental management and regulatory compliance software systems typically help companies keep track of chemical use, wastes, etc., for the purpose of complying with various environmental regulations, and more recently, for facilitating areas of corporate environmental management and environmental health and safety.
Six products are profiled under the first category, and 12 products under the second. This guide also has an abbreviated profile describing software offered by Environmental Software and Systems, Inc., which includes a number of repackaged software systems prepared for/by the EPA.
Software systems such as AWARE, DataPipe, and EMS have been designed for cross-industry applications, while others such as Gentrax and other Wixel products are designed for specific applications or for specific industry sectors and Federal facilities. These systems come in different levels of complexity and with different attributes, although the primary function remains the same. Many of the systems come with modular options that allow users to purchase additions only as required. Some products such as the Material Inventory Report System are completely limited to addressing regulatory reporting requirements and do not feature any additional attributes. Product enhancements and developments are based on user demand, changes in regulations, and anticipation of future changes. The only exceptions covered are real-time monitoring systems, such as the G2 Real Time Expert System. These systems have real-time and off-line modeling applications, which can be used for a variety of purposes including real-time emissions management.
In his article "Environmental Management Information Systems: New Tools for Measuring Performance," Chris FitzGerald (1994/1995) differentiates Environmental Management Information Systems from Environmental Information Management Systems. Indeed, most environmental computer applications and databases were originally developed to respond to specific regulatory requirements. He defines Environmental Information Management Systems as systems that were developed in efforts to manage the overwhelming volume of regulatory monitoring and reporting requirements. On the other hand, the Environmental Management Information Systems are organizational and technological systems developed to supply needed environmental information and data to customers engaged in improving corporate or institutional environmental quality (FitzGerald, 1994/1995). This is an important distinction, and this research indicates that software developers are increasingly including features in their systems to integrate environmental activities and programs along with other company activities. This is particularly apparent in the products for facility management and environmental health and safety. The smaller, less expensive products remain more limited in function.
FitzGerald (1994/1995) also points out the need to avoid data duplication in an organization, and the need to integrate environmental information with other standard company information. For example, hazardous material inventory data should be captured within the purchasing, distribution, and inventory functions. Similarly information on waste flows, manifests, etc., should be captured along with other data on company transaction systems. Although a majority of the systems covered have networking options, many are not designed to integrate, for instance, with company accounting systems. This can lead to separate management of environmental data. There are exceptions, however, such as AWARE, TINIA, and Plantware. However, once again, such features are more often seen in the larger, more expensive systems.
Most environmental compliance software systems consider only the waste management stage and the use/reuse stage of the life cycle. Table 3-1. Overview of Life-Cycle Stages and Costs Considered by Software Systems and Tools (excluding abbreviated profiles) includes the 17 products covered, of which 14 cover both these life-cycle stages. One additionally covers the manufacturing stage of the life-cycle and two only cover the waste management stage. The terms have been loosely applied. We have said that products cover the waste management stage when they primarily track waste products. The use/reuse stage is included if raw materials are tracked. The manufacturing stage is checkmarked only if the actual manufactured products are tracked. Although a number of products can track wastes back to specific manufacturing processes, they do not technically cover any information on the manufacturing stage of the life cycle. Also, the information gathered in each of these stages is not intended to be used in an LCA or an LCC. Thus, the information included is not strictly "life-cycle" data.
LCC can play an important part in such product/process design choices and methods for cost minimization, but it is probably beyond the scope of most of these products in their current configuration. However, the data collected through the use of these systems could be useful if such analyses were to be conducted. Many of these systems allow information to be archived, although only in a specific format.
Some real time systems, such as the G2 Real Time Expert system and Neur-On-Line, have modeling capabilities that can be applied for cost estimation and LCC. However, these systems are sold as generic systems with no specific information provided on how users may develop such applications. Building in some basic modeling capabilities and algorithms may be useful in other products as well that allow users to estimate and analyze contingent costs and less-tangible costs. Relationship models can also be developed for relations between quantities of material inputs and waste produced (with costs factored in). Developing relationship models can be a useful extension of products that compute material balances and can provide useful support information for projects. These models can increase the cost control capabilities of the system by allowing users to evaluate the results of changes in the process, materials used, etc.
One major limitation associated with many of these products is that they do not cover a complete range of environmental costs and, therefore, cannot effectively address P2 and cost minimization. Many of the products track only some limited cost types, such as manifest costs, transportation costs, and others. Waste and waste cost minimization cannot be achieved if only partial costs, such as costs incurred for disposal of waste materials, are considered. Waste management costs can be most effectively minimized only when all costs, including processing, storage, health, and safety are considered. Ideally, conventional company costs and other hidden and contingent environmental costs need to be integrated to get an accurate perspective.
Apparently, some developers are beginning to realize the importance of full-cost tracking and are modifying their systems accordingly. These include software systems such as AWARE, EMS, TINIA, and Flow Gemini. Some products such as TINIA can integrate with company accounting systems, which prevents environmental costs from being managed in an isolated manner. Table 3-4 Features of Environmental Management and Regulatory Compliance Software Systems (Class 4) indicates that, of the 17 systems covered, 15 have some cost fields (in their default formats). However, only two track product or production data, and three track capital and/or operations and management costs. One (Flow Gemini) plans to include these features in their next release. Some software products, such as Data Pipe, restrict users from customizing this area on their own. Some vendors add that this area would be developed only if their customers demand edit. Many will make appropriate format changes to add cost fields through specific customer requests. The drawback of this option is that some users will not make such specific requests for modification to vendors because they lack information in the area. Thus, this appears to be a transitional period with respect to treating environmental costs and activities as part and parcel of business as usual.
No products found/reviewed assist in including or estimating liability and less-tangible costs. Furthermore, most of the products do not currently have modules for project management. Some, such as TINIA, that do have this feature cover very basic aspects with the option for exporting data to other software designed more specifically for project management. Even these basic project management capabilities provide a useful feature. None of the systems reviewed facilitate using the cost data collected for future cost estimation purposes. This area will need more research because there is currently little consensus on methods of estimating environmental costs. AWARE tracks all conventional and hidden costs associated with environmental management in a company along with other features to facilitate P2 under current and anticipated EPA guidelines.
None of the environmental management and regulatory compliance software reviewed are used for cost estimation. Users supply all costs entered into the system. However, environmental management and information systems can track cost information that may be useful for future cost estimation purposes, particularly those related to environmental projects.
None of the systems reviewed include any financial functions primarily because they are not usually used for project planning and analysis. However, this will be a useful feature in products that have modules for developing and monitoring P2/waste minimization projects, such as AWARE and TINIA.
Environmental and waste management software systems need to go beyond regulatory compliance to facilitate cost and waste minimization; they need to track and account for a more comprehensive inventory of costs.
Software developers can take many steps to make their products more comprehensive. Short-term goals include the following:
Medium-long term goals can include the following:
Developers of methodologies (tools) for environmental costing can work with software developers to formulate techniques for environmental cost estimation. Such research could fill the gap of information on historical costs related to environmental management. Many of these costs may be unique to particular companies based on their policies and methods of functioning. In such cases, companies may be able to use cost information gathered through using these products to build unique historical cost databases.
Financial analysis is an integral part of the capital budgeting or procurement process and involves the use of various techniques and indicators to compare projects or present project outcomes in financial terms.
Financial analysis is an integral part of the capital budgeting and procurement process (wherein company funds are allocated to various projects),and relies upon various techniques and indicators to compare projects or present project outcomes in financial terms.
The products included under this section are either software-based spreadsheet programs that facilitate financial analysis using one or more methods or written presentations of methodologies. Table 3-5 Information on Financial Analysis, Environmental Life-Cycle Costing and Impact Analysis, and Waste Reduction Software Systems and Tools (Classes 6 through 8) includes some information on the software and tools profiled under this section. Six products, including one abbreviated profile, are included under this category, out of which three are software based applications.
The level of detail in these software systems and tools varies widely. For example, the Pollution Prevention Benefits Manual presents a detailed methodology for data collection and analysis. The "Economic Analysis of Pollution Prevention," on the other hand, is a brief fact sheet with basic information on using the NPV as a method for analysis along with examples of cost elements that should be considered.
None of these systems profiled are meant for LCC. Indeed, at the financial analysis stage, only those costs that impinge on project costs or company costs are of interest. These products attempt to analyze costs by taking a total cost perspective. As Table 3-1. Overview of Life-Cycle Stages and Costs Considered by Software Systems and Tools (excluding abbreviated profiles) indicates, all these products cover the manufacturing, use / reuse / maintenance, and recycle / waste management stages of the life cycle. All the life-cycle data are not included. For instance, the use / reuse stage will not include data on costs associated with use of a product by consumers, and the waste management stage may not include environmental impact costs of a particular disposal option.
Some products, such as PRECOSIS and P2/Finance, are software based applications that include pre-defined formats where users can enter project cost information and perform financial analyses. None of the software systems allow users to develop models or algorithms to estimate less-tangible or liability costs (although P2/Finance allows users to input some liability costs). In all cases, the costs covered are restricted to internal company costs. However, users can include other social costs in the analysis in the case of manual methods and in P2/Finance (to an extent). The software-based applications often have limitations on the number of activities and cost categories that users can add. The important feature of software products and methodologies is that they alert users to include many environmental costs that are left out of traditional analyses.
Financial analysis products are not technically designed for cost estimation. Users have to supply all the cost data to be included, as these products have no default costs or cost databases. Since these are not estimating applications, they include no specific estimation methodology. However, the product may define the manner in which the cost information is to be entered into the system or presented for analysis. For example, PRECOSIS requires that users enter unit cost data for labor, materials, facilities, and waste management.
All five of the products profiled give users the option to calculate NPVs. Four out of five products give the option to calculate the IRR. None of the products profiled calculate this indicator. Three out of five products calculate the payback period.
Tools and software systems that use financial indicators need to recognize and acknowledge their relative advantages and disadvantages for the benefit of the users. For example, the NPV method is by far the most reliable method for assessing projects; it allows a fairer consideration of environmental and P2projects. The Pollution Prevention Benefits Manual does not compare the pros and cons associated with using different financial indicators such as the NPV. The project time frame permitted by financial analysis software and tools is another important factor because many environmental projects have long gestation periods. P2/Finance allows user-defined time periods.
These software systems and tools can be more effective in the following ways:
Different versions of P2/Finance have been developed to cater to different industry sectors. Although generic applications are useful, products tailored to specific industries allow developers to include more specific cost categories and provide more guidance to users. These efforts should be encouraged.
LCC is the systematic process of evaluating the life-cycle costs of a product, product line, system, or facility by identifying life-cycle consequences and assigning measures of monetary values to those consequences (ICF, Inc., 1995).
Impact analysis involves the assessment and/or quantification (not necessarily in financial terms) of environmental impacts that result from an activity or process.
LCC is the systematic process of evaluating the life-cycle costs of a product, product line, system, or facility by identifying life-cycle consequences and assigning measures of monetary values to those consequences and assigning measures of monetary values to those consequences (ICF, Inc.,1995). Impact analysis involves the assessment and/or quantification (not necessarily in financial terms) of environmental impacts that result from an activity or process. This section includes a variety of software systems and tools that serve the basic purpose of LCC and impact analyses. Some products, such as HAZMAT and Hazardous Material Life-Cycle Cost Model, have been designed for specific facilities and ends.
Table 3-5 Information on Financial Analysis, Environmental Life-Cycle Costing and Impact Analysis, and Waste Reduction Software Systems and Tools (Classes 6 through 8) includes some information on the software and tools profiled under this section. Fourteen tools and software were covered under this section, of which ten were fully profiled. The products range from simple spreadsheet applications such as the APACS LCC software demo to complex products such as EcoSys.
LCC models use costs through the life time of a project or material as a basis for analysis. As mentioned in Chapter 2 and in Section 3.1.1 on cost-estimating software systems, the business definition of the life cycle is usually different from the definition used in this guide. Examples of tools employing this definition are the APACS LCC demo and the Life Cycle Costing Program. These LCC models typically include (other than up-front capital and operating costs) maintenance and repair costs and liquidation values. Of the ten LCC products profiled, only three consider all four life-cycle stages, and EcoSys attempts to create a complete life-cycle perspective. The Tellus Packaging Study includes all the stages except the use/reuse stage of the life cycle.
One of the reasons that most products do not perform a complete LCCs consistent with this guide's definition is that the methodology is very complex and not as yet standardized. The Tellus Packaging Study uses our definition of the term but only does a partial analysis, not including all the life-cycle stages. EcoSys attempts to counter the problems associated with data collection by using an expert system and decision analysis to create a life-cycle "perspective,"even though inventory data are included only from the manufacturing stage of the life cycle. TEAM provides users with the modeling tools to prepare and analyze a life-cycle cost model using all four life cycle stages. It includes a database on process information, but does not include any default formats for users to develop their models.
The LCC applications and case studies indicate the differences in interpretation and application of the term life cycle. None represent any standard or universally accepted methodologies for life-cycle analysis or LCC. However, they are building blocks that can be used to further develop approaches and applications in the area.
Methods such as the EPS Enviro-Accounting Method and the EcoSys Model(EcoSys) are examples of methods for environmental impact analysis. Although these do not actually quantify environmental costs, they present an option for including some form of qualitative analysis and including less-tangible costs into the decision-making process. HAZMAT is the only product that estimates contingent environmental costs based on pre-defined algorithms.
Developers of cost databases need to focus attention on the area of developing unit cost data (where appropriate) for environmental costs. Some efforts have included maintenance and repair costs and waste management and P2equipment costs in databases. The reason other cost categories are not included is probably because the field is still in its infancy and has no consensus on methods for estimation.
None of the cost-estimating applications include generic methods for estimating environmental costs. HAZMAT includes cost algorithms to estimate conventional, hidden, and liability (contingent) costs.
Most of the products included do not generate any financial indicators. The exceptions are the APACS LCC product and the LCC program. TEAM does not have any of the indicators defined in this guide. However, it has all classic mathematical functions and user-defined formulas can be used to create specific indicators. Generating financial indicators would be a useful feature in other life-cycle assessment applications as well, because it would allow users to analyze the impacts of various alternatives on financial returns.
One has to recognize that the field of environmental costing and impact analysis is relatively new. Thus, any measures product developers take to improve their products will take time. Some recommendations for medium-long term measures can be employed:
Once methodologies are more streamlined and accepted, life-cycle cost information could be incorporated into existing or new cost databases.
Waste reduction software and tools are developed for managing wastes and waste costs for specific facilities or as general guidance documents or software.
Waste reduction software and tools are developed for managing wastes and waste costs for specific facilities or as general guidance documents or software. This section includes some general purpose products such as the Facility Pollution Prevention Guide, EcoAccounting SM, and Industrial Waste Prevention. Although many of these products have been developed to serve specific projects or areas, the methodologies employed are often instructive for other efforts at developing similar methodologies.
Table 3-5 Information on Financial Analysis, Environmental Life-Cycle Costing and Impact Analysis, and Waste Reduction Software Systems and Tools (Classes 6 through 8) includes some information on the software and tools profiled under this section. Twenty products are covered under this section, of which 13 are fully profiled. Six of these products are designed for, or can provide, generic guidance for a range of applications. The rest can provide examples and guidance but are strictly designed for specific facilities and/or project types. This category also includes a subsection on proprietary software systems and tools. Only one product, the Rohm and Haas model, is included as a proprietary product. Additionally, a subsection covers two case studies; one for the application of life-cycle analysis, and the other, for activity based costing.
None of these products profiled were originally designed for or have modules for LCC. Their level of focus is restricted to internal company dynamics and costs related to pollution prevention or waste management. Table 3-1. Overview of Life-Cycle Stages and Costs Considered by Software Systems and Tools (excluding abbreviated profiles) indicates that all the products fully profiled cover the waste management stage of the life cycle. Six products include data from the manufacturing stage of the life cycle. Although the use/reuse stage is not totally ignored, none of these products include detailed information associated with this stage of the life cycle. Although methods to account for use/reuse is beyond the scope of most of the products covered, efforts should be made to integrate the use of these products with others that do perform LCC.
None of these products profiled cover all the cost types identifies in this guide. All these products cover some aspects of conventional and hidden costs(except one, that covers only conventional costs). However, the hidden costs, for instance, do not include regulatory costs and other voluntary environmental costs. Industrial waste prevention considers contingent costs but does not include a comprehensive methodology for estimating them. The only exception is the Rohm and Haas model, which uses the methodology described in the Pollution Prevention Benefits Manual and includes conventional, hidden (including image and relationship costs), and contingent costs. It does not include social (external) costs.
None of the products covered are designed for cost estimation, although the data collected by using them can be used for future cost estimation purposes. HCAS is essentially a cost database, which can further be used for estimation purposes. Users supply all cost data in all other products.
Most of the products covered, other than exceptions such as Industrial Waste Prevention and the Facility Pollution Prevention Guide, do not generate any financial indicators. Interestingly, the indicator of focus is the payback period, although others are sometimes mentioned, such as in Model P2 Opportunity Assessment. As mentioned in Section 3.2.1, "Financial Analysis Software Systems and Tools,", the payback period very often does not produce reliable results.
Software and tool developers should take the following steps to make their methodologies more effective and current:
The difficulties and costs associated with data collection can be a major impediment in the practical implementation of many methodologies. The developers and users of different methods should be contacted to obtain information on practical problems that were experienced and the utility derived from using these methods.
Most of the measures discussed in the previous sections, especially for estimating environmental costs, would require a good deal of involvement and research on the part of the users. Although customization options help fill the void in the inclusion of environmental cost information in estimating software and tools, investments in terms of time and money may be needed to achieve customization. Time and money investments often automatically exclude small companies and operations that do not possess the resources for such investments. However there are many measures that users can take to make better use of software systems and tools. These include the following:
Some of the common short-term recommendations for tool and software developers are summarized below:
Some common long-term recommendations are the following:
Sample projects can give users a working example of how the systems can be used more effectively. Clearly, any software and tools that better account for a full range of costs will be more accurate and effective. This factor needs to be displayed and emphasized. Sample projects could be developed in conjunction with tool developers or through external funding. Software applications are often tested in facilities to identify and rectify problems. Pilot projects using new accounting, project / environmental management, or analysis techniques can be tested in industry or Federal facilities.
Internal protocol and requirements often play a large part in the software systems and tools or methods selected by industry or government for project /environmental management and analysis. These methods may or may not be the most efficient but are based on tradition and the use of tried and tested methods. For example, a hurdle rate established by a company may encourage the use of IRR as an indicator over others such as the NPV method. Companies will move toward modifying these requirements once new, more effective and cost-minimizing techniques are established.
Effecting any long-term changes in the area of environmental cost accounting and including environmental considerations into analysis will entail a step-by-step process:
The current state of practice is somewhere between Steps 1 and 2. Efforts to develop tools and methodologies such as ABC techniques, liability cost estimation, and environmental impact analysis have increased. Industry consultants and companies are developing new software systems and tools. Such software systems and other proprietary products have been developed internally or by consulting firms to help companies meet environmental management requirements that existing products cannot meet. Some of these new software systems, such as the Rohm and Haas model, are proprietary, and others, such as Eco-AccountingSM, are available in a limited manner (since it can be procured only as part of other consulting services). Another example is the use of theG2 Real Time Expert System to develop a Batch Design Kit for zero loss emissions. This kit is being designed primarily for use in large chemical and pharmaceutical companies.
Consensus on the appropriate methodologies for environmental and life-cycle costing has yet to be reached, and Federal facilities and industry as a whole are still a long way from adopting new methods in any standard manner. Many areas of development of software systems depend on further research in the area of environmental cost estimation. Examples of areas that need further research are
Users groups have formed to provide more guidance to developers in an effort to get software to include more environmental costs. The Environmental Health and Safety (EH&S) software development group that brings together users from industry and software development companies, is an example of such a group. Ontario Hydro is currently testing a proposal to bring together a cross-sector group of corporations to establish and fund a "Center for Environmental Costing" in Canada. It is envisioned that initially, the Center would take the form of a "virtual" institute that would have three main functions including: sponsoring research; providing education, training and advocacy; and, providing network / clearinghouse services. The research function of the Center would, in effect, be a common research fund / pool for business on environmental impact research, economic valuation, and other applied elements of Full Cost Accounting[3] .
The discussion clearly indicates that both short- and long-term solutions are needed for incorporating environmental costs into decision-making. Developers of software systems and tools / methodologies for environmental costing / management will benefit more by collaborating with each other rather than by functioning in isolation. By working together, they can better address the changing needs of the private and Federal market by applying new and innovative methodologies and by making standard methods more effective.