Eco-Accounting(SM)

Prepared by:

Arthur Andersen & Co.

Prepared for:

Commercial use

Application:

Financial analysis:
Environmental impact analysis:	---
Waste management/P2:	---
Environmental cost listing/database:
Cost estimation:	---
Alternative product/process comparison:

Environmental costs and data management for decision-making, capital budgeting, and forecasting. Cost-benefit analysis of alternatives. Activity definitions and cost matrices can be tailored to meet specific company requirements.

Development/publication date and updates:

Developed in Spring, 1994

Public availability:

Available

Purpose and current use:

Developed to allow companies to manage environmental costs and data for decision-making, budgeting, and forecasting, without using complex methodologies such as Activity-Based Costing (ABC), full-cost accounting, or LCA. This is based on information that more than half the companies do not track environmental costs and performance, even though this could be very profitable. The tool has been applied in the oil and gas industry.

Cost information:

Not available. Eco-Accounting(SM) is sold as part of a package along with other consulting services.

Contents and system requirements:

Windows-based program, a series of Excel spreadsheets.

Summary of methodology

Eco-Accounting(SM) uses a three step approach. These steps are identifying environmental costs, establishing a set of performance measures, and analyzing strategic alternatives. Performance measures are based on a set of process and output measures. Alternatives are analyzed using cost and performance information. Product and process changes can be analyzed. Features of Eco-Accounting(SM) include the following.

• activity dictionary with over 100 environmental activities
  
• cost matrix to capture and organize data
  
• organization of environmental costs by activity in five categories
  
• performance measures for key environmental activities
  
• customized software component allowing future additions and information updates
  

Life-cycle stages covered

Raw material acquisition	---
Manufacturing stage
Use/reuse/maintenance	---
Recycle/waste management

The cost matrix includes information in five categories: strategic positioning, risk prevention, compliance, remediation, and disposal and claims.

Type of costs considered

Conventional
Potentially hidden
Contingent	---
External	---

Additional cost categories and cost information could be added using the customized software component of Eco-Accounting(SM).

Method of cost estimation

Costs are identified through employee interviews in specific departments, project logs, operating statements, and general ledgers. The objective is to determine the time and money spent on significant environmental activities by broadly accounting for time and non-payroll expenditures of employees.

Generation of financial indicators

Net present value (NPV)	---
Payback period	---
Internal rate of return (IRR)	---
Benefits cost ratio	---
Other	---

Attributes

Eco-Accounting(SM) permits benchmarking environmental costs by allowing users to determine and compare the time and money spent by different facilities and divisions for similar activities. Capital appropriation requests and environmental costs in product design can be evaluated. The software includes over 100 standard activities and 50 performance measures that users can choose from. The program consists of a series of Excel spreadsheets linked together.

Limitations

This method does not reflect a way to change general company accounting practices. The accuracy of the results is dependent upon the proper identification of all key environmental activities and cost drivers. There is no information on methods for estimating contingent and external costs. These categories are not included in the original matrix. The program is not designed for life-cycle costing.

Basis for evaluation:

The information provided here is based on product information and through telephone communications with an Arthur Andersen representative in April, 1995.

Contact information:

Available as a tool only to those companies for whom Arthur Andersen is acting as a consultant for identifying and managing environmental costs.

Arthur Andersen LLP

33 West Monroe Street

Chicago, IL 60603

Ronald E. Van Epps (Senior Manager)

312-507-8448

Mary K. Zinski (Marketing Manager)

312-507-5198

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