Environmental management accounting to reduce costs

Allocating costs to processes or products is an important element in preparing management accounts. It enables you to identify the key areas that you should focus on to cut costs.

You should produce a flow chart showing the main activities of the business, breaking down the processes into enough detail to allow you to allocate an estimate of the environmental costs to each activity. The flow chart should not be overly detailed, but should have enough information to show clearly where you can make savings.

Reviewing the general ledger and face-to-face interviews with managers and senior employees will allow you to list material, labour, utility inputs and waste outputs and give accurate environmental and financial costs.

To help analyse the data, you may find it useful to prepare a spreadsheet showing the materials, utilities and wastes for each of the main processes.

Once this has been achieved, you can start to reduce environmental costs significantly, often at little or no additional cost. Further improvements can be made by investing in:

• eco-designing products
• optimising product processes
• using new technology
• recovering and reusing materials

The most effective way to cut costs is to set objectives and targets so that you have clear goals to work to - see how to set environmental targets to increase profits.