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8/13/2019 Green-Budget Matrix Model.pdf
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3/5/2004 Green Budget Matrix Model 1
Green-Budget Matrix Model:Theory and Practices
EMAN-EU 2004 Conference
(March 2004)
Yoshihiro ITO (Kobe University),
Hiroyuki YAGI (Yokohama National University) andAkira OMORI (Aichi Gakuin University)
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A Structure of Presentation
1. Introduction
2. Necessity of Environmental Budgeting in Firms
3. Theory of the Green-Budget Matrix Model
4. Case Studies at Japanese Firms
5. Conclusion
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3/5/2004 Green Budget Matrix Model 3
Working Groups on EMA (METI Project)
WG1: Tools for Environmental Capital Investment
Decision Making
WG2: Tools for Environmental Cost Management
WG3: Material Flow Cost Accounting
WG4: Environment Oriented Life Cycle Costing
Authors were engaged in WG2
Prof. ITO was the chairperson of WG2.
1. Introduction
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2. Necessity of Environmental Budgeting
in Firms
Corporate budgeting is useful to internal management.
Three roles of budgeting.
(1) Planning, (2) Control, and (3) Coordination
From the viewpoint of environmental conservation
activities,
A lot of economic resources are invested in these activities.
There are need to formulate a budget to accomplish target
which are set at the beginning of the fiscal year.
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There are many Japanese corporations that haveformulated and implemented environmentalaccounting. (From a survey of MOE)
355 listed corporations(2002)
298 listed corporations(2001)
202 listed corporations(2000)
But a few corporations have introduced environmentalbudgeting into their environmental accountinginformation systems (From a survey of YokohamaNational University).
Some evidences supports the contention that budgetingfor environmental conservation activities plays a usefulrole in their management.
2. Necessity of Environmental Budgeting in
Firms (continued)
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What is the Green-Budget Matrix Model (GBMM)?
An approach which adapts the framework of the quality
cost matrix model to environmental cost management.
The aims and/or objectives of the model.
Reduction of environmental costs.
Reduction of environmental burden.
Generation of various information which will support
environmental activities.
3. Theory of the Green-Budget Matrix Model
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Classification of Environmental Costs used in the
GBMM.
3. (continued)
The expenses for monitoring
environmental effects that a firm is
responsible for, and the checking
and inspecting expenses to prevent
the designing, developing and
shipping of environmentally
harmful products.
Environmental
appraisal costs
TheEx ante expenses designed to
prevent environmental problems
from arising and to reduce future
outlay.
Environmental
conservation costs
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The losses borne by community or
residents. These losses are causedby inadequacies in a firms
environmental conservation
measures, inspection procedures and
so on.
External
environmentallosses
The losses caused by imperfectenvironmental conservation
measures, inspection and so on.
Internalenvironmental
losses
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Structure of the GBMM and the Process of
Preparing the Matrix
C1
C2
C3
C4 - - - - Cm
L 1(*1) - Rij (*2) - - - - - - - - - - - - -
L 2 - - - - - - - - - - - - - - -
L 3 50 - -
1.2/4.0
0.4/4.0
-
2.0/4.0 -
0.4/4.0
- 5 10 4 20 4.0
- - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - -
L n - - - - - - - - - - - - - - -
500 100%
Total
Total
(*1)
(*2)
(*3) Wai = Absolute weight ( i = 1.2.n )
Li = Environmental internal and external losses (i = 1.2..n )
Rij = Correlation between costs and losses (j = 1.2..m )
Total absolute
weight
Evaluation
weightof
losses
Environmental conservation costs (Cj) (j = 1. 2..m )
(+Environmental appraisal costs)
Materiality
Targeted
amountof
losses
Estimated environmental costs
and/or losses
Actual environmental costsand/or losses
Green budget weight
Difficulty
Absolute
weight
Internal
environmental
losses
External
environmenta
llosses
Actual
amount
Details of
expenses
Details ofactivities
(Wai)
(*3)
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Process of Preparing the Matrix
(1) Identifying the details of internal environmental losses
and external environmental losses.(2) Evaluating materiality of each detail of losses.
(3) Setting targets by each detail and evaluating each
difficulty to accomplish the targets.
(4) Deciding absolute weight and evaluation weight of losses.
(5) Deploying the details of environmental conservation
costs.
(6) Evaluating the relationship between cost and loss in each
cell.
(7) Calculating green budget weight.(8) Environmental budgeting.
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(1) Identifying the details of internal environmental
losses and external environmental losses.
Necessary to classify internal and external
environmental losses systematically and to accurately
ascertain these amounts and quantities.
(2) Evaluating materiality of each detail of losses. Materiality = The priority given to tackling the
problem depending on seriousness or the situation of
the firm.
The materiality are evaluated according to a five-
point scale for each detail of losses.
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3/5/2004 Green Budget Matrix Model 12
(3) Setting targets by each detail and evaluatingeach difficulty to accomplish the targets.
First, the next periods targets are determined by
each details loss. Next, the difficulty will be evaluated according to
the five-point scale.
(4) Deciding absolute weight (Wai) and evaluation
weight of losses. First, the absolute weight is calculated by
multiplying the materiality and difficulty by eachdetail.
Next, sum all the details, and then calculate theevaluation weight of losses.
=
=
=n
i
niwa
WaiEW
1
).....2.1(
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(5) Deploying the details of environmental
conservation costs.
The details of environmental conservation costs andappraisal costs are arranged on the column in the
matrix.
(6) Evaluating the relationship between cost and loss
in each cell. (strong correlation), (moderate correlation),
and (weak correlation) for each cell.
Next, the marks could be converting to numerical
values, as 5 points, as 3points and as1point.
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(7) Calculating the green budget weight.
The numerical values of each cell are added by each
columns.
(8) Environmental budgeting.
Total amount of environmental conservation costs are
allocated proportionally to each detail by ratios of the
green budget weight.
Consequently, the targeted costs for the
environmental conservation (and appraisal) activities
could be determined.
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4. Case Studies at Japanese Firms4-1. A Case study at Nitto Denko Corp.
Nitto Denko is a industrial tape manufacturing firm.
Nitto Denko has applied environmental accounting to
environmental budget since fiscal year 2000. (Nitto
Denko Corp., 2003, 21)
Why Nitto Denko introduced the Matrix? Nitto Denko has already introduced the PAF classification as
a support tool to quality improvement.
Nitto Denko is pursuing to reduce the value of industrial
wastes, hence, it is important to measure failure costs or
environmental losses.
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Nitto Denkos case (continued)
Nitto Denko selected a division to make trial of the
matrix.
Usefulness of the matrix to the firm.
Managers can understand the correlation between
environmental impact costs and environmental
conservation costsby using the matrix.
The matrix can lead managers to grasp and solve some
environmental related problem within the division.
The matrix can be connected with material flow cost
accounting that the firm already introduced.
Hence, using both tools can contribute to clear up thecauses of the generation of wastes, and to plan and
analyze improvement measures.
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Green-Budget matrix prepared by a division of Nitto Denko Corp.
Details of expenses
Actual
amount
%
SOx levy 308.0K Y 1 300K\ 3 3 2.1
(Materials containing sulfer)
Value of industrial 374.8M Y 5 337M\ 5 25 17.6(Ori inal estimation)
Energy 129.4M Y 4 128M\ 4 16 11.3
Organic solvents 70.6M Y 4 64M\ 5 20 14.1
Water 3.6M Y 1 3.6M\ 3 3 2.1
0 0.0
Waste recycling rate 98% 3 100% 3 9 6.3
Value of industrial
waste ratio9.5% 5 8.4% 5 25 17.6
Consumption of energy
er roduct unit843L/M\ 4 831L/M\ 4 16 11.3
(l/million yen)
7.8% 5 4.5% 5 25 17.6
10.2 2.8 0.2 6.8 8.5 2.1 7.1 13.3 16.9 13.9 18.2 142 100%
12,263 3,394 254 8,219 0 10,199 2,563 8,462 1 5,950 0 0 0 0 0 20,222 16,687 2 1,787 0 0 0 Total KY
11,660 2,817 841 7,539 0 8,663 2,562 7,811 1 7,646 0 0 0 0 0 16,387 14,061 1 6,548 0 0 0 Total KY
Multiplying the materiality and difficulties by each detail.
Sum all details, and then calculate the environmental weight of losses that can be calculated to make the vokume of each detail re-
The numerical values of each cell are added by each detail of the environmental conservation costs.
The grade could be assigned numerical values, such as (3point), (2point), and (1point), and then allocate the weight of the environmental losses to each
cell by each row in the work sheet proportionally.
Environmental weight of
Environmental conservation
costs:
Environmental budget weight:
Notes:
Environmental budget weight
120,000
106,535
Budgeted amount of current period (plan)
Actual amount of previous period
Total
absolute
Internalenvironmental
losses
(monetaryconversion)
Lossescausedbyinefficie
ntuse
ofresources
Losses of corporate prestige
Externalenvironmentallosses
(Massconversion)
Voluntary
Solvent emission ratio
P
ersonnelexpenses
Environmental
p
rotectionactivities,
includingnature
conservation,plantingof
D
onationorfinancial
sup
portofenvironmental
groups
Disclosing
environmental
informationand
environmental
Recyclingwastes
Othecostcontributing
to
resourcecirculation
O
pperationalcosts
Absolute weight:
Otherglobal
environmental
c
onservationcosts
Theefficient
uti
lizationofresources
Conservationofwater
andtheutilizationof
rainwater
Appropriate
d
isposalofwastes
Preventingair
pollution
Preventingwater
pollution
Preventingother
t
ypesofpollution
Energysaving
Difficulty
Absoluteweight
Environmentalweight
oflosses
Pollution
prevention costs
Global
environmental
conservation
Resource circulation costs
Thedefference
betweenthecostof
conventionally
purchacedmaterials
orservicesand
thecostofthose
materialsands
ervicesprocured
throughgreenpurchasing
Thecollectionandrecycling
ofus
edproducts
Providing
environmentally
friendlyproductsand
s
ervicies
Additional
costforreducing
theeniron
mentalimpactof
container
sandpackaging
Environmental conservation costs
Materiality
Targetedam
ountoflosses
Admin
istrationcosts
R&D
costsSocial activity costs
Details of activities
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4-2. Other Pilot Projects of GBMM
(1) Toyo Seikan Kaisha Ltd.A packaging container manufacturing company.
(2) Toshiba Corporation.
An integrated manufacturer of electrical and electronicproducts spanning.
(3) Kyushu Electric Power Co. Inc.
An electric power company.
(4) Nissan Motor Co. Ltd.
A automobile manufacturing company.
(5) Kirin Brewery Co. Ltd.An alcohol beverage manufacturing company.
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Toshiba (Toshiba, 2003, pp. 10-11)
Estimated and disclosed their environmental benefits
by monetary term.
Closely related to external environmental losses.
39,61218,16821,444Total
3,4629502,512The extent to which risks are reduced after theinvestment compared with before the investment is
calculated
Risk preventionbenefits
6,8675,3161,551Reduction of environmental impacts at the usage
phase expressed in monetary value
Customer
benefits
22,70910,46712,242Benefits concerning reduction in environmental
impacts expressed in monetary value
Assumed benefits
6,5741,4355,139Benefits that can be directly converted into
monetary value, such as reduced charges for
electricity, water, etc.
Actual benefits
TotalAffiliatedcompanies
ToshibaDetailClassification
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5. Conclusion Quite a few firms have exclusively focused on the
external reporting aspect of environmental accountingin Japan.
They also estimate environmental budget in the nextfiscal year.
However, sophisticated future action-plan for theirenvironmental management has not made yet in manyJapanese firms.
Therefore, the success of EMS cannot be expectedwithout having;
An action-plan which provides a map for driving activities,and
A budget which guarantees to put the plan into effect.
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Therefore,
The GBMM is the most useful instrument for
supporting managers in this context.
Usefulness of the Green-Budget Matrix.
The GBMM is a tool to support managers;
with identifying what sort of activities drive excellent
environmental performance, and with allocating the economical resources for them
effectively.
The GBMM generates useful information for analyzing the
status quo, foreseeing the future EMS and promotes co-
recognition about their mission among organizationalmembers.
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Recently, the development of Excel-based
software has prompted an increase in number of
Japanese firms which implement the Green-
Budget matrix.