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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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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) 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.
Man
