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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    3/5/2004 Green Budget Matrix Model 2

    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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    3/5/2004 Green Budget Matrix Model 4

    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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    3/5/2004 Green Budget Matrix Model 5

    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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    3/5/2004 Green Budget Matrix Model 6

    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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    3/5/2004 Green Budget Matrix Model 7

    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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    3/5/2004 Green Budget Matrix Model 8

    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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    3/5/2004 Green Budget Matrix Model 9

    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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    3/5/2004 Green Budget Matrix Model 10

    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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    3/5/2004 Green Budget Matrix Model 11

    (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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    3/5/2004 Green Budget Matrix Model 13

    (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