In Table 3.1 are different material flow analysis approaches and their levels of engagement. In addition, the table explains the level of waste information captured by the different material flow analysis approaches. MFCA provides comprehensive waste cost information in comparison to other approaches. Conversely, the conventional environmental costing approach provides the least comprehensive waste information, which includes systems costs after material losses and disposal costs while the waste-costing approach excludes both material costs in the product and systems cost incurred in generating waste in its calculation.
Table3.1: Material flow analysis approaches
Environmental costing
Waste
costing MFCA Material costs in the product (product &
packaging) X
System costs for products X
System costs before material losses occurs X X
System costs after material losses occurs X X X
Disposal costs X X X
Source: Researcher’s illustration of material flow analysis approaches
Different material flow analysis approaches were presented in Table 3.1 indicating their extent of inclusion of important waste-related costs. As has been noted from Table 3.1, MFCA may a more comprehensive approach to material flow analysis with ability to improve waste-reduction decisions.
3.5.1. Environmental costing
The environmental costing approach is borne out of the importance of generating accurate cost information in making environmental decisions (Jasch 2003:667). Most often, environmental costs are difficult to define from a business point of view. But even so environmental costs are a subset of the operating costs of an organisation which give rise to externalities (Figge, Hahn, Schaltegger & Wagner 2002:271). This may indicate that when substances are released into the air, water, or land, the resulting environmental impact is considered a social cost or externality. However, environmental regulations have resulted in the internalisation of some of these environmental externalities by organisations (Libecap 2009:130). Therefore, with an appropriate Management Accounting waste information system within the organisation, there may be no need to incur some of these environmental costs.
As environmental externalities are internalised, investors begin to pay more attention to organisations’ environmental risks to make investment decisions (Cagnin, Loveridge & Saritas 2011:285). Subsequently, these costs have to be captured by the conventional accounting system, in order for product costs to remain accurate to facilitate sound decisions (Balakrishnan, Labro & Sivaramakrishnan 2011). As such, improved waste treatment cost like wastewater plants and incinerators is likely to reflect in the costs of processes responsible for waste generation (Cordell, Rosemarin, Schröder & Smit 2011; Boesch, Vadenbo, Saner, Huter & Hellweg 2013). The environmental costing approach captures system costs after material losses had occurred as well as disposal costs (Jasch 2009:33). Waste costing and MFCA approaches may therefore provide more comprehensive cost coverage for
material flow analysis which in turn provides better and improved waste information for informed waste-reduction decisions.
The next sections discuss the waste costing and MFCA approaches to material flow analysis for improved waste-reduction decisions.
3.5.2. Waste costing
An effective approach to become a waste-less business should be based on problem solving and helping the organisation understand why waste is generated (Van Berkel 2005:265). He opined that the successful transition to more sustainable waste management is conditional on finding practical ways for organisations to minimise and possibly eliminate their waste generation. Van Berkel (2005) furthermore reiterates that a more concerted innovative effort is required such as the development of products which prolongs the product life cycle; or the development and application of new technologies which reduces the generation of waste during product manufacture. Therefore, decision-making on brewery waste-reduction may require a clear understanding of waste generating sources in order to develop new products or technologies to minimise its generation.
Gray and Bebbington (2001:146-148) mention three ways in which organisations tend to account for waste. These are, namely:
• The identification of the total actual and potential cost of waste management borne by the organisation either on activity or site basis;
• Non-financial accounting drivers such as kilograms and watts can be used to capture record and communicate the physical quantities of waste; and
• The use of an environmental index to charge waste management costs such as disposal cost and cost of insurance to product costs.
In practice, the conventional accounting system is designed to satisfy the information needs of management and external stakeholders without consideration for environmental issues. The information provided have a strong economic interest in standardised comparable data and in receiving true and fair information about the actual economic performance of the organisation (Jasch 2003:668). Meanwhile, Schaltegger and Burritt (2000:45) opine that an important function of any accounting
system is to provide information that is useful to the different stakeholders for evaluating their own needs. Whereas the conventional MASs do not fully allow for the assessment of environmental costs and has failed to provide information on an organisation’s impact on the environment (Schaltegger & Burritt 2000:45).
Consequently, environmental costs such as environmental levies, fines, legal fees, cost of waste recycling equipment and other consultancy fees are included or hidden in overhead costs of organisations (Gray, Bebbington & Walters 1993:11). In addition, the limitation of the waste-costing approach is that it fails to include wasted material costs in product and product-packaging in waste cost valuations. Therefore, there may be a need for a Management Accounting waste information system such as an adjusted MFCA that captures all waste-related cost is most desirable to improve process waste-reduction decisions.