Findings and suggestions

Improving efficiency in the future is a major goal for Nitrokémia 2000.

The project demonstrated that EMA could promote this objective by improving its cost controlling system and revealing savings options for the company.

1. Integration of EMA with management accounting

As a result of the TEST-EMA project, the monthly reporting structure of direct costs was changed to the following:

Non-product output costs are now calculated as direct environmental costs on a monthly basis using the technological norms;

Waste disposal costs were identified as a significant cost item and will be allocated to products on an on-going basis. (Note: before the project, only hazardous waste costs were allocated);

The environmental portion of indirect material costs will be allocated to products as direct costs.

Some cost items were either deemed too small for allocation to products, or, were redirected to the direct product costs category due to the time constraints of the project. These costs include environmental fines, ronmental labour and laboratory costs. These costs will remain in the envi-ronmental overhead account. The EMA project resulted in a redefinition of non-allocated environmental overhead to include certain cost items that were not considered environmental costs in the past: the salaries of environmental personnel that were formally hidden in indirect labour was redefined as environmental cost.

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2. Actions based on EMA

Since completing the TEST EMA project, the company has continued the process and used the approach for re-calculating the environmental costs of further products. One of those products was found to be so costly in environmental terms that its production was stopped.

An expert has been hired by the company to investigate the possibility of changing some of the raw materials used for two of the processes being tracked by the TEST EMA. The company hopes to achieve a reduction of both pollution and environmental costs.

3. Future oriented decisions

Certain environmental cost categories could not be incorporated in to the production cost structure for practical reasons. Regardless, the costs items can still be calculated or estimated and will be taken into account when important, long-range decisions are made regarding the products or projects within the company.

For long-range decisions where investment evaluations or product related decisions are made, all environmental cost categories will be calculated and reported in a structure “parallel” with the existing cost control system.

The information provided by EMA will support the:

Preparation of budgets.

Actions when production efficiency has dropped below acceptable lev-els i.e. when the difference between planned and actual costs is too large. Improved housekeeping and maintenance measures are usually needed in these cases.

Modification of technological standards. Some technological standards are outdated and require changes. Practices can change and new alter-natives for saving inputs should be developed and reflected in the technological norms. This modification is identified by consumption staying below technological norms for an extended period of time.

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Analysis of project alternatives. Process changes are currently under consideration for the three products examined in the project and the calculation of non-product output costs will give environmental pro-jects a better chance for support.

Making strategic decisions on products and projects. These include production decisions as well as costing and pricing decisions.

The company will continue to use the modified 2003 EMA system on a regular basis. Based on the results of the project, the company decided to extend the EMA to include further products without using external assis-tance.

E. Conclusions

Environmental costs are rising all the time. For example, in 2000 there was a 42 per cent increase in environmental costs for Nitrokémia 2000.

This was due to increasing service costs, wastewater treatment costs and incineration, increasing volumes of production and a 41 million HUF one-time cost for sludge disposal. This emphasises the need for more control over them.

Waste disposal costs are rapidly increasing and sufficiently significant to have been mentioned in the annual financial report as a problem area.

This fact underscores the importance of allocating these costs directly to products.

The above-mentioned development is characteristic of Hungarian envi-ronmental protection in general: envienvi-ronmental-service prices, as well as fines are increasing at a rapid rate. The approaching EU accession and the need to harmonize all environmental laws have accelerated this develop-ment. This new situation underlines the importance of organizing envi-ronmental management more efficiently and EMA is an excellent tool for doing that.

Input prices are also increasing, as subsidies were removed subsequent to their country signing international agreements. Higher water and energy prices made the former practice of using technologies in a wasteful way unacceptably expensive.

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After the transition and restructuring of the economy that has been going on, companies are much more subject to competition than they were 10 years ago. Strong competition encourages the search for efficiency, which is a major short-term goal for many companies, not just Nitrokémia 2000.

Efficiency can be improved by improving the management and control of material flows. This can result in a switch from the old absorption-costing model to a variable absorption-costing or ABC absorption-costing model, which creates a favourable climate for EMA.