1. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-1 Environmental Activities n Prevention activities n Assessment activities n Control activities n Failure activities

2. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-2 Measuring and Reporting Environmental Costs n Traditional systems must be augmented by interviews n Schedule costs into hazardous & non- hazardous categories n Classify the costs by activities n Report and analyze routinely

3. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-3 Managing Environmental Costs n Accidents vs. collisions n Product design n Process design n PP&E acquisition n Operational venue n Encourage value chain participation n Routinely integrate MMEC into the decision making process n Checklists n EC Summaries n Post-mortem reviews

4. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-4 MMEC—TBC Impact n Technical n Improved decision relevance n Insight contrary to common beliefs n Better process identification n Environmental cost insight n Behavioral n EC visibility: what gets measured; gets done

5. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-5 MMEC—TBC, continued n Cultural n Societal value sharing n Changing environmental mindsets n Compliance and control vs. avoidance n Role of finance as “facilitator” n Can bring focus to this important issue

6. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-6 MMEC—Strategic Implications n Quality: consumers drawn to environmentally concerned companies…green issues n Cost: environment costs are huge n Time: unexpected “events” are time consuming and defocusing n Think about the movie “Erin Brocovich”

7. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-7 Theory of Constraints n The Concept n The Process n The Measures

8. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-8 The Concept n Presented in Eliyahu Goldratt’s The Goal n The goal of a business is to make money…consistent with customer satisfaction n Continuous flow n Avoid the “herbies” n Eliminate the bottlenecks first

9. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-9 The Process n Identify the constraints n Exploit the constraints (reduce the bottlenecks) n Subordinate everything else n Elevate the constraints (remove the bottlenecks) n Reiterate the process

10. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-10 The Measures n Throughput-Net income n Inventory-ROI n Ops. Expenses-Cash Flow

11. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005 12-11 Lou’s Moral Dilemma n What caused it? n How did he handle it? n How would you handle it?