Financial Performance Management: Environmental Costs and Decision-Making

Financial
Performance
Management

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Explanation of environmental management accounting..............................................................1
Discussion of different types of environmental costs..................................................................2
Use of cost vs benefits analysis for an organisation....................................................................2
Discussion of different types of techniques that are used to manage and identify environmental
costs by the management accountants.........................................................................................3
Discussion of significance of managing environmental cost within an organisation..................3
Recording and identification of environmental costs within an organisation.............................3
Controlling all the environmental costs.......................................................................................4
The way in which all the environment related costs are accounted for.......................................4
PART 2............................................................................................................................................4
Significance of decision-making procedure for the organisation and how all the management
accountants can get right information..........................................................................................4
Discussion of various types of planning tools to determine the way in which they can help the
businesses to deal with financial challenges that are dealt by them............................................5
Assessment of relevancy of budgetary control............................................................................6
Use of KPI to improve financial performance of the organisation..............................................6
Steps which could be taken by an organisation to gain financial stability..................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial performance management is the process which is focused by business entities
to manage, control, monitor, assess, evaluate and measure the performance of business. Main
purpose of it is to facilitate all the businesses to be focused with their goals and objectives and
formulate plans accordingly. While planning to manage it, the entities can take effective actions
so that the planned goals could be accomplished (Agyabeng-Mensah, Afum and Ahenkorah,
2020). If the organisations will not be focused with it then it may result in long term challenges
for business. Present report is based upon different aspects. First part of the assignment is
focused with discussion of the issues that are faced by businesses to manage all the
environmental costs along with methods that are used by companies to account such costs.
Second part of this project is related to application of planning tools and KPIs so that businesses
can respond to all the financial challenges.
PART 1
Explanation of environmental management accounting
The process which is focused by the entities for the purpose of analysing, collecting,
using and identifying various information for making effective decisions for the enterprise is
known as environmental management accounting. With the help of it, management accountants
can formulate effective decisions for the activities that are performed by the enterprise and
leaving impact upon environment. There are various types of resources that are consumed by the
entities and all of them can leave impact upon environment. Some of them are water, power,
production, recycling and carbon foot print etc. Different types of information which is focused
by the managers could be gathered from following points:
 Assessing the implication and possibility of environmental risk.
 Identification and monitoring the cost and uses of various resources like fuel, water
electricity etc. for the purpose of formulating effective decisions to reducing uses of
them.
 Focusing upon the assurance of environmental consideration in decision making process
which is formed for making capital investment (Albuhisi and Abdallah, 2018).
 Identifying and estimating cost which is related to environmental activities.
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Discussion of different types of environmental costs
Environmental costs could be defined as the expenses that are related to use of natural
assets for performing corporate activities of the organisation. It is essential for the business
activities for making sure that these are analysed by the management accountants so that ways to
respond them could be analysed. Different types of such costs are as follows:
 Cost related to external failure: These costs are related to the operational activities that
have resulted in negative impacts upon the environment. All the costs that are related to
dealing the expenses which has taken place because of the unfavourable implications of
operations on the environment. In order to control such types of costs it is very important
for all the businesses to reduce the adverse impact upon the environment as it can help to
control the costs related to external failure (Chen, Ngniatedema and Li, 2018).
 Cost related to internal failure: All the costs that are taking place because of the actions
that are taken by the business to control the negative implications in future upon the
environment. In order to carry out all the operations in systematic manner it is very
important for the businesses to spend money for reducing the negative impacts on the
environment and for this purpose such costs may take place.
 Prevention cost: The expenses which are taking place for an organisation because of the
steps that are take for reducing unfavourable environmental impacts of corporate
activities are considered as the part of prevention cost. Most of the businesses are facing
this cost because it is essential for them to spend money for making reduction of adverse
implications of operations on environment.
 Appraisal cost: All the costs that are taking place for businesses while determining the
compliance of policies that are formulated by legal authorities for environment
protection. For the business entities that are large or small it is very important to make
sure that they are following all the policies that are formulated by the governmental
authorities. It can help the organisations to assure the ignorance of legal interference in
business operations because of negative impacts upon environment (Gordini and Rancati,
2017).
Use of cost vs benefits analysis for an organisation
The approach which is used by businesses to determine and analyse all the weaknesses
and strengths for business so that higher profits could be attained is known as cost vs benefit
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