Financial Performance Management: Environmental Cost Management Report

This report delves into the critical aspects of financial performance management, focusing on the challenges businesses face in managing environmental costs and the various accounting methods employed. Part 1 explores environmental management accounting, different types of environmental costs (internal failure, external failure, appraisal, and prevention), and techniques for identifying and managing these costs, such as face-to-face meetings and activity-based costing. The report emphasizes the importance of environmental cost management for an organization's financial stability and operational efficiency. Part 2 focuses on the significance of decision-making processes and how management accountants acquire the necessary information for effective financial planning. It also examines planning tools, budgetary control, and key performance indicators (KPIs) to improve financial performance and achieve financial stability. The report concludes by highlighting the importance of integrating environmental considerations into financial strategies for sustainable business practices.

Financial
Performance
Management

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Environmental management accounting......................................................................................1
Environmental costs.....................................................................................................................2
The way in which costs vs benefits being used...........................................................................3
The techniques that are used by management accountants to identify and manage
environmental cost along with examples.....................................................................................3
Reasons for the importance of management of environmental cost for an organisation.............3
The way in which environmental costs are recorded and identified...........................................3
The way in which all the environmental costs are controlled.....................................................4
The way in which environmental costs are accounted for...........................................................4
PART 2............................................................................................................................................4
Importance of decision-making processes and the way in which management accountant gain
right information..........................................................................................................................4
Different types of planning tools and the way in which they are helping businesses to solve
financial problems that are faced by them...................................................................................6
Relevancy of budgetary control...................................................................................................7
The way in which KPI is improving financial performance........................................................7
The way in which businesses can gain financial stability...........................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial performance management could be defined as the process which is required to
be focused by all the businesses for assuring that the financial performance is maintained. It is
very important for the entities to pay attention towards it because it can facilitate the attainment
of all the planned goals and objectives (Al-Musali and Ismail, 2016). For an enterprise it is
essential to be focused with management of financial performance because it is required to be
maintained to sustain in the market. Main aim of present report is to understand the importance
of financial performance management for an enterprise so that it can meet all its desired goals
and objectives. This assignment covers various topics such as discussion of the issues that are
faced by businesses in managing the environmental costs along with the methods that are used to
account it. Apart from this, critical discussion of the way in which businesses incorporate
management accounting planning tools to deal with financial performance is also covered in this
assignment.
PART 1
Environmental management accounting
Environmental management accounting could be defined as the analysis, collection, use
and identification of different types of information for decision making which is performed
within the organisation. It addresses the needs of management related details of managers for
performing the corporate activities that are leaving impact upon the environment. Some of the
environmental effects can include consumption of water and power, carbon foot print, production
effluent, recycling etc. In context to this there are various types of management information
which is focused by the management accountants. Some of them could be analysed with the help
of following points:
 Identification and estimation of the costs which are related to environment activities.
 Different benchmarking activities against the best practices in context of environment.
 Assessment of impact and likelihood of environmental risks.
 Paying attention towards environment related indicators which are part of performance
monitoring on daily basis (Augustyn, Elshaer and Akamavi, 2019).
 Monitoring and identifying the ruse and cost of different types of resources such as
electricity, fuel and water so that plans for reduction of their use could be formulated.
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 Paying attention towards assuring that environmental considerations are treated as the
part of decisions that are formulated for the purpose of capital investment.
Environmental costs
Environmental cost: All the costs that are connected with potential or actual deterioration
of natural assets because of economic activities. It is very important for all the businesses to be
aware of all of them so that they can find ways to deal with all of them. There are various types
of it which could be analysed with the help of following discussion:
 Cost of internal failure: It includes all the costs that are related to elimination of
environmental impacts that are created the organisations. It is very important for the
businesses to make sure that they are able to pay attention towards these costs as it can
help to reduce the implication of operations upon the environment. All of them take place
when the entity tries to reduce its negative impact upon the environment (Deswanto and
Siregar, 2018).
 Cost of external failure: It is related to the activities that have resulted in damage to the
environment outside the organisation. These are such expenses that have taken place
because of negative impacts of the operations on the environment. It is very important for
the entities to ignore such implications if they are willing to control these costs. If the
business will affect the environment then it will result in higher cost of external failure of
the enterprise.
 Appraisal costs: These costs are related to the process of assessing the compliance with
the environmental policies. It is essential for the businesses to make sure that all the
environmental policies are complied by them because it can help to determine the steps
that are required to be taken to ignore negative impact upon the environment. While
analysing all the policies that are formulated by the legal authorities for the entities to
ignore negative impacts of operations upon the environment these costs take place.
 Prevention costs: All the expenses that are taking place because of the actions that are
taken by the businesses to prevent adverse environmental impacts are known as such
costs. In most of the businesses these costs are taking place as it is very important for
them to make sure that they are preventing adverse impacts of business upon
environment. With the help of it, the operations could be executed in systematic and
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ethical manner with proper ignorance of negative impacts upon the environment (Duque-
Grisales and Aguilera-Caracuel, 2019).
The way in which costs vs benefits being used
Cost vs benefit approach is a systematic approach which is used by businesses to estimate
all their strengths and weaknesses of different alternatives that are used for attaining higher
benefits. Main purpose of it is to analyse that the businesses are able to attain benefits or not with
the help of the steps that are taken for betterment of business.
The techniques that are used by management accountants to identify and manage environmental
cost along with examples
There are various types of techniques which could be used by businesses for the purpose
of identification and management of environmental costs. The discussion of them is as follows:
Face to face meeting: It is one of the main techniques which is used to identify the
environmental costs. With the help of it, management accountants conduct interaction with all
the senior and junior authorities of the organisation so that they can help to determine the
environmental costs.
Activity based costing: This technique is used to manage the environmental costs
because with the help of it the managers will be able to determine costs and implication of all the
activities. It can help to analyse that which activity may cause adverse impact upon the
environment and by using it the implications could be managed (Finger, Gavious and Manos,
2018).
Reasons for the importance of management of environmental cost for an organisation
It is very important for all the entities to manage the environmental costs and significance
of it could be understood with the help of following discussion:
 Management of environmental costs is very important because with the help of it, the
businesses can save funds for supporting operations.
 If the entities will not be focused with management of environmental costs then it may
affect the availability of funds (Hirunyawipada and Xiong, 2018).
The way in which environmental costs are recorded and identified
In order to identify the environmental costs, face to face meetings are conducted within
the organisations in which all the staff members contribute in the process in which the costs
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could be identified. All the environmental costs are recoded in the books of accounts in the same
way just like other costs that are taking place for the business.
The way in which all the environmental costs are controlled
It is very important for all the businesses to control the environmental costs so that the
profits could be increased. There are various types of ways which could be focused by businesses
for the purpose of controlling the environmental costs. In order to control these costs, the
businesses can be focused with reduction in the negative impacts upon the environment of their
operations (Hu and Kapucu, 2017).
The way in which environmental costs are accounted for
All the environmental costs are accounted for the implication of operations on the
environment. All of them are recorded in the books of accounting like other costs or expenses. It
is very important for the businesses to record them as it is very important to analyse actual
profitability of the business. These costs are accounted for the analysis, assessment and
controlling of environmental impacts of business.
PART 2
Importance of decision-making processes and the way in which management accountant gain
right information
Decision making could be defined as the process of formulating decisions for betterment
of businesses so that all the predetermined objectives could be attained. If the managers will not
be able to formulate effective decisions for the company then it may result in unachieved
objectives. Apart from this, if the management teams will not be able to get detailed information
of actual position of business then it will be very difficult to formulate decision for betterment of
business. If effective judgements for the entity will not be passed by the managers then it will
affect the functionality of business. It demonstrates that decision making process is very
important for an organisation (Iqbal, Nawaz and Ehsan, 2019). The significance of it could be
understood with the help of following discussion:
 Decision making is very important for all the entities as it can help the business to reach
its long as well as short term goals.
 With the help of effective decision making of managers the organisations can find ways
to improve the way in which operations could be carried out systematically.
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 The process of decisions making is essential for businesses as it can facilitate the
attainment of desired aim such as higher profits, increased productivity etc.
 If the managers will formulate decisions in systematic manner then it can guide them to
determine the changes that are required to be made in the operations so that the business
can attain growth.
 Decision making process is vital for all the organisations because it can strengthen the
market position if the management made highly effective judgements for development of
business.
 For all the business entities to assure effective decision making because it is very
important for finding the alternatives which could be focused for developing business.
In order to formulate right decisions, it is very important for all the management
accountants to gain right information. There are various types of resources which could be used
by them to get proper and detailed information of business. All of them are as follows:
 Financial statements: There are various types of financial statements that are used by
the management accountants to gather information. These are profit and loss account,
balance sheet and cash flow statement. With the help of income statement detailed
information of profitability of the firm could be determined. By using balance sheet, they
can analyse actual financial performance of business. Cash flow statement can help to
analyse actual liquidity of the entity so that it could be determined that all the short-term
payments will be made by the organisation or not (Kalyar, Shoukat and Shafique, 2019).
It is very important for management accountants to have ability to analyse these
statements because by using them accurate information to formulate decisions could be
gathered.
 Internal reports: These are the insider reports that are formulated by managers for
internal stakeholders so that they can determine the position of business. Some of them
are performance, budget, account receivables, inventory management etc. With the help
of all these reports the management accountants can collect different information related
to performance and position of business for decision making purpose.
By using all the above described resources, the management accountants can gather
information for effective decision making. With the help of them, they get information related to
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business position and performance that guides them formulate strategies for strengthen the
organisation.
Different types of planning tools and the way in which they are helping businesses to solve
financial problems that are faced by them
Planning tools are some of the elements that are used by businesses for the purpose of
formulating plans for future. There are various types of them which are used by businesses o
resolve the financial problems that are faced by businesses. Discussion of them along with their
use to deal with finance related issues is as follows:
Zero based budget: As its name demonstrates that it starts with zero base. All the details
that are mentioned in it are related to current year only. With the help of it, managers try to
determine the financial position of present year which helps them to analyse that business is
progressing or not. By using it the managers try to determine the financial problems which may
take place in future by analysing the final accounts. This budget facilitates them to analyse that
all the expenses and costs are justified in the budget and approved by the senior authorities or not
so that plans for dealing with financial issues could be made (Laari, Töyli and Ojala, 2018). It is
used to respond financial issues as by using it management accountants determine the problems
which may arise in future so that they can be prepare to respond them.
Operating budget: It could be defined as the budget that contains detailed information
of all the expenses and revenues that are generated by the organisation with the help of day to
day activities. It is highly focused with operating expenses that covers all the cost of goods sold,
incomes and revenues. In most of the businesses it is used as a planning tool so that the
management accountants can use it to deal with financial problems. By using it they can analyse
all the operating incomes, expenses and revenues so it can help them to analyse the future
revenues. With the help of it, they can formulate plans so that possibility of decreased sales in
future could be dealt. It is one of the most effective budgets which is used as a planning tool in
most of the businesses (Malagueño, Lopez-Valeiras and Gomez-Conde, 2018).
Capital budget: It is mainly used by businesses to analyse that they are having funds for
future investments. With the help of it, organisations can evaluate different options for
investment and then select one of them which is most profitable for business. Apart from this, it
can also help to deal with financial issues like improper investments of funding. If this planning
tool will be used by companies then it can help to choose the best suitable alternative for
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investment that can provide higher returns to support the business. It is formulated on yearly
basis for funding large investments.
Relevancy of budgetary control
Budgetary control could be defined as the process of controlling the overspending of
budgets so that the businesses can respond to the finance related issues which may take place in
future. Main purpose of it is to minimize the improper utilisation of finance in business by taking
corrective actions against spending of budgets. It plays main role in dealing with financial issues
because it guides the businesses to make sure that all the funding is used whenever it is required
and the decision of using it is taken with proper focus (Shahzad and Sharfman, 2017). Budgetary
control is a technique that facilitate the businesses to assure that their budgets are utilised
systematically for betterment of business.
The way in which KPI is improving financial performance
KPI (Key Performance Indicators): These are performance measures that are used for
evaluating success and failure of business processes that are performed by the enterprise. With
the help of it, management accountants of entities try to determine that the actions that are taken
by them for betterment of business are resulting positively or negatively. There are two different
types of KPIs that are used by businesses for the purpose of improving performance of business.
Discussion of them is as follows:
 Financial KPI: It is mainly used by businesses to analyse the possibility of unplanned
and sudden expenses which may take place in future and leave negative impact upon
functionality of business. With the help of it, organisations determine the finance related
expenses which may occur in future and required to be dealt by the enterprise. This KPI
facilitate the identification of them and help to resolve such type of financial challenge
which help to improve performance of business (Testa and D’Amato, 2017).
 Non-financial KPI: This KPI is related to find issues in non-financial activities such as
supply chain and logistics. With the help of it, the management accountants can find the
issues in all such types of activities which may result in financial issues because when
supply chain will not be managed then it will increase losses for business. If it will be
used then possibility of these problems could b reduced which will result in improved
performance of the organisation.
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The way in which businesses can gain financial stability
For all the businesses it is very important to gain financial stability so that all the targeted
goals could be accomplished successfully. With the help of it, the business entities can sustain in
the competitive market for longer period. In order to attain financial viability for business the
management accountants can pay attention towards different factors. Discussion of all of them is
as follows:
 By making sure that all the actions that will be taken in future are planned systematically,
a business can gain financial stability for long run within the market.
 Decision making is a main process which can help businesses to attain financial stability.
By involving stakeholders in it, it will be easy for the organisations to determine the
future strategies for maintaining and gaining it.
 It is very important for management accountants of businesses to ensure that they are
having right vision and mission which can motivate the employees to contribute in
attainment of financial viability (Wang, Dou and Jia, 2016).
 In order to achieve viability from financial perspective it is essential for all the businesses
to be focused with implications of external factors as it can help to analyse the steps that
are required to be taken to reduce the negative impacts.
 Brainstorming is the technique which could be focused by the entities for finding ways to
improve revenues as it can help to attain competitive advantage for business.
CONCLUSION
From the above project report it has been concluded that for all the businesses it is very
important to be focused with financial performance analysis as it can help to reach all the desired
goals and objectives. Environmental costs are such costs that are required to be focused by
businesses for controlling and analysing impacts of operations on environment. Apart from this,
there are various planning tools that are used by businesses for maintaining financial stability of
business.
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REFERENCES
Books and Journals:
Al-Musali, M. A. and Ismail, K. N. I. K., 2016. Cross-country comparison of intellectual capital
performance and its impact on financial performance of commercial banks in GCC
countries. International Journal of Islamic and Middle Eastern Finance and
Management.
Augustyn, M. M., Elshaer, I. A. and Akamavi, R. K., 2019. Competing models of quality
management and financial performance improvement. The Service Industries Journal.
pp.1-29.
Deswanto, R. B. and Siregar, S. V., 2018. The associations between environmental disclosures
with financial performance, environmental performance, and firm value. Social
Responsibility Journal.
Duque-Grisales, E. and Aguilera-Caracuel, J., 2019. Environmental, social and governance
(ESG) scores and financial performance of multilatinas: Moderating effects of
geographic international diversification and financial slack. Journal of Business Ethics.
pp.1-20.
Finger, M., Gavious, I. and Manos, R., 2018. Environmental risk management and financial
performance in the banking industry: A cross-country comparison. Journal of
International Financial Markets, Institutions and Money. 52. pp.240-261.
Hirunyawipada, T. and Xiong, G., 2018. Corporate environmental commitment and financial
performance: Moderating effects of marketing and operations capabilities. Journal of
Business Research. 86. pp.22-31.
Hu, Q. and Kapucu, N., 2017. Can management practices make a difference? Nonprofit
organization financial performance during times of economic stress. Journal of
Economics and Financial Analysis. 1(2). pp.71-88.
Iqbal, S., Nawaz, A. and Ehsan, S., 2019. Financial performance and corporate governance in
microfinance: Evidence from Asia. Journal of Asian Economics. 60. pp.1-13.
Kalyar, M. N., Shoukat, A. and Shafique, I., 2019. Enhancing firms’ environmental performance
and financial performance through green supply chain management practices and
institutional pressures. Sustainability Accounting, Management and Policy Journal.
Laari, S., Töyli, J. and Ojala, L., 2018. The effect of a competitive strategy and green supply
chain management on the financial and environmental performance of logistics service
providers. Business Strategy and the Environment. 27(7). pp.872-883.
Malagueño, R., Lopez-Valeiras, E. and Gomez-Conde, J., 2018. Balanced scorecard in SMEs:
effects on innovation and financial performance. Small Business Economics. 51(1).
pp.221-244.
Shahzad, A. M. and Sharfman, M. P., 2017. Corporate social performance and financial
performance: Sample-selection issues. Business & Society. 56(6). pp.889-918.
Testa, M. and D’Amato, A., 2017. Corporate environmental responsibility and financial
performance: Does bidirectional causality work? Empirical evidence from the
manufacturing industry. Social Responsibility Journal.
Wang, Q., Dou, J. and Jia, S., 2016. A meta-analytic review of corporate social responsibility
and corporate financial performance: The moderating effect of contextual
factors. Business & Society. 55(8). pp.1083-1121.
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