1. Cost control and accounting
The role of cost control models and environmental accounting in healthcare waste management

2. Contains of course
Cost and cost control
FCA - Full Cost Accounting
Environmental Accounting (EA)
EMA – Environmental Managerial Accounting

3. The costs of healthcare waste
“Typical” conventional costs for healthcare waste:
Disposal costs
Treatment costs
Waste collection items
Waste segregation equipment
Cleaning up spill kits
PPE – Personal Protection Equipment
Etc.

4. The “hidden” costs
The real cost of waste can be like an iceberg with only a small part to see. It can be hidden:
Image of the hospital (Quality)
Lost of material and energy
Liability of the hospitals
Lost of labor time
Regulatory compliance
Etc.

5. Potentially hidden costs
Cost to be considered !
Conventional Costs
Potentially hidden costs
Regulatory
Upfront
Back-End
Voluntary
Contingent Costs
Image and Relationship costs

6. Examples of hidden and less tangible costs:
Potentially hidden costs:
Site preparation, permitting, installation for on-site treatment
Closure of the treatment plant, disposal of inventory
Training, monitoring, recordkeeping
Less tangible costs:
Superfund, personal injury, property damage (Liability)
Employee safety and health compensation
Future regulatory compliance cost
Service quality
Hospital image

7. Hidden “Overhead” environmental costs
Environmental costs in the healthcare sector are mostly hidden in the general overhead cost of a hospital:
Health Service producing Cost Statement
Variable Costs
Materials
Intermediates
Additives
Utilities
Direct Labour
Packaging
Wastewater Treatment
$2.27/lb.
$0.87/lb. $0.41/lb. $0.96/lb.
$11.32/lb. $10.31/lb. $9.14/lb.
$0.04/kW-h $0.07/kW-h
$27.40/hr $31.43/hr.
$0.60/pkg. $0.57/pkg
$0.01/gal.
legal expenses
environmentally driven R&D
permitting time and fees
environmental training
Fixed costs
Supervisor
Fixed labour
Depreciation
Divisional overhead
General services & administration
Fixed Costs
Supervisor
Fixed Labour
Depreciation
Divisional Overhead
General Services & Administration
$4,600
$57,800
$1,227
$13,662
$1,294
Total Variable Cost
Total Fixed Cost
Total Service Cost
Total Cost

8. The problem of fixed and variable costs
Fixed Costs are costs that do not vary with the service output, level or other factors
e.g., waste equipment depreciation, labour
Variable Costs are costs that do (or can) vary with the service output, level other factors
e.g., disposable materials use (bags?), energy use
A cost considered “fixed” at one hospital may be considered “variable” at another hospital
Task: to correctly distinguish between fixed and variable costs when identifying and estimating environmental costs
The goal of clear cost structure is to reduce variable costs
If enviro. efforts will reduce a cost — then it is variable!

9. The problem of direct and indirect costs
Direct costs are costs that can be easily traced to a service
e.g., direct material cost, direct labour cost
Indirect costs are costs that cannot be traced easily to service
e.g., energy use, insurance, maintenance, waste treatment
A cost considered “direct” at one hospital may be considered “indirect” at another hospital
In general, direct costs within an hospital are assigned directly to the process or service responsible for generating the cost
Indirect costs are assigned to the institution, department, or ward overhead accounts
It can be difficult to find costs “hidden” in overhead accounts

10. Identifying and estimation of costs
LESS
HIDDEN
MORE
In general, as the list is followed, costs are more likely to be hidden or difficult to quantify.
(but every case is different!)
Equipment purchase,
direct materials, energy, labour
Waste disposal
Recycle/rework, treatment, waste handling
Regulatory compliance,
other indirect costs
Less tangible costs

11. The target of a clear cost structure
Clearing of decision making factors: To identify where, how and when to improve – means where to invest time and money!
Cost focus
Technical
Project selection
Regulatory
Financial
Organizational

12. FCA – Full Cost Accounting
FCA – what does it mean?
It is an accounting practice that can help decision makers to identify and manage the cost of waste
It helps to understand direct and indirect cost of waste service as well as upfront and backend cost
To identify, analyze and report all monetary costs of resources associated with waste management
It goes beyond the limits of cash flow accounting but does not negate cash flow principles

13. FCA – Full Cost Accounting
FCA – what are the benefits?
Identifying the actual cost of waste services
Enables the decision makers to learn the full costs of waste services, provides an systematic approach to isolate waste service costs to find out what drives these costs
Foster more cost-efficient waste service
Allows to consider the balance between the cost of a service and his utility, to evaluate whether a alternative method could provide a service for less money or greater value
Improve of negotiation power
For hospitals, seeking to privatizes the waste service, they are in a much stronger bargaining position if they understand the costs involved in providing the service

14. FCA – Full Cost Accounting
FCA – how does it work?
Develop descriptive information about the waste service
Including history, scope and future plans – how much waste is managed, who moves it, how often and by with means, where does it go – determining all activities and paths to identify costs
Taking an inventory
Finding out all assets that support the waste management
Review of the organizational structure
To identify internal and external organization which provide services and to find out there costs
Review financial records and reports
Purchases related to waste management, etc.

15. FCA – Full Cost Accounting
The five major FCA principles:
Accounting for costs rather than outlays – costs over the live cycle
Accounting for hidden cost – reflecting of costs and services
Accounting for overhead and indirect cost to individual services
Accounting for past and future costs
Accounting for costs according to path or activities

16. FCA – Full Cost Accounting
FCA – What are the barriers?
Lack of standardized methodology
Difficult transition from cash flow accounting to FCA
Allocation of waste management cost
To find out which overhead costs belong to the waste service
Accounting system changes
In some cases may the record keeping has to change
Lack of time and resources
Lack of staff time, cost of developing FCA, missing equipment
Financial disclosures – Internal opposition
FCA could expose high unit cost or inefficiency and might lead to the elimination of favored projects (Love killer)

17. “Costs” vs. “Costs”
The understanding of the term “costs” can differ between the interest of different groups.
project
profitability
ROI
capital
investment
market
share
profit centre
cost allocation
overhead costs
unit price
CDO
incinerator ban
regulatory
compliance
wastewater
energy
efficiency
dioxin
recycling
With the “cost translation”, the business and the environmental manager can communicate and co-operate more effectively.

18. What are environmental costs?
Definition:
Environmental costs are impacts, both monetary and non-monetary incurred by a firm or organization resulting from activities affecting environmental quality. These costs include conventional costs such as buildings, equipment, materials, labor and utilities, as well as potentially hidden and less tangible costs.
(Graff, R.G., et al.: Snapshots of Environmental cost accounting)

19. Key Terms: Environmental Accounting (EA)
Refers to the incorporation of environmental cost and benefit information into a variety of accounting practices
Environmental managerial accounting (EMA):
Provides information to internal decision-makers in support of various internal management decisions. Unlike financial accounting, disclosure of managerial accounting information to an external audience is totally discretionary and practices are not regulated
Life cycle:
Of a product is the series of stages spanning the product's useful life from acquisition, use, reuse, and final disposition
Life cycle costing:
Are the costs accrued throughout the life cycle stages of a product and is used to refer to incorporating environmental accounting into process and product design.

20. Position of EA – e.g. waste management
Financial
Management
Environmental
Management
FCA – Full cost
accounting
Integrated waste
Management
Environmental
Accounting
EA can be seen as link in the environmental and accounting framework which combines the environmental and accounting needs and helps the understanding of both groups

21. EMA in the accounting framework
Environmental Accounting
Hospital
(microeconomic)
Financial Accounting
(regulated)
Environmental Managerial
Accounting (unregulated)
External financial
reporting
Internal decision
making
EMA can be seen as internal tool for the decision maker and includes the environmental aspects and costs in a FCA

22. Why do EMA?
Environmental costs and performances deserve management attention for the following reasons:
Reduction or elimination of environmental costs as a result of business decisions
Environmental costs may be obscured in overhead accounts or otherwise overlooked
Improved environmental performances and significant benefits to human health – a step towards ISO 14000
Competitive advantage with patients from environmentally sound services
More accurate costing and pricing of services can aid hospitals in the design of more environmentally preferable processes

23. Business success by EMA?
Dow Jones Sustainability World Index – Environmental sound management shows success!
330.00
280.00
230.00
180.00
130.00
80.00
12/93
6/94
12/94
6/95
12/95
6/96
12/96
6/97
12/97
6/98
12/98
6/99
12/99
6/00
12/00
6/01
Dow Jones Sustainability World Index
Dow Jones Global Index (USD, Price Index)

24. Scale – depending on the hospital needs and goals:
Scale and Scope of EMA:
Scale – depending on the hospital needs and goals:
Individual process or group of processes
On a system (e.g. singular waste stream)
Ward, Department or the entire Hospital
Scope – depending on the hospital needs and goals:
Conventional costs
Hidden costs
Contingent costs
Relationship / image costs
Societal costs

25. Hierarchy of purchasing criteria:
Example: Purchasing
Hierarchy of purchasing criteria:
Clinical efficacy
Cost of acquisition %
Cost of storage
Cost of utilization %
Cost of disposal
Cost of obsolescence
Labor cost
Regulatory cost
Cost avoidance potential

26. EMA application in purchasing
EMA for supporting purchasing decisions:
Clinical effectiveness
Conventional costs:
Cost of acquisition, storage and disposition of the product
Environmental costs
Disposal costs
Labor costs (training, tracking, PPE, etc.)
Contingent costs
Regulatory costs

27. Barriers for EMA application in purchasing
While EMA is today widely used in the industry for making purchasing decisions, in the healthcare sector it can hardly be found. Main reasons:
Absence of easily available cost information
Strong belief that the marginal cost of obtaining requite data exceeds its marginal benefit
It can be noticed that while hospitals have a quite detailed knowledge available regarding costs and quantities of products entering the facility, there is far less awareness of the materials streams leaving the facility.