Beyond budgeting

by Shane Johnson
01 Mar 2005

A viewpoint has emerged during recent years which challenges the traditional
approach to the budgeting process that has operated in both private and public sector
organisations since time immemorial. While there may be comfort in tradition, what
is being proposed may be more relevant to the current business environment and the
challenges that must be overcome by organisations facing increasing competitive
pressures. Some of these ideas are revolutionary, particularly for the public sector,
and indeed even for the private sector where tradition can provide a comfort blanket
for managers in the increasingly demanding environment in which they operate. This
comfort derives from the predictability of the traditional budgeting process.

In the opinion of an increasing number of commentators, the application of

traditional budgeting processes tends to fix a company's thinking and response to
events in an ever-changing world. This limits flexibility in responding to these
events. There is an argument that the budget, in effect, reflects the previous year's
reality. This is why organisations and their managers place an undue focus on past
events rather than thinking about current and future issues within the organisation.

Today's organisations vary widely in the perception of the value provided by the
budgeting process. At one end of the spectrum there are executives who consider the
budget 'a tablet of stone' which gives them control. On the other hand the budgetary
process is anathema to many operational managers who view the budget as being a
pointless exercise and completely irrelevant to their day-to-day needs. The manner in
which resources are deployed is an organisation-wide consideration, and the drive to
maximise 'value-added' encompasses the finance department. In this respect it could
be argued that traditional budgeting processes require finance personnel to spend far
too much time on activities that are relatively low value. Given that finance staff
time is a finite resource, then perhaps it would be better spent providing the requisite
level of support to the operational managers within an organisation.

During recent years the business environment has become far more complex,
dynamic, turbulent and uncertain. Shorter product lifecycles coupled with
technological advancement has focused greater attention on innovation as a
determinant of corporate success. Although organisations need to be as adaptive to
change as possible, the rigidity of the budget serves only to stifle innovation and
responsiveness to change. The need to comply with a fixed plan, and to manage with
resources which may have been allocated more than one year earlier, act as
impediments that prevent managers from responding quickly to changes in today's
business environment.

The weaknesses of traditional budgeting processes have been the subject of much
attention and many commentators. Hope and Fraser consider that such weaknesses
include the following:

• Budgets prepared under traditional processes add little value and require far
too much valuable management time which would be better spent elsewhere.
• Too heavy a reliance on the 'agreed' budget has an adverse impact on
management behaviour, which can become dysfunctional with regard to the
objectives of the organisation as a whole.
• The use of budgeting as a base for communicating corporate goals - setting
objectives, continuous improvement etc - is seen as contrary to the original
purpose of budgeting as a financial control mechanism.
• Most budgets are not based on a rational, causal model of resource
consumption, but are often the result of protracted internal bargaining
processes.
• Conformance to budget is not seen as compatible with a drive towards
continuous improvement.
• Traditional budgeting processes have insufficient external focus.

Rolling, or perhaps monthly, budgets focus management attention on current and

likely future realities within the organisational context. This is not seen as managing
change, as this is outside the control of the organisation. Rather it is seen as an
attempt to keep ahead of change or, strictly speaking, to be more in control of the
response to the challenges facing the organisation. This importance may be
emphasised in the knowledge-based economies that have developed in the western
world.

Knowledge-based companies face competition which may seriously undermine any

innovation. This is particularly the case as product lifecycles become shorter.
Invariably, price levels are falling while the demand for increased product/service
quality is rising. Organisations need to be operating at the excellent end of the
quality spectrum if they are to continue to flourish and remain close to their
customers. It is arguable that talented managers who seek freedom, challenge and
responsibility are also in short supply. Such individuals often find traditional time-
consuming and 'legalistic' budget processes off-putting. The rapid production of new
solutions and strategies also depends on attracting and retaining such individuals.

In this view of the world, the traditional budget is seen as the fixed plan in
accordance with which all management processes are based and aligned. This
determines how managers behave and the activities and objectives on which they
focus. Annual budgeting is seen as absorbing considerable management time and the
monthly comparisons of actual and budgeted performance are primarily concerned
with control issues. Managers will not exceed their budgets by perhaps spending
necessary resources outside the planned budget cycle to react to events because their
bonuses or even their jobs may be put in jeopardy.
A major problem lies in the fact that circumstances will be different when the budget
was set and when subsequent comparisons are made and management decisions
required. An increasingly competitive global arena further accentuates the problem.
Inflexibility is thus seen as the key failing of traditional budgeting, and companies
are being urged to move towards continuous rolling forecasting to enable speedy and
coordinated adaptations to actual and anticipated changes in the business
environment.

Traditional budgets show the costs of functions and departments (eg staff costs and
establishment costs) instead of the costs of those activities that are performed by
people (eg receipt of goods, processing and dispatch of orders). Thus managers have
no visibility of the real 'cost drivers' of their business. In addition, it is probable that
a traditional budget contains a significant amount of non-value-added costs that are
not visible to managers. The annual budget also tends to fix the capacity for the
forthcoming budget period, thereby undermining the potential of activity-based
management (ABM) analysis to determine required capacity from a customer-
demand perspective. Those experienced in the use of ABM techniques will be
familiar with such problems. However, their tasks would be much easier to perform,
and their results more reliable, if such problems were removed.

THE 'BEYOND BUDGETING' MODEL - PRIVATE SECTOR

In the private sector, managers are forced to consider current and future
opportunities and threats, particularly where rolling monthly forecasts of financial
performance operate together with a focus on other non-financial 'value drivers'. In
essence, the 'beyond budgeting' model entails devolved managerial responsibility
where power and responsibility go hand in hand. The view held by proponents of the
beyond budgeting model is that the following benefits may accrue as a result of its
successful application by management:

• It creates and fosters a performance climate based on competitive success.

Goals are agreed via reference to external benchmarks as opposed to
internally-negotiated fixed targets. Managerial focus shifts from beating other
managers for a slice of resources to beating the competition.
• It motivates people by giving them challenges, responsibilities and clear
values as guidelines. Rewards are team-based, in recognition of the fact that
no single person can act alone to achieve goals.
• It devolves performance responsibilities to operational management who are
closer to the 'action'. This uses the 'know-how' of individuals and teams
interfacing with the customer, which in turn enables a far more rapid
adaptation to changing market needs.
• It empowers operational managers to act by removing resource constraints.
Key ratios are set, rather than detailed line-by-line budgets. For example,
gearing and liquidity ratios may be used to show there is enough cash in the
bank to meet liabilities. Local access to resources is thus based on agreed
parameters rather than line-by-line budget authorisations. This is aimed at
speeding up the response to environmental threats and enabling quick
exploitation of new opportunities.
• It establishes customer-orientated teams that are accountable for profitable
 customer outcomes. These teams agree resource and service-level
requirements with service departments via the establishment of service level
agreements.
• It creates transparent and open information systems throughout the
organisation, which should provide fast, open and distributed information to
facilitate control at all levels. The IT system is crucial in flexing the key
performance indicators as part of the rolling forecast process.

THE PUBLIC SECTOR

The legal framework of public sector organisations would probably prevent such a
system being introduced. As with all alternatives, the success of a particular process
depends on the needs of the individual organisation. The alternative of the beyond
budgeting model places considerable emphasis on the need for organisational,
managerial and cultural changes in order that it may be successfully applied by
organisations. This will present considerable behavioural challenges and individual
managers might become overwhelmed by the complexity of decision-making in such
an unregulated decision-making environment.
In the public sector, the budget process inevitably has considerable influence on
organisational processes, and represents the financial expression of policies resulting
from politically motivated goals and objectives. Yet the reality of life for many
public sector managers is an increased pressure to perform in a resource-constrained
environment, while also being subjected to growing competition. In essence, a public
sector budget:

• establishes the level of income and expenditure

• authorises that expenditure, once agreed, out of the planned income
• acts as a control on expenditure and income
• communicates policies and plans
• focuses attention on the future
• motivates managers and staff.

While these issues may be common with the private sector, a number of issues arise
which are specific to the public sector. For example, UK local authorities are
prevented by law from borrowing funds for revenue purposes or budgeting for a
deficit. If the beyond budgeting model is to allow greater freedom for managers then
it will take a considerable change of mindset in the public sector to achieve the
flexible agenda envisaged, especially where such flexibility would involve
considerable and increased delegation to managers. One wonders therefore, from a
behavioural perspective, if such managers are capable of making this change, as it
would entail the adoption of a radically different approach. Local authority financial
regulations also tend to prevent the transfer of funds from one budget head to
another (otherwise known as virement) without compliance with various rules and
regulations. These rules (expressed in the financial regulations of public sector
organisations) will be consistent with the policies of the organisation and are
designed to prevent expenditure on items such as permanent staff where such costs
would go beyond the budget year and represent a commitment of future resources.
Budgets in the public sector tend to concentrate on planning for one financial year
ahead. Attempts are being made by UK central government, through the
comprehensive spending review, to place an emphasis on the longer-term. However,
considerable difficulties exist within the individual organisations that make up the
public sector when creating a budget system that reflects longer-term objectives and
goes beyond the annual cycle. It also remains to be seen how the relatively new
system of resource accounting in central government will fit into the budgeting
framework.
Traditional methods of budgeting in the public sector centre on the bid system and
incremental budgeting. These approaches focus on changes at the margin and
generally reflect acceptance of the budget base from the previous year. This is partly
a reflection of the size and complexity of public sector organisations, but also the
internal political power of large departments, which protect their positions through
their relative strength. Bid systems also minimise conflict, as debate and power
struggles are only concerned with the 'incremental' items. More advanced approaches
are represented within financial planning systems, and include such concepts as
zero-based budgeting and planned programme budgeting systems with a timeframe
greater than one year.
Whether the public sector can adapt to the concept of greater flexibility - which lies
at the heart of beyond budgeting - remains a matter of ongoing debate. Such an
adaptation would require a mindset which not only moves away from control but
also requires a reduction in the internal political power of large departments which
has been at the heart of public sector budgeting for many years. The desire to
generate improved performance - essentially considered the driver for the beyond
budgeting model - is present in the public sector evidenced in initiatives such as key
performance indicators and 'best value' plans. But this is not matched by a desire for
the flexibility inherent in the model. In terms of beyond budgeting, managers in such
organisations are likely to remain constrained by the inability of their organisation to
change.

CONCLUSION
We see the beyond budgeting model as having particular relevance for knowledge-
based companies which are increasingly a feature of a developed economy. Other
companies may see specific benefits in such a system, given the rapidly changing
environment in which they also operate. These changes will not be introduced
without conflict and difficulty due to the challenges faced in introducing change.
Such challenges may be beyond the achievement of the public sector, due to the
expression in the budget of politically-motivated policies and objectives developed
within a complex legal and financial framework. What we can say, however, is that
if we are to see the successful application of the beyond budgeting model in both
private and public sectors, then this must be underpinned by a considerable
organisational, cultural and managerial change. Otherwise it is doomed to failure.

Shane Johnson is examiner for Paper P5 and Professor Hugh Coombs is head of
department - accounting, finance and information management at the
University of Glamorgan

FURTHER READING
• Coombs, H M and Jenkins, D E Public Sector Financial Management, 3rd
edition, Thomson Learning Press, 2003.
• Hope, J and Fraser, R Beyond Budgeting, 1st edition, Harvard Business
School Press, 2003.
by Shane Johnson
01 Sep 2005

It has become increasingly important for organisations to develop systems of

performance measurement which not only reflect the growing complexity of the
business environment but also monitor their strategic response to this complexity.
The need for good performance management is an ongoing issue which should be
addressed by the management of all organisations.

This article considers issues which are central to the understanding and assessment
of performance measurement within any organisation. The main issues requiring
consideration by management are:

• linking performance to strategy

• setting performance standards and targets
• linking rewards to performance
• considering the potential benefits and problems of performance measures.

In attempting to establish a clear link between performance and strategy it is vital

that management ensures that the performance measures target areas within the
business where success is a critical factor. The performance measures chosen should:

• measure the effectiveness of all processes including products and/or services

that have reached the final customer
• measure efficiency in terms of resource utilisation within the organisation
• comprise an appropriate mix of both quantitative and qualitative methods
• comprise an appropriate focus on both the long-term and short-term
• be flexible and adaptable to an ever-changing business environment.

The last point stresses how important it is that performance measurement systems
are dynamic so that they remain relevant and continue to reflect the issues important
to any business. There are a number of models of performance measurement which
can be used by management. This article considers the 'performance pyramid' of
Lynch and Cross (1991)1. The model represents an acknowledgement by the writers
that traditional performance measurement systems were falling short of meeting the
needs of managers in a much changed business environment.

Lynch and Cross suggest a number of measures that go far beyond traditional
financial measures such as profitability, cash flow and return on capital employed.
The measures that they propose relate to business operating systems, and they
address the driving forces that guide the strategic objectives of the organisation.
Lynch and Cross propose that customer satisfaction, flexibility and productivity are
the driving forces upon which company objectives are based. They suggest that the
status of these driving forces can be monitored by various indicators which can be
derived from lower level (departmental) measures of waste, delivery, quality and
cycle time. The performance pyramid derives from the idea that an organisation
operates at different levels each of which has a different focus. However, it is vital
that these different levels support each other. Thus the pyramid links the business
strategy with day-to-day operations.

In proposing the use of the performance pyramid Lynch and Cross suggest
measuring performance across nine dimensions. These are mapped onto the
organisation - from corporate vision to individual objectives.

Within the pyramid the corporate vision is articulated by those responsible for the
strategic direction of the organisation. The pyramid views a range of objectives for
both external effectiveness and internal efficiency. These objectives can be achieved
through measures at various levels as shown in the pyramid. These measures are
seen to interact with each other both horizontally at each level, and vertically across
the levels in the pyramid.

George Brown (1998)2 explains what Lynch and Cross refer to as 'getting it done in
the middle' focuses on business operating systems where each system is geared to
achieve specific objectives, and will cross departmental/functional boundaries, with
one department possibly serving more than one operating system. For example, an
operating system may have new product introduction as its objective, and is likely to
involve a number of departments from design and development to marketing. At this
level, performance focus will be on three needs. First, there will be a focus on the
need to ensure customer satisfaction. Second, there will be a focus on the need for
flexibility in order to accommodate changes in methods and customer requirements.
Third, there will be a focus on the need to achieve productivity which necessitates
looking for the most cost effective and timely means of achieving customer
satisfaction and flexibility.

At the bottom level of the pyramid is what Lynch and Cross refer to as 'measuring in
the trenches'. Here the objective is to enhance quality and delivery performance and
reduce cycle time and waste. At this level a number of non-financial indicators will
be used in order to measure the operations. The four levels of the pyramid are seen to
fit into each other in the achievement of objectives. For example, reductions in cycle
time and/or waste will increase productivity and hence profitability and cash flow

The strength of the performance pyramid model lies in the fact that it ties together
the hierarchical view of business performance measurement with the business
process review. It also makes explicit the difference between measures that are of
interest to external parties - such as customer satisfaction, quality and delivery - and
measures that are of interest within the business such as productivity, cycle time and
waste.

Lynch and Cross concluded that it was essential that the performance measurement
systems adopted by an organisation should fulfil the following functions:
The measures chosen should link operations to strategic goals. It is vital that
departments are aware of the extent to which they are contributing - separately and
together - in achieving strategic aims.

The measures chosen must make use of both financial and non-financial information
in such a manner that is of value to departmental managers. In addition, the
availability of the correct information as and when required is necessary to support
decision-making at all levels within an organisation.

The real value of the system lies in its ability to focus all business activities on the
requirements of its customers.

These conclusions helped to shape the performance pyramid which can be regarded
as a modeling tool that assists in the design of new performance measurement
systems, or alternatively the re-engineering of such systems that are already in
operation. See Figure 1.

Figure 1: the performance pyramid (Lynch and Cross, 1991)

David Otley (2005)3 has observed that other related frameworks exist, such as the
results and determinants framework by Fitzgerald et al (1991), the balanced
scorecard by Kaplan and Norton (1992) and Neely et al's performance prism. A
common thread in all of them is that performance measures should:

• be linked to corporate strategy

• include external as well as internal measures
• include non-financial as well as financial measures
• make explicit the trade-offs between different dimensions of performance
• include all important but difficult to measure factors as well as easily
measurable ones
 • pay attention to how the selected measures will motivate managers and
employees.

Setting standards and targets

To set standards and targets, management could choose to make use of
benchmarking and/or target costing while being mindful of the critical need to link
rewards to performance as appropriate.

Benchmarking
Benchmarking is 'a continuous, systematic process for evaluating the products,
services, and work processes of organisations that are recognised as representing
best practices for the purposes of organisational improvement' (Spendolini 1991)4.
The most common approach is process benchmarking, where the standard of
comparison is a 'best practice' firm which may be entirely unconnected with the
benchmarking organisation. It may not even operate within the same industry. The
objective is to improve performance. This is best achieved through the sharing of
information which should be of mutual benefit to both parties taking part in the
benchmarking programme. As a result of receiving new information, each party will
be able to review their policies and procedures. The process of comparing respective
past successes and failures can serve as a stimulus for greater innovation within each
organisation.

Target costing
Target costing should be viewed as an integral part of a strategic profit management
system. The initial consideration in target costing is the determination of an estimate
of the selling price for a new product which will enable a firm to capture its required
share of the market. It is then necessary to reduce this figure to reflect the firm's
desired level of profit, having regard to the rate of return required on new capital
investment and working capital requirements. The deduction of required profit from
the proposed selling price will produce a target price that must be met in order to
ensure that the desired rate of return is obtained. The main theme of target costing is,
therefore, what a product should cost in order to achieve the desired level of return.

Target costing will necessitate comparison of current estimated cost levels against
the target level. This must be achieved if the desired levels of profitability, and hence
return on investment, are to be achieved. Where a gap exists between the current
estimated cost levels and the target cost, it is essential that this gap is closed.

Performance rewards
Management will encourage employees to achieve organisational goals by having
rewards linked to their success or failure in achieving desired levels of performance.
It is critical that management establish an appropriate performance-rewards linkage.
Management should consider a rewards package comprising both financial and non-
financial rewards. Typical organisational rewards include salary increases, bonuses,
promotion, and recognition. Employees may also earn intrinsic rewards through a
sense of achievement and perceived success. Management should also give serious
consideration to the establishment of 'negative rewards' or 'punishments' which
should be linked to failure to achieve desired levels of performance. These may
include failure to obtain potential rewards, demotions, and possibly the loss of
employment.

Potential benefits
There are several potential benefits for an organisation that implements a reward
scheme:

• Rewards and incentives can make a positive contribution to strategy

implementation by shaping the behaviour of individuals and groups. A well-
designed reward scheme will be consistent with organisational objectives and
structure.
• There is evidence which suggests the existence of a reward scheme provides
an incentive to achieve a good level of performance. Moreover, the existence
of effective schemes helps not only to attract but also to retain employees
who make positive contributions to the running of an organisation.
• Key values can be emphasised by incorporating key performance indicators
in the performance-rewards mechanisms which underpin the scheme. This
helps to create an 'understood environment' in which it is clear to all
employees the performance aspects that contribute to organisational success.
• An effective reward scheme will create an environment in which all
employees are focused on continuous improvement.
• Schemes that incorporate equity share ownership for managers and
employees alike can encourage behaviour which, in the longer-term, focuses
on actions aimed at increasing the market value of the organisation.

Some of the principal areas that warrant management consideration in the design of a
reward scheme include:

• Whether performance targets should be set with regard to results or effort. It

is more difficult to set targets for administrative and support staff since in
many instances the results of their efforts are not easily quantifiable. For
example, good sales administrators will improve levels of customer
satisfaction but quantifying this is extremely difficult.
• Whether rewards should be monetary or non-monetary. Money means
different things to different people. In many instances people will prefer
increased job security which results from improved organisational
performance and adopt a longer-term perspective. For these employees share
 option schemes might appeal. Well-designed schemes will correlate the
prosperity of the organisation with that of the individuals it employs.
• Whether the reward promise should be implicit or explicit. Explicit reward
promises are easy to understand but in many respects management will have
their hands tied. Implicit reward promises such as the promise of promotion
for good performance is also problematic since not all organisations are large
enough to offer structured career progression. In situations where not
everyone can be promoted, a range of alternative reward systems need to be
in place to acknowledge good performance and encourage commitment from
the workforce.
• The size and time span of the reward. This can be difficult to determine
especially in businesses which are subject to seasonal variations. Activity
levels may vary and there remains the potential problem of assessing
performance when an organisation operates with surplus capacity.
• Whether the reward should be individual or group-based.
• Whether the reward scheme should involve equity participation. Such
schemes invariably appeal to directors and senior managers but should
arguably be open to all individuals if 'perceptions of inequity' are to be
avoided.
• Tax implications also need to be considered.

Performance measures - benefits and problems

Berry, Broadbent and Otley (1995)5 suggest that the following benefits can be
derived from the use of performance measures:

• Clarification of the objectives of the organisation.

• The development of agreed measures of activity.
• A greater understanding of the processes within the organisation.
• The facilitation of comparisons of performance between different
organisations.
• The facilitation of the setting of targets for the organisation and its managers.
• The promotion of the accountability of the organisation to its stakeholders.

However, they also draw attention to the potential problems that may develop from
the use of performance measures by an organisation. These could include:

• tunnel vision
• sub-optimisation
• myopia
• measure fixation
• misrepresentation
• misinterpretation
• gaming
• ossification.
It is vital that management give detailed consideration as to whether there are likely
to be problems in using performance measures as targets for the organisation and its
managers. Of particular importance is the need to assess whether the use of
performance measures will help to provide accountability of the organisation and its
employees to the stakeholder. This raises the question of the compatibility
(congruence) of individual and organisational goals.

Individual goals may focus on financial and non-financial areas such as

remuneration, promotion prospects, job security, job satisfaction, and self-esteem.
There may be a conflict for each individual between actions to ensure the
achievement of individual goals and/or organisational goals. The list of potential
problems cited by Berry, Broadbent and Otley may be illustrated in the context of
any type of organisation. The comments which follow are illustrated in the context
of what could occur (although should not occur) in a firm of practising accountants.

• Tunnel vision may be seen as undue focus on performance measures to the

detriment of other areas. For example, efforts to ensure a staff utilisation ratio
of 72%, measured in terms of chargeable hours as a proportion of total hours
available, may lead to inadequate documentation of client records and
developments in areas such as communication and teamwork.
• Sub-optimisation may occur where undue focus on some objectives will
leave others not achieved. For example, an audit partner may be focused on
winning new clients but this may result in inadequate supervision regarding
the work of current clients.
• Myopia refers to short-sightedness leading to the neglect of longer-term
objectives. An undue focus on generating current client income could be to
the detriment of longer-term goals such as practice development or
innovations in approaches to the management of client affairs.
• Measure fixation implies behaviour and activities in order to achieve specific
performance indicators which may not be effective. For example, using too
junior staff on an audit in order to limit costs might result in much re-work,
costly delays, and client dissatisfaction.
• Misrepresentation refers to the tendency to indulge in creative reporting in
order to suggest that a performance measure result is acceptable. For
example, a client survey report statistic might indicate that 95% of
respondents indicated their satisfaction with a particular service provided by
the practice while in actual fact only a carefully selected 20% of clients were
sent the questionnaire.
• Misinterpretation involves the failure to recognise the complexity of the
environment in which the organisation operates. Within an accountancy
practice, one partner might be focused on the achievement of profit whereas
another partner might be focused on winning high-profile clients, and another
paying attention to establishing a local reputation. Within such a scenario, the
existence of multiple motives creates a complex environment in which the
objectives of the principal players may not always coincide.
• Gaming is where there is a deliberate distortion of the measure in order to
 secure some strategic advantage. This may involve deliberate under-
performing in order to avoid higher targets being set. For example, when
conducting an audit, a manager might become aware of a potentially
lucrative opportunity to supply consultancy services. If such services were
not budgeted for in respect of the forthcoming year then the manager would
undoubtedly be perceived in a good light when a contract for those services
suddenly came to fruition. Another example of gaming would be the
restriction of departmental consultancy earnings in one year in order that the
target for the next year will not be increased and/or to hold back consultancy
possibilities which are in the pipeline in order to create slack.
• Ossification, which by definition means 'a hardening', refers to an
unwillingness to change the performance measure scheme once it has been
set up. An example might be the use of a standard set of questions in a
questionnaire to test client satisfaction with a particular service. Good
responses may simply indicate a poorly-structured questionnaire, rather than
a high degree of client satisfaction.

Addressing the problems

One should acknowledge that imperfections will exist in any performance
measurement scheme. George Brown (1998) has outlined a number of actions that
may be taken in order to minimise the impact of imperfections which may exist.
These are as described below.

Involving staff at all levels in the development and

implementation of the scheme
People are involved in the achievement of the performance measures at all levels,
and in all aspects, of an organisation. It is important that all staff are willing to
accept and work towards any performance measures which are developed to monitor
their part in the operation of the organisation and in the achievement of its
objectives. This should help to reduce the extent of gaming and tunnel vision.

Being flexible in the use of performance measures

It is best to acknowledge that performance measures should not be relied on
exclusively for control. A performance measure may give a short-term measure
which does not relate directly to actions which are taking place in order to lead to an
improved longer-term level of performance. To some extent it should be
acknowledged that improved performance may be achieved through the informal
interaction of individuals and groups. This flexibility should help to reduce the
extent of measure fixation and misrepresentation.

Keeping the performance measurement system

under constant review
This should help to overcome the problems of ossification and gaming. Another
requirement in overcoming problems is to give careful consideration to the
dimensions of performance. Actions that may be taken include quantifying all
objectives (however difficult this may appear to be) and to try and focus on
measuring customer satisfaction. Efforts to quantify an objective will improve the
efforts to understand and take action to achieve the intended output of the objective.
Such actions should help to overcome sub-optimisation. Measuring customer
satisfaction is a vital goal. Without continuing and improved levels of customer
satisfaction, any organisation is underachieving and is likely to have problems in its
future effectiveness. Positive signals from performance measures earlier in the value
chain are only of relevance if they contribute to the ultimate requirement of customer
satisfaction. Once again, tunnel vision and sub-optimisation should be reduced
through recognition of this requirement.

Consideration should also be given to the audit of the system. Seeking expert
interpretation of the performance measurement system should help in considering
the likely incidence of any or all of the problems cited above. It is important that this
issue is considered at arms length and is not influenced by the views of those
operating the scheme. In addition, maintaining a careful audit of the data used should
help to reduce the incidence and impact of measure fixation, misinterpretation, or
gaming. This is because any assessment scheme is only as good as the data on which
it is founded and how such data is analysed and interpreted. It is also relevant to
recognise key features necessary in any scheme. Once again, such measures should
help to overcome the range of problems outlined above. Key features will include:

• nurturing a long-term perspective among staff. This may be difficult to

achieve where rewards such as bonus or promotion are based on relatively
short-term measures.
• trying to limit the number of performance measures. Better to focus on the
key events which are likely to result in customer satisfaction. Too many
performance measures may simply dissipate effort and could lead to
conflicting actions.
• developing performance benchmarks which are independent of past activity.
This refers to the need to focus on the way ahead - and how, by appropriate
action, to improve from whatever the current situation may be.

Shane Johnson is examiner for Paper P5

References

1. Lynch R L, and Cross K F, Measure up!: Yardsticks for Continuous

Improvement (1st edition, 1991), Blackwell (USA).
2. Brown G, Accountability and performance measurement, Students'
 Newsletter, October 1998.
3. Berry A J, Broadbent J, and Otley D T, Management Control: Theories,
Issues and Performance (2nd edition, 2005), Palgrave Macmillan.
4. Spendolini M J, The Benchmarking Book, (1991), American Management
Association.
5. Berry A J, Broadbent J, and Otley D T, Management Control: Theories,
Issues and Practices (1st edition, 1995), Macmillan Press.
Performance measures to support
competitive advantage
by Graham Morgan
01 Aug 2005

The emergence in the 1990s of low-cost airlines and the expansion of the European
travel market has shown how competition can significantly affect the structure of an
industry.

Ryanair and easyJet are now well-established and their on-going success will depend
upon a continuing ability to attract customers and maintain operational efficiency.
This must be done in the context of increased competition from schedule and charter
airlines that now recognise the effectiveness of the business model adopted by the
low-cost carriers. This article examines how the balanced scorecard might be used to
maintain the low-cost carriers' competitive edge.

The business model adopted by low-cost carriers can be viewed as having three
broad elements on which success is based:

• route network development

• brand development and marketing effectiveness
• low-cost operations.

These aspects can be seen to be structural as they reflect major decisions and
developments which set the context for operational performance and day-to-day
management.

The route network is the product dimension of first importance to customers. Before
European air travel was deregulated in the mid-1990s, the market was neatly
divided. Schedule carriers focused primarily on business travellers with 75% of the
market, the other 25% being provided by charter airlines as part of the package
holiday industry. Low-cost carriers use aircraft which for European routes are
generally larger than those used by schedule airlines and routes
the balanced scorecardmust be selected to provide high load factors, ie percentage of
available seats sold.

Routes chosen should be new routes or those served by high-cost carriers, and have
appeal to leisure and private travellers. This approach allows low-cost carriers to use
secondary airports at major European cities or regional airports which provide
overseas homeowners greater access to properties with minimum travel in the
destination country. Another major aspect of the route network decision is the
departure airport. Low-cost carriers' use of secondary airports in the UK provides
convenience to travellers, and important cost savings for the company.

Another important factor in the development of the route network is to avoid direct
competition from other low-cost carriers. In 2002, of 128 low-cost routes, only 17
involved the same departure and destination airports - and Ryanair and easyJet
adopted distinct positions in the market. While Ryanair has become the 'least-cost
provider', easyJet has positioned itself to have a significant appeal to the business
traveller by flying three times a day to major cities such as Amsterdam, Madrid,
Paris, and Zurich from London's Luton and Gatwick airports, which are generally
viewed as more accessible from London than Stansted (Ryanair's base airport). The
success of the route network strategy is supported by the fact that easyJet carried 11
million passengers in 2004, operating 153 routes to 44 European airports.

Brand development and marketing effectiveness is essential for a product which has
a high level of market acceptance which is evidently the case with the low-cost
carriers' route network strategy outlined already.

There are two major factors which have allowed both Ryanair and easyJet to
capitalise on product strengths to become leading UK brand names. First, the
accepted practice in the industry of discounting prices just before departure dates
was reversed so that fares are initially low and rise as departure dates approach. This
practice, especially when supported by aggressive promotional campaigns such as
'200,000 seats at 99p - must be booked before September 200X' promotes the
company's central market message in an extremely effective manner. This strategy is
particularly effective since the average price paid per seat is greatly in excess of the
'loss leader' promotional price and is comparable to that obtained by traditional
charter airlines. Secondly, the brand is promoted by the adoption of direct selling to
the customer either via the telephone or the Internet. The customer deals with
Ryanair or easyJet and not the travel agent, with a consequent increase in brand
identification. The removal of the latter from the purchase transaction also provides a
significant cost saving since no commission is paid.

Low-cost operations are in part based on the cost advantages of operating from
secondary airports, and the direct selling strategies outlined above. These cost
advantages in relation to schedule airlines are enhanced by aircraft fleet utilisation
decisions. Firstly, increased number of seats per aircraft provides a considerable
reduction in passenger unit costs. Secondly, the daily flying time per aircraft is
increased significantly. Thirdly, the elimination of free in-flight passenger services,
particularly catering, removes a cost which is not necessarily value-adding to the
customer and allows faster turnaround times between flights. The final factor
providing significant cost savings are crew compensation and utilisation factors
based on the higher usage time of aircraft. Lower costs and high load factors permit
the low-cost carriers to offer fares 50 to 70% below those offered by schedule
airlines. Binggeli and Pompeo1 have estimated that the cumulative cost savings for a
lower cost carrier such as Ryanair are reflected in the cost per available seat
kilometre (ASK) statistic. They estimate that in 2001, this cost to the top three major
schedule airlines was 12 cents (US) compared with 4.5 cents (US) for Ryanair. On
this basis, Ryanair's breakeven load factor is 55%.

The scorecard approach

In maintaining the competitive position arising from the business model of the low-
cost carriers, it is necessary for management to develop a set of performance
measures which focus
Management control - a pre-requisite
for survival
by Shane Johnson
01 Oct 2004

Recent years have witnessed major changes in business structure. In general, today's
businesses are far more complex in terms of both structure and operation. Increasing
recognition is given to satisfying the needs of different stakeholders who include
customers, suppliers, employees, local communities, investors, lenders and national
governments.

We live in a world of change. Organisational success is hugely dependent on how

well an organisation is able to predict and respond to changes in technology and the
requirements of industrial and consumer-buyers alike. Those organisations that are
able to accommodate such changes are likely to continue to prosper. Organisations
that fail to recognise or respond in an appropriate manner to changes that occur in
both technology and the marketplace may well lose a large share of their sales
volumes and in the worst case scenario may be forced out of business.

Business units are larger and more complex, often spread over several territories.
The growth of multinational organisations and increased globalisation is widely
acknowledged and the business environment itself is subject to rapid change.
Therefore it is of paramount importance that organisations have effective control
mechanisms that will enable management to ensure the survival of the organisation.
Management need to be able to focus on adopting the right tactics and actions in
order to achieve the goals and objectives of the organisation.

While the need for effective management control has never been greater, one should
acknowledge how critical the design and operation of effective management control
systems are and their interface with accounting information systems. One should
also be aware that accounting is one of the many control tools available to
management. While it may assume a central position in a control structure it will
need to be supplemented by other initiatives.

Many accountants subscribe to the view that cash is the lifeblood of an organisation
and marketeers are often quick to point out that innovation is essential in order to
ensure organisational longevity. However, while one must acknowledge the truth
attached to these propositions, from an organisational control viewpoint, the
importance of appropriate information to facilitate the control of the sphere of
operations must also be recognised. Without a constant supply of relevant
information an organisation would inevitably flounder. An organisation's
management information system lies at the heart of the information gathering
process and the management accounting system will invariably be an important part
of this. The management accounting system produces pertinent information for use
by management since it measures activities in terms of its base and (often) other
currencies. The multi-currency capability of today's management accounting systems
enables management to maintain more effective control relating to what are very
often geographically disparate operations.

Although many commentators argue that the fundamental nature of management

accounting systems and practices remains unchanged, in today's business world
management tends to use the accounting systems at its disposal in a far more flexible
manner than previously and also uses financial reports to an increasing extent in
conjunction with a range of financial and non-financial performance measures.

Contingency theory of management accounting

The question arises as to whether or not there is an appropriate accounting-based
control system which will suit all organisations in all situations. The answer to this
question must be 'no', as organisations vary in size, structure and complexity. What
constitutes an effective management control system therefore depends on the
circumstances surrounding its use.

The question that management accountants need to answer is 'which is the most
appropriate accounting-based control system that will best fit the circumstances of
our organisation?' In order to answer this question they need to give consideration to
the identification of the most important contingent variables and undertake an
assessment of their impact on the design of a management accounting control
system. These considerations are encapsulated in what has become known as 'the
contingency theory of management accounting'.

Otley has provided the following widely-used definition of contingency theory:

'The contingency theory of management accounting is based on the premise that

there is no universally appropriate accounting system applicable to all organisations
in all circumstances. Rather a contingency theory attempts to identify specific
aspects of an accounting system that are
Environmental management accounting
by Shane Johnson
01 Jun 2004

This article is intended to help students understand environmental management

accounting, its increasing importance, and new developments.

The global profile of environmental issues has risen significantly during the past two
decades, precipitated in part by major incidents such as the Bhopal chemical leak
(1984) and the Exxon Valdez oil spill (1989). These events received worldwide
media attention and increased concerns over major issues such as global warming,
depletion of non-renewable resources, and loss of natural habitats.

This has led to a general questioning of business practices and numerous calls for
change. These questions have not only been raised by organisations such as Friends
of the Earth, Greenpeace, or groups of 'eco-warriors', but from the United Nations,
the European Union, the UK government, the British Bankers Association, insurance
companies and pension funds. Recognition that our current way of life poses a threat
to us and our planet, has led to global agreements on action to prevent future
environmental damage. Such agreements include the Montreal Protocol, the Rio
Declaration, and the Kyoto Protocol.

Businesses have become increasingly aware of the environmental implications of

their operations, products and services. Environmental risks cannot be ignored, they
are now as much a part of running a successful business as product design,
marketing, and sound financial management. Poor environmental behaviour may
have a real adverse impact on the business and its finances. Punishment includes
fines, increased liability to environmental taxes, loss in value of land, destruction of
brand values, loss of sales, consumer boycotts, inability to secure finance, loss of
insurance cover, contingent liabilities, law suits, and damage to corporate image.

Nearly all aspects of business are affected by environmental pressures, including

accounting. From an accounting perspective, the initial pressures were felt in
external reporting, including environmental disclosures in financial reports and/or
the production of separate environmental accounts. Much has been written about the
nature and quality of these accounts (see Gray and Bebbington, 2001 for an
introduction into this area). However, environmental issues cannot be dealt with
solely through external reporting. Environmental issues need to be managed before
they can be reported on, and this requires changes to management accounting
systems.

Environmental Review of Conventional Management

Accounting
In an ideal world, organisations would reflect environmental factors in their
accounting processes via the identification of the environmental costs attached to
products, processes, and services. Nevertheless, many existing conventional
accounting systems are unable to deal adequately with environmental costs and as a
result simply attribute them to general overhead accounts. Consequently, managers
are unaware of these costs, have no information with which to manage them and
have no incentive to reduce them (United Nations Division for Sustainable
Development (UNDSD), 2003)). It must be recognised that most management
accounting techniques significantly underestimate the cost of poor environmental
behaviour. Many overestimate the cost and underestimate the benefits of improving
environmental practices.

Management accounting techniques can distort and misrepresent environmental

issues, leading to managers making decisions that are bad for businesses and bad for
the environment. The most obvious example relates to energy usage. A recent UK
government publicity campaign reports that companies are spending, on average,
30% too much on energy through inefficient practices. With good energy
management, we could reduce the environmental impact of energy production by
30% and slash 30% of organisations' energy expenditure. Frost and Wilmhurst
(2000) suggest that by failing to reform management accounting practices to
incorporate environmental concerns, organisations are unaware of the impact on
profit and loss accounts and the balance sheet impact of environment-related
activities. Moreover, they miss out on identifying cost reduction and other
improvement opportunities, employ incorrect product/service pricing, mix and
development decisions. This leads to a failure to enhance customer value, while
increasing the risk profile of investments and other decisions with long-term
consequences. If management accounting as a discipline is to contribute to
improving the environmental performance of organisations, then it has to change.
Environmental Management Accounting (EMA) is an attempt to integrate best
management accounting thinking and practice with best environmental management
thinking and practice.

Environmental Management Accounting

EMA is the generation and analysis of both financial and non-financial information
in order to support internal environmental management processes. It is
complementary to the conventional financial management accounting approach, with
the aim to develop appropriate mechanisms that assist in the identification and
allocation of environment-related costs (Bennett and James (1998a), Frost and
Wilmhurst (2000)). The major areas for the application for EMA are:

• in the assessment of annual environmental costs/expenditures

• product pricing
 • budgeting
• investment appraisal
• calculating costs
and
• savings of environmental projects, or setting quantified performance targets.

EMA is as wide-ranging in its scope, techniques and focus as normal management

accounting. Burritt et al (2001) stated: 'there is still no precision in the terminology
associated with EMA'. They viewed EMA as being an application of conventional
accounting that is concerned with the environmentally-induced impacts of
companies, measured in monetary units, and company-related impacts on
environmental systems, expressed in physical units. EMA can be viewed as a part of
the environmental accounting framework and is defined as 'using monetary and
physical information for internal management use'.

Burritt et al developed a multi-dimensional framework of EMA (Figure 1). Their

framework considers the distinctions between five dimensions:

• internal versus external

• physical versus monetary classifications
• past and future timeframes
• short and long terms
and
• ad hoc versus routine information gathering in the proposed framework for
the application of EMA.

Figure 1: Proposed framework of EMA according to Burritt et al (2001)

Within this framework the different techniques of EMA - such as environmental

lifecycle costing or environmental cost accounting - can be placed and assigned. The
management of a company can choose appropriate tools on the basis of their
information needs.
Similarly, in a series of publications (1997, 1998a, 1998b), Bennett and James
describe the diverse range and scope of environmental management accounting.
They provide a set of useful models, one of which is 'The Environment-Related
Management Accounting Pyramid', to help evaluate environmental management
accounting practices as well as to help in the design and implementation of new
systems.

According to Bennett and James (1998a) (Figure 2), EMA is concerned with
gathering data related to the environment (lowest levels), which are converted
through techniques and processes (middle level) into information which is useful for
managers (top). Key data is both non-financial and financial in nature. Management
accounting techniques such as performance measurement, operational budgeting,
costing or pricing are used for the transformation.

Figure 2: The environment-related management accounting pyramid, Bennett

and James (1998A)

Examples of techniques
Redefining Costs
A literature review reveals various approaches to the definition of environmental
costs. In 1998, the US Environmental Protection Agency argued that the definition
of environmental costs depended on how a company intends to use the information,
for example in capital budgeting or product design. They introduced terminology
that distinguishes between conventional costs, potentially hidden costs, contingent
costs, and image and relationship costs.
Conventional costs are those raw material and energy costs having environmental
relevance. Potentially hidden costs are those which are captured by accounting
systems, but then lose their identity in 'overheads'. Contingent costs may be incurred
at a future date - for example costs for cleaning up. They are also referred to as
contingent liabilities. Image and relationship costs are intangible in nature and
include, for example, the costs of producing environmental reports.

However, such costs pale into insignificance when compared with the costs
associated with being seen to behave in an irresponsible manner. The infamous Brent
Spar incident that cost the Shell oil company millions of pounds in terms of lost
revenues via the resultant consumer boycott, is an example of the powerful influence
that environmental concern has in today's business environment. Shell learned the
lesson, albeit somewhat belatedly, and as a result completely re-engineered its
environmental management system.

ACCA has also published a research report outlining an agenda for action on full
cost accounting (Bebbington, Gray, Hibbit and Kirk, 2001), which contains a
detailed review of the business case for adopting full environmental costing. One
example of the potential gains from using full costing (sometimes referred to as
lifecycle costing, Bennett and James (1998b)) can be seen in the case of Xerox
limited.

Xerox limited, a subsidiary of Xerox Corporation, introduced the concept of

lifecycle costing for its logistic chain. The core business of Xerox limited is
manufacturing photocopiers, which are leased rather than sold. This means the
machines are returned to Xerox limited at the end of their lease. Previously,
machines were shipped in a range of different types of packaging, which could rarely
be re-used by customers to return the old copiers. The customer had to dispose of the
original packaging and to provide new packaging to return the machine at the end of
its lease, which in turn could not be used to re-ship other machines. This meant
Xerox lost the original costs and had to bear the costs of disposal of the packaging.

A new system was invented which used a standard pack (tote). Two types of totes
were introduced to suit the entire range of products sold by Xerox. Totes can be used
for both new machines delivery and return carcasses. The whole-chain cost analysis
showed the considerably lower cost of the tote system, compared to the previously
existing system and the supply chain became more visible. The tote system resulted
not only in cost savings but also in reduced 'de-pack' times and improved customer
relations (Bennett and James, 1998b).

UNDSD (2003) described total corporate environmental costs as environmental

protection costs (emission treatment and pollution prevention) plus costs of wasted
materials, plus costs of wasted capital and labour. Waste in this context means
production inefficiency (purchase value of non-material output). UNDSD stated that
wasted materials account for 40% to 90% of environmental costs according to a
survey. One should recognise that environmental costs are not a separate type of
cost; rather they are part of money flowing throughout a corporation.

The main difficulty associated with environmental costs is their identification and
allocation. According to UNDSD (2003), conventional accounting systems tend to
attribute many of the environmental costs to general overhead accounts with the
result that they are 'hidden' from management. Thus, management is often unaware
of the extent of environmental costs and cannot identify opportunities for cost
savings. EMA attempts to make all relevant, significant costs visible so that they can
be considered when making business decisions (Jasch, 2003). UNDSD (2003)
identified management accounting techniques which are useful for the identification
and allocation of environmental costs as: input/output analysis, flow cost accounting,
activity-based costing (ABC), and lifecycle costing.

Input/output analysis
The input/output analysis is a technique that can provide useful environmental
information, sometimes referred to as mass balance (Envirowise, 2003). This
technique records material flows with the idea that 'what comes in must go out - or
be stored' (Jasch, 2003).

As shown in Figure 3, the purchased input is regarded as 100% and is balanced

against the outputs - which are the produced, sold and stored goods and the residual
(regarded as waste). Materials are measured in physical units and include energy and
water. At the end of the process, the material flows can be expressed in monetary
units. Process flow charts can help to trace inputs and outputs, in particular waste.
They demonstrate the details of the processes so that the relevant information can be
allocated to main activities.

Figure 3: Input/output analysis according to Envirowise (2003)

Process flow charts bring together technical information and cost accounting
information (UNDSD, 2003). Flow cost accounting is a tool of a new management
accounting approach - flow management. It aims to '...organise production end-to-
end in terms of flows of materials and information -all structured in an efficient,
objective-oriented manner' (UNDSD, 2003). It is more than a simple assessment of
environmental costs, because it is focused on assessment of total costs of production.

Flow management involves not only material flows, but also the organisational
structure. Classic material flows are recorded as well as material losses incurred at
various stages of production. Flow cost accounting makes material flows transparent
by using various data, which are quantities (physical data), costs (monetary data) and
values (quantities x costs). The material flows are divided into three categories,
material, system, and delivery and disposal, as shown in Figure 4. The material
values and costs apply to the materials which are involved in the various processes.
The system values and costs are the in-house handling costs, which are '...incurred
inside the company for the purpose of maintaining and supporting material
throughput, e.g. personnel costs or depreciation,' (UNDSD, 2003).

Figure 4: The basic idea of flow cost accounting according to UNDSD (2003)

The delivery and disposal values and costs refer to the costs of flows leaving the
company, for example transport costs or cost of disposing waste. EMA can benefit
from flow cost accounting because it aims to reduce the quantities of materials,
which leads to increased ecological efficiency (UNDSD, 2003).

Environmental Activity-Based Accounting

Activity-based costing (ABC) '...represents a method of managerial cost accounting
that allocates all internal costs to the cost centres and cost drivers on the basis of the
activities that caused the costs,' (UNDSD, 2003). ABC applied to environmental
costs distinguishes between environment-related costs and environment-driven costs.
The former are attributed to joint environmental cost centres, for example
incinerators or sewage plants. The latter are hidden in the general overheads and do
not relate directly to a joint environmental cost centre, e.g. increased depreciation or
higher cost of staff. Nevertheless they vary with the amount of throughput.

Schaltegger and Muller (1998) stated 'the choice of an adequate allocation key is
crucial for obtaining correct information'. The four main allocation keys are:

• volume of emissions or waste

• toxicity of emission and waste treated
• environmental impact added (volume x input per unit of volume) volume of
the emissions treated
and
• the relative costs of treating different kinds of emissions.
lifeCycle Costing
Environmental Management as part of Total Quality Management

The pursuit of environmental quality management via the development of an

Environmental Management System (EMS) can only be achieved if 'environmental
audit' is a concomitant feature of such a system. In this respect the organisation
becomes self-regulating and the undertaking of environmental audits on a regular
basis provides the platform for organisations to adopt a self-critical and analytical
posture as part of their routine organisational management processes. Organisations
should be striving to achieve an integrated environmental strategy underpinned by
the same type of culture that is required for the successful operation of a programme
of total quality management (TQM).

It is arguable that the two are inextricably linked insofar as good environmental
management is increasingly recognised as an essential component of TQM. In
common with TQM, the focus is upon 'continuous improvement' and the pursuit of
excellence. Such organisations pursue objectives that may include zero complaints,
zero spills, zero pollution, zero waste and zero accidents. Information systems need
to be able to support such environmental objectives via the provision of feedback -
on the success or otherwise - of the organisational efforts in achieving such
objectives. This approach to environmental quality management requires the
development of environmental performance measures and indicators that will enable
a comprehensive review of environmental performance to be undertaken. Many - if
not all - total quality management accounting techniques can be modified and
effectively adopted to help manage environmental issues.

Conclusion
It can be said that most companies do not know about the extent of their
environmental costs and tend to underestimate them. This leads to distorted
calculations of improvement options. For example, Amoco Yorktown Refinery
estimated their environmental costs at 3% of non-crude operational costs. Actually
they comprised 22% of non-crude operating costs as the case study of Ditz et al
(1998) revealed. However, the study also discovered a large proportion of
environmental costs were caused by other processes that had not been identified by
Amoco.

EMA can solve these problems. The above-mentioned accounting techniques are
useful for EMA to identify and allocate environmental costs. In addition, there are
alternative techniques to estimate environmental costs such as the 'environmental
cost decision tree' as described by Rimer (2000).

The most significant problem of EMA lies in the absence of a clear definition of
environmental costs. This means it is likely that organisations are not monitoring and
reporting such costs. The increase in environmental costs is likely to continue, which
will result in the increased information needs of managers and provide the stimulus
for the agreement of a clear definition. If a generally applicable meaning of
environmental costs is established, the use of EMA will probably increase with
positive effects for both organisations and the environment in which they operate. In
the future it will not only be large companies which can afford to implement EMA
but also small and medium-sized enterprises which have fewer available financial
resources.

References:
• Bebbington, J, Gray, R, Hibbitt, C and Kirk, E Full Costs Accounting: An
Agenda for Action (ACCA Research Report No. 73, Certified Accountants
Educational Trust, London, 2001)
• Bennett, M and James, P Environment-Related Management Accounting
Current Practice and Future Trends, Greener Management International,
Spring 97 (No.17, pp32-41, Business Source Premier, 1997)
• Bennett, M and James, P The Green Bottom line, in: Bennett, M and James, P
(Eds) The Green Bottom line - Environmental Accounting for Management:
Current Practice and Future Trends (Greenleaf Publishing, Sheffield, 1998a)
• Bennett, M and James, P life Cycle Costing and Packaging at Xerox Ltd, in:
Bennett, M and James, P (Eds) The Green Bottom line - Environmental
Accounting for Management: Current Practice and Future Trends (Greenleaf
Publishing, Sheffield, 1998b)
• Burritt, L, Hahn, T and Schaltegger, S Current Developments in
Environmental Management Accounting - Towards a Comprehensive
Framework for Environmental Management Accounting (EMA) (Universitaet
Lueneburg, 2001).
• Ditz, D, Ranganathan, J and Banks, R D Green Ledgers - An Overview, in:
Bennett, M and James, P (Eds) The Green Bottom line - Environmental
Accounting for Management: Current Practice and Future Trends (Greenleaf
Publishing, Sheffield, 1998)
• Envirowise Increase your profits with environmental management
accounting, (Envirowise - Practical environmental advice for businesses,
2003, last update) Envirowise website
• Frost, G R and Wilmshurst, T D The adoption of environment-related
management accounting: an analysis of corporate environmental sensitivity
(Accounting Forum Vol 24, No 4, pp 344-365, Business Source Premier,
2000)
• Gray, R and Bebbington J Accounting for the Environment (2nd edition)
(Sage Publications Ltd, 2001)
• Jasch, C The use of Environmental Management Accounting (EMA) for
identifying environmental costs, Journal of Cleaner Production,
ScienceDirect website
• Rimer, A E Identifying, Reducing and Controlling Environmental Costs,
Plant Engineering (Vol 54, No 3, pp114-118, Business Source Premier,
 2000)
• UNDSD - United Nations Division for Sustainable Development,
Environmental Management Accounting Procedures and Principles
(EMARIC Environmental Management Accounting Research and
Information Center, 2003), Environmental Management Accounting
Procedures and Principles(PDF)

Further references:
ACCA Sustainability

I wish to extend my thanks to Ian Thomson of Strathclyde University for reading the
draft of this article and providing many helpful comments.