Page 210 - Design for Environment A Guide to Sustainable Product Development

188 Cha pte r Ni ne

Life-cycle accounting is a form of activity-based costing that cap-
tures the financial benefits of environmental performance improve-
ment, including reduced operating costs, increased profitability, or
economic value added (see Chapter 4). Life-cycle accounting is an
extension of life-cycle costing methods used in the defense sector to
manage large, multiyear weapon system programs where major
costs are associated with deployment, logistical support, and decom-
missioning. Similar techniques have been used in the computer and
other industries to capture the total “cost of ownership” for enter-
prise information systems.
To understand the full scope of life-cycle costs and benefits, it is
helpful to divide them into the following categories [22].

• Conventional: Material, labor, other expenses, and revenues
that are commonly allocated to a product or process (often
called “direct” costs).
• Potentially Hidden: Expenses incurred by and benefits ac-
crued to the firm that are not typically traced to the respon-
sible products or processes, e.g., legal fees or safety training
courses (often called “indirect” costs).
• Opportunity: Costs associated with opportunities that are
foregone by not putting the firm’s resources to their highest
value use.
• Contingent: Potential liabilities or benefits that depend on
the occurrence of future events, e.g., potential occupational
health and clean-up costs related to a spill of a hazardous
substance.
• Good Will: Costs/benefits related to the subjective percep-
tions of a firm’s stakeholders, e.g., brand image, customer
loyalty, or favorable relationships with regulatory agencies.
• External: Costs/benefits of a company’s impacts upon the en -
vironment and society that do not directly accrue to the busi-
ness, e.g., the benefits of reduced waste generation for product
consumers.

As in LCA, life-cycle accounting requires the definition of a sys-
tem boundary. Figure 9.6 illustrates different possible boundaries of
analysis for product design, ranging from traditional unit cost to
customer cost of ownership to total life-cycle costs. Similarly, Figure
9.7 illustrates alternative boundaries for facility life-cycle account-
ing. Table 9.3 gives examples of different types of costs and benefits
that could be relevant to both product and facility accounting at each
stage of a typical value chain.
Note that it is important to distinguish between environmental
accounting “in the small,” which provides an integrated corporate