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DISCLAIMER
Throughout this report, interpretations and analysis are provided on research findings
generated through this project. This analysis and the accompanying conclusions should not
be interpreted as representative of environmental accounting applications in other
industries. Moreover, the findings and conclusions are based on a small sample of metal
finishing operations visited in conjunction with this project and other WRITAR projects.
Although WRITAR believes that many of the issues discussed in this report are generally
representative of metal finishing operations, we recognize many of the barriers and
contextual issues may not apply to individual facilities. As a result the issues concerning
adoption of environmental accounting practices should not be extrapolated to the entire
industry.
This report is intended for an audience with a basic understanding of environmental
accounting concepts and metal finishing operations. For introductory or additional
information on environmental accounting, or for more copies of this document, please call
the Pollution Prevention Information Clearinghouse at (202) 260-1023 or visit the EPA's
Environmental Accounting Project Web Site at: http://www.epa.gov/opptintr/acctg
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ACKNOWLEDGMENTS
WRTTAR wishes to thank the many facility representatives who generously shared their
time and facility operations with us to better understand the issues and practical
implications of implementing environmental accounting. A special thanks is also given to
the following individuals and institutions who have provided review and comments on this
report:
Frank Altmayer
President, Scientific Control Laboratories, Incorporated
John F. Cross
Deputy Director, Pollution Prevention Division
Office of Pollution Prevention and Toxics
Environmental Protection Agency
Susan McLaughlin
Co-Manager, Environmental Accounting Project, Pollution Prevention Division
Office of Pollution Prevention and Toxics
Environmental Protection Agency
Tom Murray
Chief, Prevention Analysis Branch, Pollution Prevention Division
Office of Pollution Prevention and Toxics
Environmental Protection Agency
Robert Pojasek
Senior Program Director
Cambridge Environmental Incorporated
Lisa Regenstein
Common Sense Initiative Metal Finishing Sector
Northeast Waste Management Officials' Association
Karen Shapiro
Associate Scientist, Risk Analysis Group
Tellus Institute
William Sonntag
Legislative Director
National Association for Metal Finishers
Martin Spitzer
Executive Director
President's Council on Sustainable Development
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U.S. Environmental Protection Agency
Environmental Accounting Project
This paper was prepared by the Waste Reduction Institute for Training and Applications
Research (WRTTAR) under cooperative agreement # 821434-01-0 for the U.S. EPA
Environmental Accounting Project. The EPA Project Officers were Holly Elwood and
Marty Spitzer. WRITAR staff responsible for this research were Mark Haveman and
Terry Foecke.
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TABLE OF CONTENTS
Executive Summary
1.0 Purpose of this Document
2.0 Definition of Cost Terms Used in this Document
3.0 Background on Research Strategy and Implementation
4.0 Analysis of Environmental Costs in Electroplati ng Operations
4.1 Materials
4.2 Waste Management
4.3 Utilities
4.4 Direct Labor
4.5 Indirect Labor
4.6 Regulatory Compliance
4.7 Incremental Revenues
1
4
7
9
16
16
24
26
28
29
30
32
5.0 Issues in Implementing EA in Electroplating Operations
5.1 Identifying Environmental Costs
5.2 Prioritizing Costs to Investigate
5.3 Quantifying or Qualifying Costs
5.4 Allocating Costs to Products or Processes
5.5 Integrating Costs into Decision-Making
6.0 Guidance for Investigating Lost Material Costs in Electroplating
33
33
35
36
39
42
48
Project Bibliography
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EXECUTIVE SUMMARY
This report presents research findings regarding the implementation of environmental
accounting (EA) practices in the electroplating industry, conclusions regarding the potential
for its wider adoption and use, and recommendations for investigating environmental cost
structures in this industry. The research entailed 24 on-site investigations into both captive
operations (electroplating included as part of a larger manufacturing process), and job shop
facilities (specializing in providing electroplating services to manufacturers), and extensive
literature reviews on electroplating costing practices and EA analysis. This report focuses
on electroplating operations, and any references in this report to "metal finishing" pertains
exclusively to electroplating operations.
Following are the primary research findings:
1. Many of the facilities visited are already using parts of EA without knowing or calling it
that. Most "conventional" costs (e.g. wastewater treatment operations, hazardous waste
disposal) associated with environmental management are recognized and captured in new
project or process evaluations.
2. EA was found to have potential for elucidating "hidden" costs and creating a more
robust and accurate economic evaluation of projects.
3. As can be expected, the five environmental costs of greatest significance to
electroplating facilities are wastewater treatment (and its many individual cost
components), hazardous waste disposal, sewerage, plating chemistry loss, and other
process solution loss.
4. The cost issues most frequently found to be significant and underrecognized in facility
decision-making situations are the chemistry and solution losses. These cost areas are
especially appropriate for more in-depth analysis because of 1) the repercussions they have
elsewhere in the faculty's environmental management cost structure; and 2) its potential
implications in highlighting the "true" cost of facility waste beyond disposal and
wastewater treatment. However, these costs are more challenging to derive since they are
not hidden in overhead accounts, but must be assembled through materials balances and an
examination of production records.
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5. Environmental costs of all types can be quantified, but cost/benefit implications of
gathering this information depends on facility needs and circumstances.
6. Environmental management costs which did not directly affect payroll and payables
(e.g. labor costs of preparing a TRI report or manifesting) had often been left out of project
evaluations, but in revisiting projects facilities found them useful to consider and quantify.
However, metal finishers demonstrated some hesitancy to formally factor them into an
actual economic evaluation of a project. Electroplating facilities were strongly oriented
toward using conservative and reliable cost estimates in decision-making and factoring in
only those issues directly impacting cash flow.
7. One of the most valuable uses and applications of EA in electroplating was found to be
in generating greater facility interest in exploring process understanding and control issues.
Applying environmental accounting suggested that three types of activities are typically
undervalued in facility operations:
• Episodic activities — such as disposal of tank bottoms, bath dumps, filter
replacement, and decommissioning of process lines. Applying environmental
accounting to these activities demonstrates a more powerful economic rationale to
invest in process control and reexamine ways to reduce these episodic events.
• Rework activities — which creates new types of wastes and unnecessary additional
discharges. Because of underrecognized environmental cost implications, the
faculty's cost of quality is typically low. Full environmental costing of rejects
creates a more powerful economic rationale to take a quality improvement approach
which also prevents pollution.
• Rinsing activities — the difference between what is technically needed to rinse
sufficiently and what the facility is actually using. Every gallon of excess water use
created an environmental cost that typically was found to be undervalued and
underrecognized.
EA analysis can be used to fully cost these issues and in so doing demonstrate cost saving
potential through pollution prevention activities which are far greater than originally
anticipated.
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8. Gathering and tracking information for certain types of environmental costs poses a
potential obstacle since "mining" this information at a level of detail necessary for it to be
allocated to the responsible processes may be an expensive thing for a facility to do.
Without other opportunities for using this information, its collection and management may
not be practical for a facility.
9. Allocating costs to processes responsible for generation is the largest barrier to greater
EA adoption in electroplating. The amount of variation inherent in finishing, the systemic
nature of finishing with complex cause and effect relationships, and the number of factors
and episodic events affecting performance makes allocation quite challenging. Allocation
based on actual contribution is outside the realm of possibility for most facilities,
allocations based on estimated calculations requires some technical analysis, and allocations
based on best professional judgment can be dramatically different from reality.
Allocations based on an appropriate production factor (square feet processed, hours of
operation, etc.) is perhaps the simplest type of estimated calculation applicable to many
types of environmental costs.
10. EA can be a valuable tool to target facility improvement areas when used in conjunction with
other targeting methods such as reject rate analysis. Targeting improvement areas based solely on
relative contributions to facility environmental management overhead demonstrated a tendency to
redirect facility attention from where the greatest gains could be realized.
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1.0 PURPOSE OF THIS DOCUMENT
This document contains the findings and results of an 18 month investigation on the
application of environmental accounting practices in electroplating facilities. The purpose
of this research was to conduct a detailed examination of the mechanics of implementing
EA practices within a specific industry.
Environmental accounting has been defined as "the addition of environmental cost
information into existing cost accounting procedures and/or recognizing embedded
environmental costs and allocating them to appropriate products or processes" (ICF Inc.,
1995). As a powerful decision-making tool, environmental accounting practices are being
widely promoted throughout all types of industry. Many companies have realized
decision-making benefits from an adoption of this methodology and a higher quality
understanding of their overall cost structures. Specifically, EA offers two primary
advantages:
1) Capital budgeting decisions - Misallocations and failure to factor in changes in
cash flow expenditures pertaining to environmental management can affect the economic
justification of environmentally preferable process or technology alternatives. The use of
EA approaches to create a more robust and accurate economic analysis of capital projects is
one of the primary benefits of EA adoption.
2) Targeting of improvements — A related benefit to manufacturers is the use of
EA methods to target and prioritize areas of improvement. Through EA analysis, a facility
can rank order its waste streams based on contributions to facility environmental costs and
prioritize pollution prevention efforts to target those areas which contribute the most to
direct and indirect environmental management expenditures and generate the greatest cost
savings to the facility.
While the advantages and benefits of EA are well documented, some of the issues in
actually implementing an EA investigation may be less understood. In this research study,
WRITAR examined moving from concept to practice by examining a variety of
implementation issues pertaining to EA adoption in electroplating operations. Relevant
issues studied included:
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• the types of data gathering and management activities needed to support EA
analysis in electroplating operations
• the infrastructure needed to support EA investigations on an ongoing basis
• an examination of the "value added" to be gained in decision-making and targeting
through such an analysis; i.e. will the benefits of EA outweigh the costs to
the firm?
The electroplating industry was chosen to be the focus for two reasons: the majority of
metal finishers are small businesses with limited resources for conducting this kind of
research on their own, and the fact that environmental benefits could be gained if metal
finishers and those who work with metal finishers could access new information on a tool
to improve environmental performance. The purpose of this document is to report the
findings of the research and to provide guidance for metal finishers, assistance providers,
and other professionals on implementing EA in this industry.
This project is part of a larger effort being sponsored by the EPA on environmental
accounting methods. The goal of the EPA's Environmental accounting Project is to
encourage and motivate businesses to understand the full spectrum of environmental costs
and to incorporate those costs into decision-making. The objectives of this overarching
initiative as defined by EPA's stakeholders are:
• to create better definitions of key terms and concepts;
• to create management incentives to upgrade managerial accounting practices;
• to conduct education, guidance, and outreach programs; and,
• to develop and disseminate analytical tools, methods, and systems.
The research contained in this report is meant to support these objectives by providing
information on the application of environmental accounting methods within an industry of
special interest. Electroplating/electroplating operations are a target industry for several
environmental policy development and pollution prevention outreach efforts including the
EPA Design for the Environment Program and the Common Sense Initiative. This
research effort has worked in collaboration with these other electroplating initiatives and
expands upon these efforts.
The report is broken into three primary parts. Section 2.0 provides additional background
information on the research activities and method used for this project. Section 3.0
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describes the research findings and an analysis of environmental management costs in
electroplating facilities. Section 4.0 examines EA implementation issues in light of
production and management realities of electroplating operations. Finally, section 5.0
presents strategy and recommendations for those interested in investigating electroplating
cost structures and identifying areas of improvement.
This report assumes both a basic knowledge of electroplating processes and a basic
understanding of environmental accounting methodology. For additional information on
the basics of electroplating and associated environmental issues, readers are encouraged to
review Profile of the Electroplating Industry available from the Cleveland Advanced
Manufacturing Program, Cleveland, OH. For more information on EA, call the Pollution
Prevention Information Clearinghouse at (202) 260-1023 and ask for an introductory
packet on EA to be sent to you. Or visit the EPA Environmental Accounting website at:
http://es.inel.gov/partners/acctg
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2.0 DEFINITIONS OF COST TERMS USED IN THIS DOCUMENT
As noted in the U.S. EPA publication, "An Introduction to Environmental Accounting as a
Business Management Tool: Key Concepts and Terms," there are many different
classifications and typologies of costs. The following is a glossary of terms for readers of
this document. While we have tried to be as faithful as possible to generally accepted
definitions found in this EPA publication as well as other documents, slight variations may
exist in an effort to try an convey the cost issues associated with electroplating more
clearly.
Environmental Accounting - the identification, prioritization, quantification or qualification,
and incorporation of environmental costs into business decisions.
Environmental Costs - A general classification for several types of costs relating to the
use, release, and regulation of materials in facility operations. For purposes of this report,
it is comprised of environmental management costs, opportunity costs, contingent costs,
and image costs.
Environmental Management Costs — All expenditures directly associated with the
environmental management function of the facility and in keeping a facility in regulatory
compliance.
Opportunity Costs - Lost value of process solution/chemistry and other lost material costs
associated with unoptimal use of raw materials in facility operations
Contingent Costs -- Environmental costs that are not certain to occur in the future but
depend on uncertain events. Sometimes referred to as liability costs or contingent
liabilities. Not examined in this report.
Image Costs — Less tangible costs incurred to affect subjective perceptions of management,
customers, employees, communities, and regulators. Also know as relationship costs.
Not examined in this report.
Conventional Costs — Costs typically recognized in capital budgeting exercises and
financial analyses of projects. Also known as usual costs.
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Hidden Costs — Environmental costs that may be potentially unrecognized by managers
because of their infrequent/episodic nature and/or because of their collection in company
overhead accounts.
Operating Costs — Costs incurred through operating a process, system, or facility. The
primary focus for this document.
Direct Costs — Costs clearly and exclusively associated with a product or service and
treated as such in cost accounting systems.
Indirect Costs — All costs that are not accounted for as the direct costs of a particular
process, system, product, of facility. Commonly pooled and allocated on the basis of
some formula or are not allocated at all.
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3.0 BACKGROUND ON RESEARCH STRATEGY AND IMPLEMENTATION
The project commenced with a literature review of a number of standard texts on job
costing, manufacturing accounting, and activity based costing looking for relevant insights
on cost tracking. A subsequent literature search identified articles pertaining to best
practices in job costing and manufacturing accounting in electroplating operations. Primary
resources are listed in the bibliography of this report.
With this background information in place, a number of interviews were conducted with
leading experts in the field of electroplating to explore issues pertaining to the applicability
and value-added of EA adoption. References were obtained from these experts for
potential contacts of facilities which have attempted or implemented EA based analyses.
An interview strategy was designed and tested among representatives of electroplating
firms with which WRTTAR has a close association. Exhibit 1 is a basic outline of the
research protocol. After obtaining basic background information on business trends and
issues, process descriptions with supporting information on materials uses and releases
were gathered. Examples were then reviewed of past process improvement / technology
change efforts at the facility to review how the facilities examined costs in the past.
With the cooperation of the facility representatives, WRITAR then embarked on an
investigation of EA application issues pertaining to electroplating operations. The
investigation centered on hexavalent chrome processes and zinc cyanide processes — both
of which are under regulatory pressure and are common targets for change, and therefore
likely opportunities for using EA analysis. Project researchers used an environmental cost
category template developed by the Tellus Institute1 as the analytical framework for the
investigation (See Exhibit 2). In examining the various labor, materials and overhead cost
elements, four questions comprised the focus of this portion of the research.
1. What is the applicability of these costs to electroplating?
2. How are they currently allocated and how likely could they be allocated or
processes or parts?
3. What is the significance of various types of costs to electroplating?
1 As adapted and reported in "Improving Your Competitive Position: Strategic and Financial Assessment
of Pollution Prevention Projects" NEWMOA, 1994
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4. If an assignment is made, would it be accurate?
Reviewing for applicability involved identifying which cost elements were relevant to
electroplating operations and obtaining a better understanding of how they were relevant.
Reviewing for allocation involved exploring how the facility currently accounted for these
costs and assessing their ability to assign or allocate those ciosts to responsible products or
processes to support decision-making. This review enabled researchers to gain an
understanding of how environmental costs are currently handled, how they might be
managed differently, and how to transition from a conventional cost analysis to an analysis
based on EA.
The final two questions were investigated to better understand the practical implications of
using EA in electroplating operations. WRITAR considered cost significance to be an
important qualifying issue in adopting EA methods. It was assumed that establishing a
threshold of significance helped ensure that the likely benefits of using this cost
information for decision-making purposes would be greater than the costs of gathering and
analyzing this information. For purposes of this report, .5% of gross annual revenues
was selected as a "significance threshold." This was based on previous WRITAR
experiences in working with metal finishers which indicated that cost issues of this
magnitude are most likely to get the attention and interest of facility management.
"Environmental management" costs in aggregate well-exceeded the significance threshold;
6% - 12% was a common range found in the course of the research 2 . Within this
collection of costs, particular emphasis was placed on reviewing and analyzing those
elements exceeding the .5% criteria.
Allocation accuracy was chosen as another critical issue to help ensure against situations in
which the value of EA analysis might be rendered moot by inappropriate relationships
between various activities and elements of cost. It is evident that facilities often must
estimate, use best professional judgment, or a combination of both practices to assign
many environmental costs to processes. The research placed an emphasis on identifying
circumstances in which the accuracy of allocation efforts would likely be low because it
was presumed that inaccurate allocations could potentially mislead or misdirect facility
decision making.
2 This range was based on a consideration of all labor, materials, and other expenditures directly
associated with environmental management activities and keeping a facility in compliance.
10
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Throughout this report, qualifiers are used to describe facility conditions and practices.
Cost definitions are found in the report appendix. Following are other definitions used by
the project researchers during the course of the investigation and found in this report.
• Allocated by product - cost is used as a line item for calculating a unit price for finishing
a specific part or type of part
• Allocated by process - cost is used to calculate the contribution of a unit operation to
facility costs and/or unit price for a specific part or type of part.
• "Accurate" — data from purchase records or similar; auditable
• "Mostly accurate" — data from purchase records or similar, subdivided based on number
of operations, number of tanks, number of parts produced, etc. and verifiable by
production records
• "Somewhat accurate" — based on data from production records and logs; values are
obtained by multiplying volumes by cost data and should balance over long periods of
times with purchase records.
WRTTAR benefited from having the opportunity to tie this investigation into several
concurrent projects being pursued with the electroplating industry. As a result, a total of 24
shops were visited ranging from small job shops to captive specialty plating operations in
the aerospace industry. Of these, six were contacted and visited specifically under the
auspices of this project. The remaining 18 sites were visited for other project purposes but
were interviewed based on the protocol or sections of the protocol. In addition, another 20
telephone interviews were held with various facility representatives and experts pertaining
to selected issues contained in the protocol. Interviews were held with environmental,
accounting, production/quality, and inventory managers. Exhibit 3 provides a description
of the types of facilities visited.
11
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Exhibit 1 - Research Protocol
Company Background
a. Products
b. Facility Descriptors
c. Notable trends
e. Corporate P2 program status
f. Competition analysis
h. Drivers for P2 and EA — Regulations, Economics, Competition
Past Process Change Efforts
a. Process improvement —associated cost analysis
b. Pollution prevention —associated cost analysis
Process Descriptions
a. Input - output
b. Process flow (simple block diagram)
c. Specifics for zinc cyanide and/or hexavalent chrome (decorative)
1. Waste volumes for 1994 and 1995, est. 1996
2 Material use volumes for 1994 and 1995, est. 1996
3. Production volume
4. Recent changes; planned changes
d. Specifics for support processes
Costing
a. Operating regulatory costs
b. Materials costs
c. Allocation procedures / relation to pricing
d. Analysis of information quality
19.
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Exhibit 2 Potential Operating Costs Included in an EA Analysis
Materials
direct product materials
catalysts and solvents
wasted raw materials
transport
storage
Waste Management (Materials &
Labor)
pre-treatment
on-site handling
storage
hauling
insurance
disposal
Utilities
electricity
steam
cooling & process water
refrigeration
fuel (gas or oil)
plant air & inert gas
sewerage
Direct Labor
operating labor & supervision
manufacturing clerical labor
inspection (QA & QC)
worker productivity changes
Indirect Labor
maintenance (materials & labor)
miscellaneous (housekeeping)
medical surveillance
Regulatory Compliance
monitoring
manifesting
reporting
notification
recordkeeping
training (right-to-know, safety, etc.)
training materials
inspections
protective equipment
labeling
penalties / fines
lab fees
insurance
R&D to comply with regulations
handling (raw materials and waste)
closure & post-closure care
Revenues
sale of product
marketable by-product
manufacturing through-put change
change in sales from:
increased market share
improved corporate image
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Exhibit 3 Descriptions of Visited Electroplating Operations
NUMBER OFEMPLOYEES
20 production1
2 maintenance2
0 direct administrative3
0 direct sales
20 production
0 direct maintenance
3 administrative
1 sales
6 production
1 maintenance
2 administrative
0 direct sales
20 production
2 maintenance
2 administrative
0 direct sales
32 production
3 maintenance
5 administrative
2 sales
14 production4
2 maintenance
5 administrative5
0 direct sales
120 production
10 maintenance
20 administrative
5 sales
45 production
5 maintenance
7 administrative
2 sales
100 production
8 maintenance
0 direct administrative
0 direct sales
75 production
12 maintenance
12 administrative
4 sales
32 production
6 maintenance
7 administrative
2 sales
INDUSTRY SERVED
Tubular steel; furniture and
displays
Tubular steel; furniture and
displays; exercise equipment
Tubular steel; furniture and
displays
Cast, forged steel; hand
tools and related equipment
Cast, forged steel; hand
tools and related equipment
Formed sheet steel; bumpers
and auto trim; new and re-
work
Formed sheet steel; bumpers
and auto trim; new
Injection-molded plastic;
nameplates and trim
Cast brass; sanitary fixtures
Injection-molded plastic;
sanitary fixtures
Sheet steel, fabricated;
electronics; housings and
enclosures
PROCESSES
(MINOR PROCESSES)
Copper/nickel/chrome
(phosphating)
Copper/nickel/chrome
(bright nickel)
(black nickel)
Copper/nickel/chrome
Copper/nickel/chrome
(phosphating)
(anodizing)
Copper/nickel/chrome
Copper/nickel/chrome
Copper/nickel/chrome
Copper/nickel/chrome
(gold)
Copper/nickel/chrome
(bright nickel)
(electroless nickel)
(tin/lead solder)
Copper/nickel/chrome
(black chrome)
Zinc and chromate
(powder coating)
CAPTIVE (Q
JOB SHOP (JS)
(Q
(JS)
(JS)
(Q
(JS)
(JS)
(JS)
(JS)
(C)
(JS)
(JS)
'Calculated as full-time equivalents
Includes environmental
3 "Direct" refers to a position devoted to this activity in this area (in the case of captive shops) or facility (in the
case of job shops. The activity, if listed as "0", is covered as part of another position.
^Includes stripping and buffing operations
^Includes counter sales
14
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12 production^
0 direct maintenance
2 administrative
0 direct sales
6 production
0 direct maintenance
1 administrative
0 direct sales
38 production
4 maintenance
7 administrative
1 sales
24 production
2 maintenance
3 administrative
0 direct sales
18 production
2 maintenance
4 administrative
1 sales
6 O7 production
2 maintenance
3 administrative
1 sales
5 production
0 direct maintenance
3 administrative
0 direct sales
20 production
2 maintenance
3 administrative
1 sales
12 production
2 maintenance
2 administrative
0 direct sales
6 production
0 direct maintenance
3 administrative
0 direct sales
49 production
4 maintenance
9 administrative
3 sales
14 production
2 maintenance
0 direct administrative
0 direct sales
8 production
0 direct maintenance
0 direct administrative
0 direct sales
Sheet steel, fabricated;
electronics; housings and
enclosures
Ferrous and non-ferrous
machined parts; consumer
goods; fasteners
Variety of substrates and
forms; consumer goods;
fasteners
Wide variety; no primary
market
Wide variety; no primary
market
Steel enclosures and parts;
military
Specialty; electronics
Wide variety; no primary
market
Wide variety; no primary
market
Specialty; electronics
Ferrous and nonferrous
substrates; jewelry
Steel; printing
Steel and other substrates;
autom'otive
Zinc and chromate
(painting)
Zinc and chromate
(silver)
(copper)
Zinc and chromate
(tin)
(tin lead)
Zinc and chromate
Zinc and chromate
Zinc and chromate
Zinc and chromate
(precious metals)
(anodizing)
Electroless nickel
Electroless nickel
Precious metals
Precious metals
Hard chrome
Hard chrome
(JS)
(JS)
(JS)
(JS)
(JS)
(JS)
(C)
(JS)
(JS)
(JS)
(Q
(C)
(Q
6Other areas not involved in metal finishing not included
'includes specialty cleaning operation
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4.0. ANALYSIS OF ENVIRONMENTAL COSTS IN ELECTROPLATING
OPERATIONS
Exhibits 4-7 summarize the research findings on cost issues found in electroplating
operations. The research focused exclusively on operating costs — both direct and indirect.
Contingent costs (costs based on probabilities of events occurring in the future) and image
costs (intangible costs associated with company goodwill of improving environmental
performance) were not included as part of the investigation. The rationale for their
omission is that these costs are highly context and situation specific while the purpose of
this report was to generate information generally applicable to all electroplating facilities.
The following synopses of operating costs is based on the cost categories found in
Exhibit 2. During the analysis, special attention was given to cost elements which other
EA research studies had found to be frequently under recognized in operations in order to
shed additional light and information on identifying, quantifying, and allocating these costs.
Following are synopses of each cost area.
4.1 Materials
Key wasted materials costs in electroplating
• Process chemistry • Water
• Addition agents • Miscellaneous chemistries (e.g.strippers, chromates)
• Cleaners • Acids
Direct Product Materials — Applicability and Significance
Costs for coating materials (zinc, nickel, copper, gold, silver, etc.) appear to vary greatly
both comparatively and with respect to their significance in the overall facility cost
structure. Precious metals and some other materials (like electroless nickel, electroless
copper, and some alloys) are expensive to deposit. Significance is also affected by the
scope of processes within a shop - if a facility focuses on a particular type of plating
process, plating materials associated with this process will be a large item for the facility
even if the materials are comparatively inexpensive. Hidden costs in terms of materials
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waste can be traced to two sources - a differential between the amount of coating materials
purchased and the amount of metal that actually goes out on parts, and another differential
between the amount of metal that goes out on parts and the amount that is actually needed
to meet the desired production requirements. This, of course, has subsequent implications
for wastewater and disposal costs.
Costs for addition agents (brighteners; pH adjustment; consumable components like
cyanide) demonstrate enormous variation by process, and are dependent not just on market
price of metals (as in the cost of coating materials), but also on the cost of formulation, size
of market (small niches may feature high materials prices enabling manufacturers to
recoup development costs), age of product (new materials cost more) and function of the
process solution (run to depletion like electroless nickel vs. maintain for many years like
nickel sulfate). The research suggests that by far the most ubiquitous and expensive (cost
per unit volume as well as total cost) are brighteners. Research also suggested that cost
understanding is often poor in this area as standard operating practices for additions is often
highly subjective. As a result, a scan for price and use volumes is highly recommended in
reviewing plating cost structures.
As with other direct materials inputs, costs for acceptable water vary greatly, and will
depend on the type of process solution and products. Water inputs can be characterized
most readily in reference to either 1) current water quality (usually most important when
using ground water rather than drinking water) and/or 2) market niche (electronics
requiring extremely pure water, most others increasingly requiring at least supplemental
treatment up to and including deionization). Also influencing the variability and relative
significance of water costs are noted trends toward generally higher water costs and, in
some cases, restricted availability (South San Francisco Bay Area; Phoenix; Los Angeles
County). Water costs are also linked to pretreatment costs, since capital costs for
equipment are directly linked to hydraulic loadings of the system. This, in turn, establishes
a relationship with other cost issues such as indirect labor since the greater the hydraulic
loading, the larger the system, and the more maintenance is required. Its significance is
enhanced by the fundamental relationship between water use and quality/process control.
17
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DATA GATHERING
AND MANAGEMENT ISSUES
ASSIGNABILTY
AND ACCURACY
ALLOCATION
PRACTICE
SIGNIFICANCE
H
O
O
§
w
p
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Direct Product Materials — Assignment and allocation
Costs for coating materials are assigned at the product level — especially among users of
precious metals — and more of this type of assignment could probably be done. However,
it does not appear valid to use the experience of the users of precious metals as a guide.
Those companies are able to allocate costs at the product level because extremely accurate
records are kept of additions, precious metal concentration in the process solution, surface
area of parts, and thickness of precious metal coatings.
Base metals were only found to be allocated to the product level when it was either a high
volume material or when it was expensive for other reasons. In these circumstances,
allocation was found to be nearly always done using a gross multiplier during cost
estimation (e.g. 1000 square feet surface area to be plated to a thickness of .0005 inches
gets a "factor" of 20% added to the price.) This factor moves with the thickness and
sometimes the surface area. Greater allocation to the product level would be technically
possible, but probably be thwarted by the amount of record keeping required that is not
useful for any other purpose. Therefore, most allocations are likely restricted to the process
level. It is believed that this allocation would be accurate in nearly all cases.
Research suggests that costs for addition agents could probably be assigned but restricted
to the process level. It is believed that this allocation would be accurate in nearly all cases.
Costs for water could be allocated, but only with an investment in monitoring and control
equipment. Such investments have proven to be unlikely unless linked to other facility
needs. However, even if assigned, costs for water would only be somewhat accurate, with
an estimated variance of ± 20% as this is the estimated range for water flow through the
most common valves in use. Even in high cost situations, water was found to be included
with other general overhead charges and allocated in whatever way the facility chose to
allocate general overhead.
Indirect Materials Use — Applicability and significance
In finishing operations, a wide variety of indirect materials are used in surface preparation,
in the finishing process itself, and in rework operations. As with direct materials, there is a
significant amount of variability concerning the absolute and relative significance of indirect
materials depending on the type of finishing operation. As alternative cleaners replace
traditional organic solvents, the significance increases in two ways. First, they are more
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expensive to purchase — research found situations where purchase price of new cleaners
exceeded old solvents by a factor of 12. Second, they can be more expensive to treat, or at
least this is the presumption.
Costs for acids are not particularly significant except in easily discerned cases such as
electronics; plating on plastics; and etching/deburring as pre-plate operations. Costs for
filters and miscellaneous chemistries tend to be small in most shops but underrecognized
and is therefore a good addition to EA.
Indirect Materials Use — Assignment and Allocation
Costs for acids, filters, cleaning materials and miscellaneous chemistries (strippers,
chromates) tended not to be allocated outside general overhead. These materials
demonstrate dispersed use patterns, episodic ordering, and a lack of other reasons to keep
the required records (mostly use logs) thereby inhibiting process or product assignment.
Evidence from some facilities suggests that even if the allocation were attempted, it would
not likely be accurate because of a reliance on individual effort and a perception of low
value ascribed to the effort. Some evidence was found of allocation of cleaners to product
and in other situations by process, since it involves a discrete unit operation. However, no
approaches were found in the research that break that cost down between solvent actually
used to clean parts and solvent lost to evaporation. Therefore, costs are likely to be
completely accurate only where complete elimination is contemplated. Where more
efficient operations (increased freeboard; reduced withdrawal rate) are proposed, costs are
likely to be only mostly accurate.
By definition, process level allocation of filters is possible given that each filter is
"assigned" to a particular process. Product level allocation is impossible.
Materials Storage
A final category of cost analysis pertaining to materials is storage. These costs are not very
applicable to P2 analysis for electroplating operations. Most P2 options related to materials
storage involve replacing materials and equipment which still requires storage. Research
suggests that storage related to input materials is not usually a significant cost, and not
often connected with other costs likely to be analyzed.
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4.2. Waste Management
Key waste management costs in electroplating
• Handling • Wastewater treatment - labor, chemicals, energy
• Storage • Insurance
• Disposal • Transportation
Applicability and significance
Waste handling, storage, insurance, and wastewater treatment appear to have considerable
potential to elucidate a P2 project analysis. Typically, handling and storage costs are
subsumed together in a facility waste management line while insurance costs are often
found in a general operations line. Insurance pertaining specifically to waste management
operations is exceedingly rare. Insurance costs (overall) are clearly significant in most
operations.
Moving materials from place to place, especially as segregation increases, appears to
require considerable labor and equipment expense. Options short of elimination
(segregation to facilitate recycling, for example) appear to increase this cost burden.
Storage costs can be significant in larger operations where waste treatment areas can be
25% the size of production areas. In smaller operations these costs are marginally
significant and it is probably best to think of them in combination with other related waste
management activities.
Much of the cost analysis has its greatest relevancy when a facility is being designed.
Capital costs related to buying tanks, building storage sheds, diking warehouse areas, etc.
are very significant. Since sludge in many cases can only stay on-site for 90 days, the
relevance to pollution prevention project analysis is typically limited to those circumstances
when a massive overhaul could possibly prevent the need to build more storage. The same
logic applies to insurance costs since systems/options can be assembled that could, if done
well, change risk categories. Research suggests that a pollution prevention option that
reduced the need for storage would not reduce the costs of storage, or at least not very
often. Likewise an option that reduces the need for storage seldom reduces the costs of
insurance.
7.4
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The primary and priority cost center, operation and maintenance of a conventional
wastewater treatment system, combines a wide variety of labor, chemical, and utility costs.
The significance of cost burden for facilities is high and made higher by the need to reduce
chrome or oxidize cyanide if those processes exist in a facility. Costs may also be
unnecessarily inflated by less than optimal management practices. Similarly, the use of
recovery technologies as "pretreatment" to the treatment system carries potentially
significant costs and will generate wastes themselves. Caution must be exercised when
reviewing cost implications of this technology use since costs appear to be shifted as often
as they are actually reduced.
Assignment and allocation
Allocation of waste storage and handling costs only to processes or products generating the
need for handling appears straightforward, especially when considered as part of the overall
waste management line. Typical assignment would be on a unit volume basis. Insurance,
however, poses a more challenging problem, and allocation of these costs only to
processes or products generating the need for some discrete component of insurance seems
unlikely. Such an insurance line item would involve estimation and/or calculation of the
cost per unit volume to insure activities that seem hardly to be recognized in policies as risk
vectors.
The accuracy of waste management costs is difficult to ascertain. It is doubtful that these
costs could be readily audited, since it relies heavily on a labor component that would in
turn rely on individuals differentiating their activities. Accuracy even of the overall waste
management line is also somewhat suspect, since records seem to rely upon time assigned
to duties, rather than tracking of actual time spent.
Wastewater treatment system costs typically appear as an overhead charge.and are most
frequently allocated across all processes based on square footage of production or some
other related measure. Occasionally facilities were found in which veteran estimators knew
that certain processes created larger treatment burden than others and made some attempt to
differentiate charges. This practice, however, more often occurred in response to pricing
sensitivity rather than to seek an understanding of the "true costs." In other words, more
refined allocation measures were employed to figure out a way to pass the cost on rather
than reduce it. In other, typically larger, facilities the treatment system was a cost center
7.5
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with charge-backs to departments based on volumes and/or incidences such as bath
dumps. However, charge-backs appear to be based on rather crude calculations.
4.3 UtiWes
Key utility costs in electroplating
• Energy
• Sewerage
• Process air
Energy — Applicability and significance
Electricity in general as a cost to electroplating facilities is extremely significant. However,
its applicability as an area of cost analysis for pollution prevention purposes is inherently
limited. By far the majority of electricity goes for application of coatings in heating and
electrodeposition which have physical limits to their efficiency and is therefore rarely the
focus of pollution prevention analyses. Steam and natural gas is used in some facilities for
process heating, and for facilities with large boilers or ovens, this can be a significant cost.
It also may, in some cases, be part of the need for an air permit. Natural gas may also be
used for firing bake or dry ovens. These costs are nearly always subsumed in a "general
operations" line.
Energy — Assignment and allocation
Allocation of these costs only to processes or products generating the need for some
discrete component of power or fuel use seems unlikely. This cost seems nearly
impossible to allocate; it would involve estimation and/or calculation of the cost per unit
volume of something that varies constantly; at a minimum, significant investment in
monitoring equipment would be required. Likewise, assignment of steam costs only to
processes or products generating the need for some discrete component of steam use
seems unlikely.
An interesting sidelight discovered in the course of the research is the use of electrical
consumption as part of a ratio to adjust measures of P2 progress. The theory is that use of
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electricity declines when work activity declines, so a electricity/water use ratio could be
derived that would shed some light on whether water use declined as a result of P2 activity
or a decline in business activity. Unfortunately, this would still be very hard to use at
anything other than the facility aggregate level.
Sewerage — Applicability and Significance
Sewerage costs should be applicable to the analysis of any facility and any specific
pollution prevention project dealing with water use and water waste streams. It is
worthwhile to note that sewer charges can and are computed in many different ways —
many of which have no direct relationship to the amount of water actually being discharged
from the facility. Some facilities have a standard sewer charge based on inputs into the
facility rather than outputs. Others feature a cost computation based on broad categories
rather than actual amounts — for example the size of pipe combined with the amount of
water purchased is determined to be equal to the amount of water sewered with a multiplier
applied to monthly activity. Sewer costs can be especially significant if special surcharges
have been applied because of local conditions and requirements. These costs are nearly
always subsumed as part of other categories.
Sewerage — Assignment and Allocation
It appears possible to assign these costs to processes or products generating the need for
some discrete portion of sewer use. However, as with other utilities, this cost seems nearly
impossible to allocate accurately as it would involve estimation and/or calculation of the
cost per unit volume of something that varies continually. As with other utilities an
increase in accuracy would require significant investments in monitoring equipment.
The quality of cost analysis and assignment in sewerage could be improved, however, by
separating process-related from non-process-related sewerage. The research found many
instances of large volumes of non-contact cooling water, water from cooling towers,
domestic sewerage and even storm water being combined with process water, thus raising
volumes and charges or, at a minimum, obscuring industrial use information which would
be the focus of a P2 project analysis.
9.7
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Process air -- Applicability and Significance
Costs for clean process air, especially compressed air, may be applicable to a P2 project
analysis ~ although the issue here is ensuring that this cost is accounted for in the
economic analysis of the P2 option. Clean compressed air is an important component in
several "keystone" source reduction concepts for electroplating facilities, e.g., dry air blow-
off of process solution to reduce water use; clean air to increase agitation in water rinses
and reduce need for water use; warm air mixed with water rinses to create "fog" rinses and
reduce need for water rinse. A facility implementing the above source reduction option
could easily outstrip existing compressed air capacity, especially since clean and/or dry is
quite expensive to generate. These costs are often not significant, but may become
significant with substantial source reduction activity. Several facilities contacted in the
research reported costs for air outstripping costs for some acids. These costs are always
subsumed in a general operating category
Process air — Assignment and Allocation
Assignment of these costs by unit operation are possible, since most applications are
designed with specific flows both required and controlled. However, two complicating
factors exist. First, the cost of producing clean compressed air is difficult to calculate as no
generally accepted default values were found to exist during the project research. Second,
this allocation would only be somewhat accurate because of the wide variation in use
possible and the amount of access by operators to the system
4.4 Direct Labor — Clerical and Inspection
Applicability and Significance
Because pollution prevention projects in electroplating typically have strong process
control, recordkeeping, monitoring, and analysis themes associated with them,
manufacturing clerical labor expenses will tend to be applicable. P2 project analysis may
also require specification and contract review, another purpose for which manufacturing
clerical labor would be used. These can be significant costs in many operations
and are related to similar activities undertaken to improve quality and/or productivity that
may be part of a P2 project analysis.
7.R
-------
Some P2 projects may also affect the need for parts inspection, especially in cases where
overall process quality is improved or a particular finish is modified. Therefore, these
costs may be applicable to P2 project analysis, albeit marginally. Research found that
inspection costs are part of overhead in about 50% of facilities investigated, and part of a
separate quality management and documentation system in the other 50% of facilities. In
the latter case, inspection costs are sometimes identifiable as separate costs, but not at the
product or process level. In a few cases of high-volume or sophisticated products,
inspection costs may be both specific and allocated. Inspection activities tend not to be
significant costs. In addition, the "quality revolution" has caused most inspection activities
to be combined with the production duties of operators, which further reduces the
significance of the costs, since inspection is almost always done in the "down time" that
occurs while waiting for parts to be processed.
Assignment and Allocation
Manufacturing clerical costs could be assigned, but only in settings where workers in these
labor categories already use activity coding for other purposes, or are specialists who could
respond accurately to interview-based analysis. Allocation of these costs seems to be only
somewhat accurate, apparently because a "life cycle" of recordkeeping was found in project
research — intensive in the early stages of project analysis, decreases to a somewhat lower
level during decision making and implementation, and may disappear entirely at a later
point. However, several cases were described that incorporated the new records and
analysis into quality monitoring systems, thus permanently increasing these costs.
Assignment of inspection costs seems to be unlikely and, if attempted, inaccurate.
4.5 Indirect Labor
Applicability and Significance
Applicable indirect labor elements in electroplating includes maintenance and medical
surveillance. Maintenance costs do appear quite applicable to a P2 project analysis and can
come in many forms. Process solution maintenance tends to be done by production
operators, with significant exceptions in the electronics products and aerospace industry
sectors. Mechanical maintenance is usually done by specialists, either in-house or
contracted. Maintenance done by operators is often done during down time while waiting
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for parts to process, and may or may not be recorded separately while maintenance done
by contractors, in-house specialists, and for special projects (process solution changeover
on a weekend, for example) are often recorded and tracked through a system of work
orders or job sheets. These costs are often significant, especially in larger facilities.
Medical surveillance costs may be applicable to a P2 project analysis, especially if the
project contemplates eliminating particular substances or unit operations which cause the
need for monitoring. These activities are nearly exclusively performed by clinics or
outside contractors and are accessible as separate line items only in rare cases. In most
facilities, these are treated either as "general operating" costs or even as part of "employee
benefits." These costs are apparently only significant in a small group of facilities, but the
cost significance issue may be rendered moot. Even if the P2 option reduces or eliminates
the need, monitoring may still be either required, prudent, or very desirable.
Assignment and Allocation
Maintenance done by contractors, in-house specialists, and for special projects could
probably be allocated accurately to the process or unit operation level. However,
maintenance done by operators is probably impossible to assign separately unless
supported by a work order / paper trail and distinguished from production activities.
Assignment of medical surveillance costs seems likely to be possible and will probably be
quite accurate, inasmuch as they are driven by specific monitoring and not general
screening.
4.6 Regulatory Compliance
Applicability and Significance
As with other industries, electroplating features an extensive array of cost items pertaining
to the regulatory compliance and the environmental management function. For purposes
of analysis, it is useful to segregate these compliance costs into two categories ~ those
driven by a facility's use of particular substances and those driven by the facility's
generalized need to respond to environmental regulations.
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Substance-driven costs would include:
• monitoring
• protective equipment
• lab fees
• manifesting
• labeling
• R&D to comply with regulations
These costs are usually applicable to a P2 project analysis and typically subsumed in a
"general operating" category. Of this list, lab fees and monitoring can often be significant
costs.
Regulatory response driven costs would include:
' reporting
1 recordkeeping
1 inspections
1 closure and post closure care* handling
• insurance
• personal injury
• notification
• training and materials
1 fines and penalties
These costs are usually applicable to a P2 project analysis and usually subsumed in a
"general operating" category. With the exception of closure which can be associated with
very high costs, the individual cost elements may not be very great. However, taken
together, their sum can be quite significant.
Assinment and Allocation
The purpose of distinguishing these compliance cost categories lies in their ability to be
assigned to processes or products. The former set — use driven costs — can probably be
assigned quite readily and the allocations would probably be quite accurate. Costs
associated with generalized compliance response prove far more problematic. They can
probably be assigned only on a volume basis (e.g. 10% of sludge is nickel so 10% of cost
pool goes to nickel processes). Such assignments would only be somewhat accurate.
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4.7 Incremental Revenues
Applicability and Significance
Revenue accruing from the production and sale from a marketable byproduct is common
in electroplating and applicable to P2 project analysis. Most electroplating facilities selling
byproducts seem to include these revenues as part of a general income line. These
revenues tend not to be very large components of gross revenues and, furthermore, vary
considerably because of their exposure to price swings in commodity markets. As a result,
reliance on these revenues for cost/benefit analysis when doing project analysis is fairly
rare.
Sales increases as a result of image improvements might be possible, but the research
found no instance of a facility willing to consider this approach to valuing the results of P2
projects.
Assignment and Allocation
Byproduct revenues can be allocated accurately, but generally cannot be projected for use in
capital budgeting efforts.
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5.0 ISSUES IN IMPLEMENTING ENVIRONMENTAL ACCOUNTING
IN ELECTROPLATING OPERATIONS
Electroplating firms contacted and visited for this project have recognized that waste
management and regulatory compliance involve more costs than those in evidence as totals
on just the checks written to treatment and disposal firms. In addition, these firms are
seeing that more benefits accrue to their facility - and financial statements - from pollution
prevention approaches than has usually been portrayed in the past.
EA has a role in facilitating this understanding, supporting better project analysis, and
prompting more implementation. A generally accepted EA implementation strategy is
comprised of the following steps:
• Identify environmental management costs
• Prioritize and select the costs to investigate in more detail
• Quantify or qualify the costs
• Allocate costs to products or processes responsible for their generation
• Integrate costs into facility decision-making
Following is a discussion of the relevant issues pertaining to each of these steps as they
relate to finishing operations.
5.1 Identifying Environmental Costs
As the following table illustrates, environmental management costs in electroplating
facilities might best be broken into two primary categories - 1) direct and indirect
operating costs associated with environmental management and compliance and 2)
opportunity costs stemming from not using raw materials as efficiently or as productively
as possible. The direct and indirect costs associated with environmental management
issues highlighted in the previous tables vary in their relevance to finishing operations and
in their "ability" to be identified depending on the types and nature of processes employed
at the facility. Generally speaking, however, these direct and indirect costs can be quite
readily identified by a facility. Those which require actual checks on a regular or semi-
regular basis were quickly identified by the facilities visited and leave a paper trail in the
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system. Smaller, more miscellaneous expenditures such as regulatory fees were also
identified with some limited prompting.
Type
Examples
How Identified
Environmental Cost Components:
Environmental Management
Costs
V labor cost for environmental
compliance
V regulatory fees
V purchased materials for water
treatment
Cost Accounting Review
V general ledger review
V payables review
Lost Material Costs
V wasted process solution
V lost process chemistry
Cost Accounting Review plus
Process Review
V materials balance
V process benchmarking
Environmental management costs which do not involve monthly check writing (e.g.
indirect labor, etc.) were also readily acknowledged by facilities and recognized as
something which should be reduced. An important complicating issue here, however, is
the degree to which facilities can link them to specific activity drivers (e.g. separating the
indirect labor pot into its components of recordkeeping, monitoring, notification, etc.).
Although facilities recognize their existence, they proved to be far less willing or able to
identify costs at this level of individual detail. From a standpoint of EA analysis, such an
effort may not be necessary given the relative size of these items in relation to other cost
elements.
The drivers of these direct and indirect costs, rather than the costs themselves, were most
often underrecognized by a facility. This was especially true in target areas such as
wastewater treatment and hazardous waste disposal. While facilities could generally
develop cost totals for these areas, the understanding of the contribution and impact
episodic events such as disposal of tank bottoms, rework of reject parts, and bath dumps
have on these items was underrecognized. Applying environmental accounting to these
3 Two other cost categories which may be a part of environmental management costs are contingency
costs and image costs. However, a consideration of these costs is not included in the report. See
Section 3.0
-------
activities was found to generate interest in reducing the frequency of these events through
better process management and control.
A larger and more significant set of environmental costs for electroplating are the
opportunity costs of unoptimized materials use. These opportunity costs are the value of
lost process materials -- materials purchased but not sold, wasted, or not used as efficiently
or as productively as could be. They are implicitly more difficult to identify for the
following reasons:
• There are few readily available "best industrial practice" benchmarks to indicate to
a facility how efficient or productive their processes could be from the standpoint of
materials use.
• Reviews of electroplating cost and pricing literature found no way to track lost
material through explicit or implicit loss allowances. It may exist in some
electroplating facilities for very specific reasons, but nothing was uncovered in this
project research.
• Cost accounting systems do not capture such opportunity costs with a line item
called "wasted raw material." In fact, the opposite may be true - cost accounting
systems may artificially hide this cost of waste by building costing systems on
standard loss allowances rather than actual losses.
Adding the opportunity costs with the direct and indirect environmental management costs
gives a facility a more accurate measure of the facility's total cost of waste. They are also
obviously interrelated: reduction in these opportunity costs will decrease primary
environmental management costs such as wastewater treatment and hazardous waste
disposal.
5.2 Prioritizing Costs to Investigate
For reasons described above, facility attention should first be focused on valuing the
opportunity costs of materials losses before attempting to "unpack" environmental
overhead in deeper levels of EA analysis. The research showed that for electroplating
facilities the significance of environmental management overhead items generally pale in
-------
comparison in amount and significance to these opportunity cost issues. For example, in
one of the zinc shops visited:
Apparent cost of F006 sludge based on payments to TSD and hauler: $525/ton
EA-generated share of overhead cost
Apparent cost of sludge adjusted for allocated overhead
Cost of lost process chemistry 4
Cost of sludge adjusted for environmental management and
opportunity costs
$67/ton
$587/ton
$306/ton
$893/ton
In this example, the opportunity costs of lost material exceeded the overhead allocated costs
by a factor of nearly five. In many of the shops visited, opportunity costs exceeded
environmental management costs by a factor of ten.
The opportunity costs likely to generate motivating numbers for the facility to consider are:
• value of lost process solution and chemistries
• excess water use
Once this understanding is gained, it can be used as part of the analysis for other direct "big
ticket" EA cost items such as wastewater treatment, sewerage, and waste disposal. For
example, every gallon of excess water use creates an environmental management cost that
is typically undervalued. Care should be taken to always divide total environmental
management costs related to wastewater into wastewater volume since EA analysis has
shown that wastewater costs can be surprisingly high.
5.3 Quantifying or Qualifying Costs
Efforts to quantify environmental management costs begin with the ability to access cost
information. Assuring the accuracy of this quantification effort is equally important.
Quantifying direct and indirect environmental management costs, as described earlier, can
be quite straightforward for certain items (those with invoices) and less so for other
4 [Sludge at 1% zinc metal/ton = 320 oz. zine metal/ton) *• (zinc cyanide plating solution at 4.7
oz/gal)] x (zinc cyanide plating solution at $4.50/gal) = $306.38
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elements (e.g. labor component, liability). The challenge found throughout project research
was the ability to quantify these costs at a level of detail to help facilitate an EA analysis.
Electroplating facilities visited and contacted for this project tended to aggregate many costs
into very general categories, at least when preparing financial statements such as balance
sheets and profit and loss statements. Moreover "mining" this information at a level of
detail necessary to enable allocation is potentially an expensive thing for a facility to do and
there often appears to be no other particular production or management reason for
collecting and managing information at this level of detail. Without other opportunities for
using this information, its collection and management is even less likely for a facility.
Labor costs are often major components of "hidden" environmental management costs.
Both direct and indirect labor are captured on the general ledger and subsequent statements
as aggregated costs. Supporting documentation, usually time sheets, use codes, part
numbers, job names, or similar appellations are used to distinguish between work activities
for production and support staff, and usually use considerable less detail for salaried
personnel, e.g., a manager in charge of research and record keeping for regulatory
compliance. These can be used to help allocate costs to responsible products or processes.
However, two issues arose which affected the use of labor costs in an EA analysis:
• Minimal or no effect on cash flow — In no facilities reviewed would a strategy
offer the potential to actually reduce labor costs in such a way that cash flow is
affected. Discussions with facility representatives on the labor valuation issue
suggested a hesitancy to assign "savings" to activities which did not directly affect
payroll or payables.
• Need to recognize labor trade-offs - Facilities recognized that reducing necessary
investments in environmental labor offered the potential to reallocate human
resources to more productive activities. However, finishing facilities are quick to
point out that whatever pollution prevention technique or technology is being
evaluated is likely to also have its own increases hi labor costs. Environmentally
preferable processes or recovery technologies typically have tighter operating
windows requiring more careful monitoring practices and new standard operating
procedures. Recovery technologies typically are quite sophisticated demanding
increased maintenance, monitoring, training and control efforts. The National
Association of Metal Finishers has reported technology failure rates of 30-40% for
various types of recovery technologies within the industry, and experts believe a
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portion of this failure may be due to labor issues and the sophistication of the
technologies.
It is clear that environmental labor issues are important and relevant to an analysis, and
decreases in regulatory-related labor activities of all types is certainly in the best interest of a
facility. Many facilities also seem to benefit from quantifying these labor costs to obtain an
understanding of the potential productivity gains which may be available. However for
actual economic evaluations of projects, many of these labor issues might be best factored
into an analysis in a qualitative fashion.
Quantifying the opportunity cost component is an ongoing challenge of finishing
operations because it requires an ability to assess "how good the process could be."
Quantifying the opportunity cost component faces two key problems:
1) Accuracy of cost information is frequently questionable — The reality in
electroplating is that only information based on an invoice or similar documentation
can be trusted to be completely accurate. Data derived from internal records and
calculations, or even from interviews of personnel, are at their most reliable still
highly variable, simply because of the ever-changing nature of electroplating
operations. Some facilities will add to that variability with spotty record keeping,
personal bias, and lack of equipment for proper monitoring. The only exceptions
seem to be records that are also required to be kept for other purposes, such as
demonstration of compliance with customer specifications or documentation for
quality management systems.
2) Need for strong supporting production information systems ~ Robust
production management information is needed to be able to support the EA
analysis and numbers. In parallel with the system of bookkeeping and accounting
is the record keeping and analysis required to produce job cost estimates, schedule
production and maintenance, do short- and long-range company planning, and track
and assure quality. This system tends to be less accurate, mostly because it is
heavily influenced by subjective responses, records kept by humans, and the ebb
and flow of customer demands. This is the very system that must produce
documentation that would be used to cross-check estimates (acid purchased vs. acid
used), analyze options (length of time required to rinse "thoroughly"), and gauge
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information needs for implementation (estimated down time for conversion to non-
cyanide zinc).
5.4 Allocating Costs to Products or Processes Responsible for their
Generation
The question of whether to allocate to processes or products depends on the type of project
being investigated. Some pollution prevention technologies — ion exchange, reverse
osmosis, replacement of organic solvent cleaning, cyanide elimination, and others—are best
supported by cost allocations to the process level. That is to say, as many costs as possible
that are associated with a given process (the "target" of a pollution prevention technology)
should be dis-aggregated and made part of the pollution prevention project analysis. Cost
of process solution, cost of utilities, cost of labor: all become a legitimate part of the
analysis. In that case, the technologies and allocation level "match"—what is needed
happens to be for the most part available.
For other projects — especially those having implications regarding water use, procedure
modifications, or process re-design — allocations to the process level are often insufficient.
The success of these projects is many times product-specific, meaning that the relative
effect of a product on the costs of operating a process is at least as important as the costs of
process chemistry and waste management costs associated with a process. In these cases,
pollution prevention project analysis requires knowing not just how much a given process
costs in terms of process operations and waste treatment, but also what percentage of those
costs are caused by Part A, Part B and Part C. Cost allocation at the product level is quite
rare.
For most facilities visited, how to allocate was typically a greater issue than on what level
to allocate. As in quantifying costs, individual pieces of EA analysis vary in degrees of
difficulty with respect to allocating to their sources. Three allocation options facilities may
consider are allocations based on actual contribution, allocations based on estimated
calculations, and allocations based on professional judgment.
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5.4.1
Allocation Based on Actual Contribution
Most of the "hidden" environmental management costs — are extremely difficult to allocate
based on their actual contributions. The number of product and process variables affecting
actual contribution are typically too complex and systemic for most finishing facilities to be
able to (or want to) generate actual contribution numbers. This is true even for the high
profile environmental management costs. For example, in many shops, a large
environmental management cost is the system used to satisfy the limits on concentrations
of various materials in wastewater discharge permits. In order to accurately allocate to the
process level the costs of creating and managing metal hydroxide sludge, a shop would
have to account for:
• variation in product mix
• potential variation in operating procedures
• variation in chemical concentrations
• potentially numerou s sources for each constituent of concern
A review of the literature found company examples that had documented in excruciating
detail the relative contributions of different parts and solutions to different wastewater
streams. Site-specific data were in fact generated, but so many variables were controlled as
to render general transferability of this data to other facilities completely moot. The
research required to allocate large costs like water, sludge generation, and concentrated
process solution disposal appears to be too complicated and too expensive to be conducted
by any but the most sophisticated electroplating operations.
5.4.2
Allocations Based on Estimated Calculations
Given these inherent difficulties, facilities have responded by allocating these costs based
not on actual but estimated contribution. Estimations are typically generated in one of two
ways — using standard surcharges or "kickers" which the facility uses to price products; or
using activity based measures.
Standard surcharges are commonly found in electroplating. A finishing operation might
add 15% to the cost of the chrome finished products to cover treatment costs, but a 30%
charge to cover cyanide processes. These percentages might also be used for cost
allocation purposes. This approach is well-accepted in the industry. WRTTAR found
40
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evidence in our research of using "default values" based on sources such as the plating
literature, discussion with peers, and personal or organizational experience. However, as
with labor costs, these surcharges are "loaded" with extraneous costs not pertinent to a
pollution prevention project analysis; typically assembled to recover production costs, not
to reveal activity costs; and therefore yield high levels of inaccuracy.
An alternative way to allocate is through engineering estimates. Environmental
management activity is first subdivided into separate categories of activity (e.g. cyanide
destruction, chrome reduction, etc.) These activities are then assigned a cost, in this case
usually on a "per gallons treated" basis by calculating the predicted costs of treatment for a
specific concentration, flow, method, etc. These controlled variables are chosen to be
nearly representative of actual facility conditions as possible, and the cost is "built" by
analyzing each step of the process. Engineering estimates have higher levels of accuracy,
and the greater the controlled variables reflect facility reality, the more accurate the
estimates will be. Developing engineering estimates, however, is a sophisticated,
technically demanding effort, and may be outside the scope of non-process experts.
Allocations based on an appropriate production factor (square feet processed, hours of
operation, etc.) is perhaps the simplest type of estimated calculation and a possible
short-cut to full engineering estimates. This allocation approach can be complemented by
electroplating literature which will contain published industry averages like "dollars per
gallon treated." Users however must recognize these estimates are averages and can vary
significantly based on the production factors cited earlier (product configuration,
concentration, flow, other materials in waste stream, etc.) As an example, in the
hexavalent chrome facilities visited for this project, the dollars per gallon chrome reduction
estimates varied by a factor of 22. As a result, production factor allocations are probably
best used when high levels of accuracy are not determined to be critical.
5.4.3
Allocations Based on Professional Judgment
Another response to the difficulty of deriving actual values from records in electroplating is
deriving relative contributions of the different components of an aggregated environmental
cost using the best judgment of facility staff. Because real numbers are not generated, this
approach is not used for capital budgeting. However, it could be used for targeting
opportunities and prioritizing improvement activities.
41
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To evaluate the efficacy of this approach, WRTTAR had facility staff generate contribution
estimates based on professional judgment. The costs were then allocated accordingly.
These cost allocations were then cross-checked through WRTTAR's assessment
procedure5.
The best "match" between "estimated" allocation and assessment-based allocation was
obtained when the following constraints were met:
• Production records already gathered and analyzed for other purposes
• Process analysis and control was documented and cross-checked by supervisor
• Approval was required for discharge to treatment
• Waste treatment and environmental management staff familiar with
production operations
However, in only three facilities did staff allocation estimates come within 25% of what
were eventually accepted as somewhat accurate allocations (see earlier definition in this
report). In several facilities variances were as high as 400-500%.
Many interpretations are possible of the basis for these inaccuracies. The most likely,
based on our research, is that many electroplating operations rely on cost structures that are
very general unless allocation is required by some outside force (customer, shareholder,
banker, etc.). This leads to working with and accepting information that is perfectly
acceptable for day-to-day operations, but which can falter when brought to bear on a more
rigorous and detailed effort such as improvement targeting. As a result, allocation based
on professional judgment should be interpreted with caution.
5.5
Integrating Costs into Decision Making
EA has potential application in several areas of facility decision-making including capital
budgeting and targeting of improvement actions. The following section describes some of
5 WRITAR's assessment procedure entailed an allocation based on engineering estimates and
materials balances. Materials use amounts were generated from a variety of production records and
cross checked. Electroplating engineering handbooks were then used to calculate the amount of
process consumption which would be necessary to accomplish the facility's production volumes and
specs. The balance would be considered lost process material requiring treatment.
47.
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the research findings and conclusions about EA use in these two decision situations for
electroplating shops.
5.5.1
Capital Budgeting Decisions
In the sample of shops visited, conventional costs were routinely captured in project
analysis. In six of the shops in our sample, parts of EA addressing direct and indirect
costs associated with environmental management had been used to justify pollution
prevention projects requiring capital investments. The parts of EA selected focused on
large environmental costs that could be fairly easily allocated because they were either
comprised of the costs to manage a single waste or type of waste that would be eliminated
(e.g., switching from organic solvents for degreasing to aqueous alkaline cleaners) or
because the linkage to environmental management costs was completely obvious (e.g.,
eliminating cyanide inputs from the flow-through portion of the pretreatment system which
reduced disposal costs and eliminated the need for a unit operation). Many shops have
been using parts of EA without knowing it or calling it that, much like the way shops do
"pollution prevention" without calling it that in the normal course of improving operations.
The idea of consistently applying a full EA framework including contingent and image
costs did not seem likely to any representatives in the sample. There is a very strong sense
of individuals using only what is 1) high-potential in terms of cost reduction, and 2) solid
in terms of accuracy. Although facilities found indirect costs (those not directly affecting
payroll and payables) useful to consider and quantify, metal finishers demonstrated
hesitancy to formally factor them into an actual economic evaluation of a project.
Electroplating facilities were strongly oriented toward using conservative cost estimates in
decision-making.
A broader issue concerns the type of capital projects best supported by EA analysis. The
optimal situation occurs in capital projects in which entire operations such as cyanide
destruction, chrome reduction, or solvent cleaning can be eliminated. This avoids the need
to engage in difficult allocation mathematics. However, research found that in most cost
areas, process substitution results in incremental reductions rather than complete
elimination. For most of the facilities, some cyanide destruction and chrome reduction
capacity needed to remain because of other processes in the facility. While theoretically an
estimated savings based on volume reduction might be generated, the problems of data
quality and tracking and allocation challenges arose. No shop in the zinc cyanide sample
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could approach being able to figure out a percent contribution by source for cyanide
destruction. Difficulties of this nature are found in other EA cost categories including
waste management and regulatory compliance costs. As a general rule, the best candidates
for a more fully developed EA analysis are those that are focused on a single waste stream
and address complete, rather than partial, elimination of environmental cost categories.
Perhaps the most useful application of EA in the capital budgeting area is to help the
facility make better choices on the types and sizes of capital projects needed in the facility.
The need to invest in process optimization before making capital budgeting decisions has
long been recognized in electroplating. Perhaps the best example of this principle can be
found in efforts to create a closed looped wastewater system. According to Plating and
Surface Finishing (October, 1993) a pursuit of zero water discharge without upfront
process optimization can cost a facility 2-5 times more than conventional end of pipe
treatment. Using EA to examine costs of loss material in a facility and identify where
process improvement is prudent can provide valuable input into facility capital planning.
5.5.2 Targeting and Prioritizing Improvement Opportunities
EA also has value in targeting and prioritizing improvement opportunities for facility
operations. However, the key to targeting was again found to be rooted in understanding
and quantifying the cost of the lost material portion of an EA analysis. Moreover, to obtain
the best results, EA is best used in conjunction with traditional targeting methods such as
reject rate analysis to get the best environmental as well as financial benefit.
Targeting improvement areas based solely on relative contributions to facility
environmental management overhead and ignoring lost material issues may misdirect
facility attention from where the greatest gains could be realized. WRTTAR compared the
results of targeting based solely on contributions to environmental overhead with those
based on an assessment approach based on materials accounting and lost process solution.
The best "match" between allocated overhead based targeting and assessment-based
targeting was obtained when the following constraints were met:
• Limited variation of products
• Limited use of multiple-use process solutions (other than rinses)
• Limited total number of processes
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The project lacked sufficient resources to define "limited" in much detail, but this much is
clear: When the total of the number of products plus the number of multiple-use solutions
plus the total number of processes (yielding total "factors") exceeded 20, the overhead
focused methodology actually became worse than a guess, since it actively misdirected the
investigation because of its issue-specific approach. As an example, a manufacturer of
nickel-plated hand tools:
-has three products
-uses two different cleaners, two different acids
-uses two electroplating solutions
Total "factors" = 9
In this extremely simple, probably anomalous, production situation, the overhead
allocation method and the assessment method both pointed to the nickel plating solution as
being the most deserving of P2 attention with the goal of reducing environmental
management costs. (In this case, the calculated approach focused on allocating water,
sewer and sludge costs because of the effect of wastewater volume on total sludge
volume.)
In a more typical (at least for this coating/product mix) production situation, a manufacturer
of enclosures for the electronics industry which are zinc plated and chromated:
--has (on the one line chosen for analysis) 12 "primary" products
—uses two cleaners, three acids — > Total "factors" =21
—uses one electroplating solution, three chromate solutions
In this case, the target recommended by environmental overhead allocation (once again
allocating water, sewer, and sludge costs) was the chromate portion of the process.
However, the assessment-based approach pointed to the zinc solution and related process
control issues (because of the effect on reject rates and corresponding impacts on materials
use and waste issues), with the chromates a close second. As the cases examined
increased in "complexity", at least as indicated by the "factors" approach used above, the
two approaches pointed less and less frequently in anything like the same direction.
Targeting based solely on the allocation of environmental overhead may not result in the
best projects in terms of environmental and financial returns. Targeting based on an EA
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analysis which first examines loss process solution costs and then allocates environmental
management cost components can be a powerful targeting tool.
5.5.3 Applying EA to Hexavalent Chrome and Zinc Cyanide Substitution
Projects
To examine and illustrate some of the issues and challenges of EA analysis in pollution
prevention projects, WRITAR investigated two plating processes that appeared to be best
tailored to potential EA application — substitution of zinc cyanide processes and
substitution of hexavalent chrome processes. Besides being regulatory targets and
therefore the focus for existing change efforts, these two processes appeared to satisfy the
condition of well defined, technology-based changes which appear to be very amenable to
EA analysis.
WRITAR visited eight shops using zinc cyanide processes and ten shops using hexavalent
chrome processes for decorative plating. Working jointly with the facilities, WRTTAR
applied an EA analysis to the decision on whether to switch to appropriate alternatives.
With the exception of two cost categories — utilities and insurance — WRTTAR found that
applying EA methodologies offered the potential for elucidating and incorporating other
costs which would help justify a process change. However, three issues arose which are
likely to be found in other types of project evaluations:
I. More cost savings is not necessarily the implementation key— Because of the
regulatory pressures, nearly all the firms were already quite aware of the general economics
of alternative processes. That the economic justification could be "beefed up" was
generally not an issue. General resistance to change, inability to change due to perceived or
codified requirements, labor skill base, and other factors rather than the numbers were
stopping implementation. This issue is not a fault or limitation of EA; rather, it simply
demonstrates that cost is just one of a multitude of potential issues affecting pollution
prevention implementation.
2. EA analysis is better served by decision situations featuring complete, rather than
incremental reductions — As discussed earlier, allocation challenges created the major
roadblock for EA analysis. In facilities where entire operations such as cyanide destruction
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or chrome reduction could be eliminated, EA offered tremendous potential. The
corresponding environmnetal management and regualtory costs associated cyanide
detsruction could be readily assembled and factored into the analysis. However, research
found that in most cost areas, process substitution result in incremental reductions rather
than complete elimination. For most of the facilities, some cyanide destruction and chrome
reduction capacity needed to remain because of other processes in the facility. While
theoretically an estimated savings based on volume reduction might be generated, the
problems of data quality and tracking described earlier immediately came to the surface.
Difficulties of this nature were found in other EA cost categories including waste
management and regulatory compliance costs.
3. Indirect labor costs exist for alternatives as well — Indirect labor "savings"
associated with environmental management could be roughly approximated, but full
costing demanded "equal time" on the other side of the ledger and labor cost changes were
approximated for alternative processes. Many of the environmental management labor
savings were offset by increased labor costs associated with the alternative processes which
generally demand more careful maintenance and control practices and embodied their own
training issues.
47
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6.0 GUIDANCE FOR INVESTIGATING LOST MATERIAL COSTS IN
ELECTROPLATING
Because the environmental management cost structures of a facility are really a function of
how and how well materials are used in operations, obtaining an understanding of existing
process performance and materials use is a good starting point for EA in electroplating.
Investigators should begin by exploring what types of efforts have been made to:
improve process controls
reduce water use
understand and optimize materials use
implement and monitor standard procedures
to obtain a sense of where facilities have and have not invested in process improvement.
Once this understanding is gained, the economic justification for further activity can be
made through an application of EA. The value of waste as lost process solution is the
critical calculation worth performing since it provides a sense of the opportunity costs
available to the facility, identifies the best cost-saving targets, and it can be very useful as
part of the disposal costs portion of an EA framework. This can be done through the
recommended steps described below. These opportunity costs can then be added to the
EA-generated environmental cost numbers (which capturing the environmental
management cost components) to get the true "cost of wasting."
Linking environmental management costs to ongoing improvement needs proved to be
another useful way to generate facility interest in pollution prevention. EA can be used to
bolster the economic argument and identify the facility's "true cost of quality." The key to
realizing the value-added of EA in electroplating is to link this tool with materials balancing
and materials accounting. The opportunity costs of wasted raw materials and materials
losses in electroplating are not only the most significant costs to consider, they are the
linchpin in understanding the reasons for the facilities environmental management cost
structures.
48
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Calculating Value of Process Solutions and Lost Process Solution
Step 1 — Determine total annual cost of material inputs
Step 2 -- Determine list of material inputs that individually are responsible for at least
5% of the total material input costs
Step 3 - Determine value of individual process solutions on annual basis and in cost
per liter of solution. Start with electroplating solutions, then do acids and
cleaners. Occasional use solutions (strippers; chromates; other special-use
surface treatments) are optional at this time - focus on "big tickets" first)
-Step 3a Determine "formula" for each process solution
—List of constituents
—Concentration of each constituent
—Step 3b Determine cost of each constituent
—StepSc Calculate value of solution
Step 4— Rank process solutions by cost
Step 5 ~ Choose top-ranked electroplating process solution. Determine total metal
purchased for that solution as kg/year. Assure that all sources are
accounted for. For example, nickel metal in an electroplating process
solution is derived from, at a minimum:
• solid nickel anodes
• nickel sulfate solution
and may have other sources.
Step 6 ~ Determine total metal plated from that solution as kg/year. This is done by
determining total square decimeters of product processed through the
solution, and multiplying by the average thickness of the plated coating.
Convert to kg using weight to thickness tables.
Step 7 -- Subtract total in Step 6 from total in Step 5. Difference is metal lost to
dragout, although recognize that incorrect data can skew the analysis
Step 8~ Repeat Steps 5-7 as necessary until 80% of costs due to purchase of
electroplating process materials has been analyzed
4Q
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Calculating Value of Process Solutions and Lost Process Solution
Step 1 — Determine total annual cost of material inputs
Step 2 ~ Determine list of material inputs that individually are responsible for at least
5% of the total material input costs
Step 3 — Determine value of individual process solutions on annual basis and in cost
per liter of solution. Start with electroplating solutions, then do acids and
cleaners. Occasional use solutions (strippers; chromates; other special-use
surface treatments) are optional at this time ~ focus on "big tickets" first)
-Step 3a Determine "formula" for each process solution
—List of constituents
—Concentration of each constituent
—Step 3b Determine cost of each constituent
--Step 3 c Calculate value of solution
Step 4 — Rank process solutions by cost
Step 5 — Choose top-ranked electroplating process solution. Determine total metal
purchased for that solution as kg/year. Assure that all sources are
accounted for. For example, nickel metal in an electroplating process
solution is derived from, at a minimum:
o solid nickel anodes
o nickel sulfate solution
and may have other sources.
Step 6 -- Determine total metal plated from that solution as kg/year. This is done by
determining total square decimeters of product processed through the
solution, and multiplying by the average thickness of the plated coating.
Convert to kg using weight to thickness tables.
Step 7 — Subtract total in Step 6 from total in Step 5. Difference is metal lost to
dragout, although recognize that incorrect data can skew the analysis
Step 8 — Repeat Steps 5-7 as necessary until 80% of costs due to purchase of
electroplating process materials has been analyzed
50
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