&EPA
United States
Environmental Protection
Agency
Pollution Prevention
and Toxics
(7406)
EPA744-B-96-OD2
March 1996
Environmental Cost Accounting
Small to Midsized Manufacturers
Handouts to Accompany Videotape Seminar
December 1995
Sponsored by the U.S. Environmental Protection Agency's
Design for the Environment Program and
the National Institute of Standards and Technology's
Manufacturing Extension Partnership
-------
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-------
NIU
Modem Manufacturing:
The National Videoconference Series
for Successful Small Firms
Environmental Cost
Accounting and Capital
Budgeting for Small and
Midsized Manufacturers
Wednesday, December 13,1995
6am-9am Pacific 7am-10am Mtri 8am-11am Central 9am-12noon ET
Live, Interactive Satellite Broadcast for Small & Midsized Manufacturers
Seminar Description
Standard cost accounting practices often fail: to provide managers
with all the information needed to make good business decisions on
issues such as product costing, product pricing, and capital
budgeting. In today's rapidly changing regulatory environment and
increasingly competitive marketplace, environmental costs can make
the difference between profitable and unprofitable product lines and
capital investments.
This seminar will focus oh the connection between environmental
cost accounting and investment decision-making, and will introduce
Total Cost Assessment (TCA), an approach to capital budgeting for
environmental projects that improves on more conventional cost
accounting practices.
The seminar will feature company case studies based on the EPA's
Design for the Environment (DfE) Program that shows how firms
have benefited from taking a TCA approach. Both the case studies
and the seminar were developed in cooperation with the
Screenprinting & Graphic Imaging Association International (SGIA).
Why You Should Attend
This seminar will help manufacturers:
integrate relevant and significant environmental costs into routine
business derision-making
understand the differences between conventional capital budgeting
practices and Total Cost Assessment (TCA)
learn the key steps to take when implementing TCA
Co-Sponsored by:
MIST Manufacturing Extension Partnership
U.S. EPA Design for the Environment Program
Topics to be Covered
Environmental Accounting,
Capital Budgeting and Total .
Cost Assessment (TCA)
TCA Tools
Using the Tools
Case Studies featuring screen
printing and other
manufacturers
Live, interactive Question-and-
Answer Sessions
Panel Discussions
Presenters,
Case Studies and
Broadcast Format
This live, interactive seminar will
feature presentations by
Deborah Savage, Ph.D., from
Tellus Institute, an expert in
financial analysis of pollution
prevention and other
environmental projects, and
Mike Ukena, a Technical
Specialist with the
Screenprinting and Graphic
Imaging Association
International (SGIA). Case
studies featuring manufacturers .
who have successfully
implemented TCA principles will
also be presented.
Continuing
Education
Units: .3
Course Code: MC95121301
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Page 2
Modem Manufacturing Series
_^_____ December 13,1995
Intended Audience
11111 , 3'i''I'!' ' "H ' '' '' ' i,":!''"jiir : " " ' - » 'i.'n , ,,' ,' ' ' , !
This seminar will benefit viewers with little previous exposure to financial analysis methods and those
with some experience in this area. Viewers with a background in industrial, materials, product and
env*011?161*431 engineering, accounting, and general business management are encouraged to attend.
Presenters
Deborah E. Savage, a Ph.D. chemical engineer, is a research associate in
the Risk Analysis Group at Tellus Institute. Her academic background
Deludes teaching experience at both the undergraduate and graduate
levels.
At Tellus, Dr. Savage focuses on pollution prevention and cost
accounting. She has assisted a number of industrial firms in the
financial analysis of pollution prevention projects, including those in the
automotive, printing, and chemicals sectors.
In addition, she has collaborated on TCA projects with the states of New
Jersey and Illinois. Dr. Savage is a Visiting Lecturer in the Chemical
Engineering Department at MTT. -
Deborah Savage
Mike Ukena is a Technical Specialist with the Screenprinting & Graphic
Imaging Association International (SGIA). He has a Bachelor of Arts
degree in biology and a Master's in Business Administration. In his 20-
year business career, Ukena has owned two businesses, including a
textile screen printing business for six years. Ukena is well-versed in
business financial practices and equipment decision processes, and has
experience in the areas of marketing, distribution, manufacturing and
product management.
Mike Jackson, who serves as moderator for the Modem Manufacturing
Videoconference Series, is owner of a Chicago-based corporate
communications consulting firm, Jackson Communications
Management, Inc. Jackson is a former Chicago television news anchor
Mike Ukena and rePorter (Photo not available).
Company Case Studies
Homo, Inc., Screenprinting Company
De Pere, Wisconsin
Red Darling
President/Chief Executive Officer
Romo provides high quality screen printed and
electronically generated graphics for point of
purchase, decal, and fleet markets. Romo
employs approximately 85 people and is located
in the Green Bay, Wisconsin area.
Precision Circuits, Inc.
Lynnwood, Washington
Gary Scott
Wet Process Supervisor
Since being founded in 1985, Precision Circuits,
Inc., has supplied printed circuit boards for
industrial products and consumer electronics.
Located in Lynnwood, Washington, Precision
Circuits employs a staff of 41, who produce over
100,000 square feet of product per year.
-------
Page 3
Modem Manufacturing Series
December 13,1995
Broadcast Schedule
(All times listed are Eastern Time)
9:00-9:05 Introduction and Teleconference
Objectives
Mike Jackson, Moderator
9:05-9:45 Environmental Accounting, Capital
Budgeting and TCA
Deborah Savage, Tellus Institute
Environmental materials and cost
accounting
Capital budgeting of environmental
projects
Total Cost Assessment (TCA)
9:45-9:55 Video Case Study
This case study will feature Precision
Circuits, Inc., of Lynnwood, Washington,
a midsized printed wiring board
manufacturer with experience using
Total Cost Assessment.
9:55-10:05 Live Question-and-Answer Session
Mike Jackson, Moderator
Deborah Savage, Tellus Institute
Gary Scott, Precision Circuits, Inc.
10:05-10:20 Break
10:20-10:35 TCA Tools
Deborah Savage, Tellus Institute
TCA worksheets ,
TCA software ".'
Industry-specific software .
10:35-11:05 Using the Tools
Mike Ukena, SGIA
Data to gather before starting an
analysis ,
Step-by-step processdescriptive flow
chart explanation
What the data will and will not tell you
Report analysis
Where to go with the information
What if comparison studies
11:05-11:20 Video Case Study .
Romo, Inc., Screenprinting Company
De Pere, Wisconsin
Rome's environmental cost accounting
processes will be presented. Romo
provides high quality screen printed and
electronically generated graphics from
the point of purchase, decal, and fleet
' f . markets.
11:20-11:40 Panel Discussion
. Mike Jackson, Moderator
Deborah Savage, Tellus
Mike Ukena, SGIA
Gary Scott, Precision Circuits, Inc.
Fred Darling, Romo, Inc.
11:40-11 :55 Live Question-and-Answer Session
Mike Jackson, Moderator
Deborah Savage, Tellus
Mike Ukena, SGIA
Gary Scott, Precision Circuits, Inc.
Fred Darling, Romo, Inc.
11:55-12:00 Summary and Closing Remarks
Mike Jackson, Moderator
Deborah Savage, Tellus
Mike Ukena, SGIA
Gary Scott, Precision Circuits, Inc.
Fred Darling, Romo, Inc.
(Live broadcast concludes)
12:00-12:30 Local TCA Discussion and Activities
(optional)
Facilitators at each downlink location
may use materials furnished by
teleconference developers to lead local
discussion and TCA exercises from
12:00noon-12:30pm ET, after the
broadcast (see Addendum in handout
packet entitled "Cost Savings
Inventory.")
Live Question-and-Answer Sessions
Attendees are encouraged to call or fax in questions to the speakers during the question-and-answer
sessions. A toll free phone number will be listed on the screen during the broadcast. Questions may be
faxed in at any time during the broadcast. ~ ,
-------
National Technological University - Modern Manufacturing Video Conference Series
^^f011111611181 Co?{ Ac^oimting and .Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00nopn Eastern -MC95121301
Environmental Cost Accounting
Capital Budgeting and TCA
Deborah Savage
Teltus Institute
Environmental Accounting
is the
Identification
Compilation
Analysis
Use
Reporting of environmental
Information
Environmental Accounting
Includes
Uateriala Accounting
Coat Accounting*
toxic materials us*
waatewater
generation ratas
natural raaourca
ua«
hazardous waate
dlapoaal cost*
regulatory
compliance coata
alto clean-up coata
© 1995, feUu,s Institute,
© 1995, SGIA
-------
National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
How Environmental Accounting
Information Is Used
/ V
for for
Internal External
Monitoring & Communication &
Decision-Making Regulatory
Compliance'
SMe4
Environmental Materials
Accounting Information
/
Internal Uses
Measurement of
company progresa
towards toxics
use/release reduction
Performance
benchmarking
Identification of
pollution prevention
opportunities ,
.External Uses
Regulatory .
compliance
reporting to EPA,
state agencies
Public reporting to
local community,
customers,
stockholders
SIM* 5
Environmental
Cost Accounting Information
/ Y
Internal Uses
Process
J costing/product
pricing
Product retention
and mix decisions,
Investment decision-
making
External Uses
Standards or
compliance reporting
to the SEC, FASB
Influence stock
market's perception
of the firm
SMoa
1995, Tellus Institute,
1995, SGIA
-------
National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:QOnoon Eastern -MC95121301
The Connection Between Environmental
Accounting & Capital Budgeting
Environmental Accounting
Materials Accounting Cost Accounting
/ V / V
Internal External Internal External
Capital Budgeting Process
Total Cost Assessment (TCA) is a generic
term for the long-term, comprehensive
analysis of the internal costs and savings of
pollution prevention and other
environmental projects
Elements of TCA
TCA corrects some of the flaws of
conventional financial analysis practices by
incorporating:
A comprehensive cost/savings
inventory
Appropriate cost allocation
Longer analysis time horizons
Suitable profitability indicators
O 1995, Tdlus Institute.
> 1995, SGIA
-------
National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Major Cost Categories
Initial Cost*
i Buildings and Land
Purchasad Equipment
Materials
Utility Systems and
Connections
Planning/Engineering
Site Preparation
Construction/Installation
Start-up/Training
Permitting ,
Working Capital
Contingency
Recurring Costn
Materials
Labor and
Supervision
Utilities
Waste Management
Regulatory
Compliance
Insurance
Future Liability
Revenues
IMctalO
Why Are Costs Neglected?
Perception that ,
...some costs are not relevant
...some costs are not significant enough
to qualify
-.some costs are too difficult to quantify
Environmental costs are often
-.hidden
...assigned to overhead accounts
WBU»11
Which Costs Are Typically
Neglected?
Less Likely To Be
Neglected
One-Time Investment
Costs
Direct Costs
Certain Costs
Short-Term Costs
Easily Quantifiable
Cost*
More Likely To Be
Neglected
Annual, Recurring.
Costs
Indirect, Hidden Coats
Uncertain,
Probabilistic Costs
Long-Term Costs
Dlfficult-To-Quantlfy
Costs
' ".- IUM*12
1995, Tellus Institute.
1995, SGIA
-------
National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00rioon Eastern - MC95121301
Examples of Costs/Savings
Typically Included
One-Time Investment Costs
Purchased equipment
Construction/Installation
Annual. Recurring Costs
Raw materials
Operating labor
Waste hauling and disposal
Direct,
Certain,
Easily
Quantifiable
MdcIS
Examples of Costs/Savings
Typically Neglected
One-Time Investment Costs
Startup/training
Permitting
Annual. Recurring Costs
Regulatory compliance
Green market revenues
Liability
Indirect
Hidden
Uncertain,
Probabilistic
Dlfficutt-To-
Quanttty
Long-Term
8M*14
Comprehensive Cost/Savings
Inventory
One valuable tool for ensuring
inclusion of all relevant and significant
costs and savings is to start project
analysis with a comprehensive
cost/savings list, or inventory.
SfctelS
© 1995, Tellus Institute.
© 1995, SGIA
-------
National Technological University- Modern Manufacturing Video ConferenceSeries
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
How To Use The Inventory
Consider tailoring the generic
cost/savings inventory for routine use
with specific Industry sectors and/or for.
specific process/project types.
Use the inventory as a checklist in
' determining if each Hern on the list is
not relevant to the project
relevant but quantitatively insignificant
relevant and quantitatively significant
relevant but not quantifiable
I
OM*1»
Initial Cost Assignment
In general, costs within an industrial firm are
either
assigned directly to the process,
product, or project directly responsible
for generating the cost
or
first assigned to facility, division, or
company overhead accounts
1*0*17
Cost Allocation
Costs initially assigned to overhead
accounts are usually allocated back to
processes, products, or projects using an
allocation basis such as
materials use
production volume
machine hours
labor hours
89M«1t
© 1995, Tellus Institute.
© 1995, SGIA
-------
National Technological University Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
Deqember 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Example of Conventional Cost Allocation
OvtrhMfl
Plant
Manajpmtnt
MaMwuno*
PTOOM*
Environmental
Itogutetory
Cocnpftenoa.
A««lon«d Directly
Procei* X labor costt
materiale coats
waste dl*po*al coat*
product revenue*
Prooaaa Y tabor coata
material* coat*
wa«t* dlapoaal coat*
product revenue*
*Jd*1l
All Processes Are Not Created Equal
i Process X equipment, the business start-up
equipment, is much older than the
equipment for Process Y. Process X,
therefore, requires much more maintenance
labor and parts than Process Y.
i The hazardous waste generated by Process
X is subject to more environmental
regulation than the Process Y waste.
i Process Y, on the other hand, Is a high-
temperature process that requires
significant heating and cooling capacity.
SM.ZO
More Realistic Cost Allocation
Overhead Coit Proce** X
Plant
M«nag«m*nt 60%
MalntHwnc* 80%
Proc*u UUIftlai 30%
Environmental
Regulatory
Compilinc*
70%
ProeettY
40%
20%
70%
30%
at
© 1995, Tellus Institute.
© 1995, SGIA
-------
National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 ^9:dOam to 12:00noon Eastern- MC95121301
Activity Based Costing (ABC)
Under Activity Based Costing (ABC), costs
are allocated to processes, products, or
projects on the basis of activities with a
direct relationship to cost generation.
Use of ABC will not eliminate overhead
accounts, but will ensure the availability of
more accurate 'cost Information for
management decision-making.
MM* 22
Which Time Horizon Is Best?
To some extent, the best analysis time
horizon will be project-specific and will b«
related to factors such as the equipment^
useful lifetime.
i In general, the long-term view is best, in
order to capture all relevant costs/savingo.
i Once the long-term analysis is completed,,
the firm can always use the information
also to review the short-term benefits of
the project
MC» 23
Simple Payback
Simple Payback is a financial indicator that
incorporates only information about
1) the initial investment cost
and
2) the resulting annual cash flow,
unadjusted for the time value of
money
Initial Investment
Simple Payback
(in years)
Annual Cash Flow
1995, Tellus Institute.
1995, SGIA
-------
National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern-MC95121301
NPVandIRR
Nat Prannt Value (NPV) and Internal Rate of
Return (1RR) are more sophisticated financial
Indicators that consider both the time value of
money and all future year cash flows.
NPV = the sum of the discounted cash flows
over the lifetime of the project, using
the company's cost of capital as the
discount rate
IRR m the discount rate for which NPV = 0,
over the project lifetime, calculated
Iteratlvely
Met* 25
Profitability Indicator Summary
NPV is generally the most valuable,
problem-free Indicator.
Other indicators that consider the time
value of money, such as IRR, are also
useful.
Payback should be used only for very
small projects, for a first-cut rough
screening analysis of more significant
projects, or to complement NPV/IRR
Information.
Metal Fabrication and Finishing
Firm (MF3)
i Privately owned
i Major products and customers
Computer cabinets for a computer
manufacturer
Office furniture metal components for a
furniture mater
i Many environmental efforts at the firm
undertaken due to customer demand and
with customer assistance
Id* 27
> 1995, Tellus Institute.
©1995.SGIA
-------
I , f"
National Technological University -Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Capital Budgeting at MF3
i No standard procedure
i Projects proposed to management on an
ad-hoc basis
i Environmental projects handled in the
same way as other projects
i Vendors play a key role in project analysis
i Limited costs/savings quantified
i Simple payback Is the financial indicator
used
1IM*2S
Paint/Water Separator Project
Incremental Analysis
Currant Conditions .
A couple of the fabrication and finishing steps
generate aqueous-based wastes
water/ammonia/pigment mixture from flushing
paint spray guns . ,
water-soluble oil waste from metal grinding
operations '
Problem
These wastes currently manifested and shipped
off-she for Incineration. Approximate hauling and
disposal: $8906/year
SM*2*
Paint/Water Separator Project
Prononed Solution
Installation of a 100-gallon batch system for
paint/Water separation
Suitable for both paint waste and oily waste
Purchase of an Infrared heater to dry and reduei
volume of filtered sludge
Benefits ; . - ',.
Recovery of separated water for recycle or ,
sewerage.
is Reduced cost for hauling and Incinerating
residual wastes, I.e., paint solids and oil fraction
SIM* ao
© 1995, Tellus Institute.
© 1995, SGIA
-------
National Technological University - Modern Manufacturing Video.Cpnference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Paint/Water Separator Project
Cost Inclusion Comparison
X«Coit(i) Included
P-Cottfr) Partially Included
Ctpltft CostM
Purchased Equipment
Materials (e.g. Piping, Elec.)
Utility Systems
Site Preparation
Installation
Engineering/Contractor
Start-up/Training
Contlngancy
Pamtlttlng
WorfcJng Capital
Company TCA
SIM* 31
Optntlng Cottt
Dlract Costs:
Raw Matirials/Suppltos
Wa«t* Disposal
Labor
Rivinuc* - Ganaral
R«vsnu«s - By-products
Indirect Costs:
Watts Management:
Hauling
Storage
Handling
Waste-end Fees/Taxes
Hauling Insurance
Company TCA
SMC12
Company TCA
Optfatlng Cottt (cont)
Utilities:
Energy
Water
Sewerage (POTW)
Regulatory Compliance
Insurance
Future Liability
© 1995, TeUus Institute.
©1995.SGIA
-------
National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Paint/Water Separator Project
-Cost Summary
Company TCA Dlffamnea
Capital Cotta
$19,659 $19,733
Operating
Savlngs/(Costa)
) Raw Materials ($218) ($218)
b) Labor ($ 714) (» 714)
c)Waate Disposal MgmL $5,651 $6,135
d)Ut)IIUa> ($136) ($163)
) Regulatory Compliance $ 0 $ 194
Subtotal
$4,583 $5,234
$ 74
$ 0
$ 0
$ 484
($ 27)
$ 194
$ 651
Paint/Water Separator Project
Profitability Analysis
Company
Analysts
Total Capital Coata $19,659 $19,733
Annual Savings (BIT) $4,583 $5434
Financial Indicators
Net Present Value Years 1-10 $3,860 $6,277
Net Present Value - Years 1-15 $9,332 $12,436
Internal Rate of Return - Years 1-10 17% 20%
Internal Rate of Return-Years 1-15 20% 23%
Simple Payback (years)
3.8
Paint/Water Separator Project
Summary
TCA revealed some relevant, significant
initial and annual costs and savings
omitted in the conventional company ,
analysis
The omitted items were:
Equipment installation
Training
Separator sludge waste disposal
Waste hauling and hauling insurance
Water
Sewerage
SXcfeM
© 1995, Tellus Institute.
©1995,SGIA
-------
National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Paint/Water Separator Project
Summary
i Inclusion of the omitted Hems increased
annual operating savings of the project by
approximately 14%
i This resulted In a moderate Increase in
project profitability
Summary and Conclusions
Improved Capital Budgeting Practices Can
Change the Bottom Line
How Much Depends On Current Company
Practices and the Individual Project
TCA Has Wide Applicability Across
Project/Program Size and Type
TCA Should Be Customized To a Firm's
Needs
No One Approach Is Right for All
SM*M
Case Study
Precision Circuits, Inc.
Lynnwood, Washington
© 1995, Tdlus Institute.
© 1995, SGIA
-------
National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 -9:QOam to 12:00noon Eastern - MC95121301
TCA Tools
Deborah Savage
Tellus Institute
General Guidelines
Financial Analysis Worksheets
Software
HM*40
TCA Worksheets
i EPA Worksheets
i Industry Specific Worksheets
tlM«41
TCA Software
P2/FINANCE
PRECOSIS
PackTrack
© 1995, Tellus Institute.
©1995.SGIA
-------
National Technological University - Modem Manufacturing Video Conference Series
111 ',,i . '"' i,,,;!'1;;:*!, ,' ' , ! ,',, » > :. ; , i!" ', i , '" .I,,1 . i".«** , ,
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern -MC95121301
Industry Specific Software
Currently Available
Screen Printing
Under Development
Lithographic Printing
Floxographlc Printing
Metal Fabrication and Finishing
« Printed Wiring Board (PWB)
Manufacturing
SIM* 43
Using the Tools
P2/RNANCE for Screen Printers
Mike Ukena
Scr«tnprint!ng & Graphic Imaging
Association, International
(SG1A)
Screen Print Specific Setup
Preloaded with screen printing categories
Preloaded with typical equipment
Preloaded with possible cost and sales
categories
SM«45
© 1995, Tellus Institute.
©1995.SGIA
-------
National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 -9:00am to 12:00noon Eastern - MC95121301
Gathering Data
i Must gather as much pertinent information
as possible before using the program
i Several key accounting criteria must be
resolved
Depreciation method
Depreciation time
Expected Tax Rates - Federal State &
Local .
Discount Rate
Gathering Data, cont.
i Use blank cost list as data gathering
worksheets
Select the process category that best
fits your project
Print out or copy blank cost/savings
inventory to use as data gathering
worksheet
Gathering Data, cont.
Repeat process for all modules
Capital Costs
Operating Costs
Revenues
1995, Tellus Institute.
1995, SGIA
-------
National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:OQnoon Eastern - MC95121301
Data Format
i. All numbers are annualized
cost and revenue numbers need to be
calculated for one year increments
Capital costs are all front loaded even if
you are obtaining a loan.
Need to determine a salvage value and
life expectancy even if you do not plan
on using machine for full depreciation
___t__l /
period
SM*4*
Creating Competing Scenarios
i Copy data to several different files
allows you to compare alternatives with
slight modification of the data
once the data Is entered, manipulation
is easy
i Additional years are entered as sub-
modules
copy data from previous years input
and adjust the fields that change
SfcMK)
Reports
i Individual itemized reports to confirm your
data input
* can be generated at each data entry
screen at the end of your input
use to confirm accuracy of input and to
use as shortcut input forms for next
project
MO* si
© 1995, Tellus Institute.
© 1995, SGIA
-------
National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:GOam to 12:00noon Eastern - MC95121301
Reports
i Analysis Reports
Use to compare various scenarios
Output to screen, file, or printer
Pros and Cons
i Pros
Very comprehensive input schedules
Good analysis reports
i Cons
Time consuming to learn to use
i Highly recommend using P2/F1NANCE as
a topi for your business
Slid* S3
Case Study
Romo, Inc.
Screenprinting Company
De Pere, Wisconsin
WkteM
1995, Tellus Institute.
1995, SGIA
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National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 -9:0()am to 12:00noon Eastern - MC95121301
Pane! Discussion
Deborah Savage, Tellus Institute
« Mike Ukena, SGIA
Fred Darling, Romo, Inc.
Gary Scott, Precision Circuits
Mike Jackson, Moderator
© 1995, Tellus Institute.
© 1995, SGIA
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NIU
Modern Manufacturing:
The National Videoconference Series for Successful Small Firms
Environmental Cost Accounting and Capital Budgeting
December 13,1995
Addend urns: Table of Contents
Addendums
1-4
5-8c
9-11
12-15
16-36
37-65
66-78
References for Additional Information
TCA Tools (Worksheets and Software)
Activities (Inventory of Costs/Savings)
Glossary of Financial Terms
Basic Concepts of Project Financial Analysis
Company Analysis: Coated Fine Paper Mill
Business Expansion: Knowing When to Add People or Equipment
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Modern Manufacturing:
The National Videoconfefence Series for Successful Small Firms
Environmental Cost Accounting and Capital Budgeting
. December 13, 1995
References for Additional Information
Tellus Institute, Boston, MA
Environmental Accounting
Global Environmental Management Initiative (GEM). Finding Cost-Effective Pollution
Prevention Initiatives: Incorporating Environmental Costs into Business Decision Making.
Gray, Rob. Accounting for the Environment. Markus Weiner Publishing, Inc., New York.
Ditz, Daryl, J. Ranganathan and Darryl Banks, eds. Green Ledgers: .Concepts and Case
Studies of Corporate Environmental Accounting. World Resources Institute. March 12, 1995.
Price Waterhouse. Accounting for Environmental Compliance: Crossroad of GAAP,
Engineering, and Government. Survey #2. Price Waterhouse, New York. 1992.
Price Waterhouse. Progress on the Environmental Challenge: A Survey of Corporate
America's Environmental Accounting and Management. Price Waterhpuse, New York. 1994.
White, A.L., D.E. Savage, J. Brody, D. Cavander, and L. Lach. Environmental Cost
Accounting for Capital Budgeting: A Benchmark Survey of Management Accountants
Prepared for: U.S. Environmental Protection Agency, Office of Pollution Prevention and
Toxics, Pollution Prevention Division. U.S. EPA Document No. 742-R-95-005. Tellus
Institute, Boston. September 1995.
Activity Based Costing
Colons, Gary, Alan Stratton and Jack Helbling. An ABC Manager's Primer. Institute of
Management Accountants, Montvale, NJ. 1993,
©1995, TeUus Institute
Addendum -1
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Cooper, Robin, Robert S. Kaplan, Lawrence, Maisel, Eileen Momssey, and Ronald M. Oehrn.
Implementing Activity-Based Cost Management: Moving from Analysis to Action. Institute
of Management Accountants, Montvale, NJ. 1992.
Mecimore, Charles D. and A.T. Bell. "Are We Ready for Fourth-Generation ABC?"
Management Accounting. January 1995.
Society of Management Accounting. Statements on Management Accounting - Practices and
Techniques: Implementing Activity-Based Costing. Institute of Management Accountants
Montvale, NJ. September 1993.
Disclosure of Environmental Liability
Edwards, Paul N. "A Comparison of FASB and SEC Accounting and Disclosure Requirements
for Environmental Contingencies." Understanding Environmental Accounting and Disclosure
Today. Executive Enterprises, Inc., New York. 1992.
Also see Price-Waterhouse surveys.
Pollution Prevention Financing Sources
U.S. Environmental Protection Agency (U.S. EPA) and the Northeast Waste Management
Officials' Association (NEWMOA)V Financing Pollution Prevention Investments: A Guide for
Small and Medium-Sized Businesses. (Focuses on sources of financing in the Northeast states)
U.S. EPA, Boston. 1995.
Principles of Capital Budgeting
.:'«, . i" *. ,. ,i :" <,' ' , ; ' ' .: ',;:
Brealey, R.A. and S.C. Myers, Principles of Corporate Finance, 4th edition McGraw Hill
Inc., New York. 1991.
Garrison, Ray H. and Eric W. Noreen. Managerial Accounting, Seventh Edition Irwin
Publishers, Boston. 1994.
National Association of Accountants. Statements on Management Accounting, Statement No.
4A, Practices and Techniques: Cost of Capital Prentice Hall Publishers, Englewood Cliffs
NJ. 1990.
Torborg, Richard H. "Capital Budgeting for Environmental Professionals." Pollution
Prevention Review, pp. 447-464. Autumn 1994.
©1995, Tellus Institute
Addendum - 2
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Financial Analysis Handbooks and Curricula
American Institute for Pollution Prevention. A Primer for Financial Analysis of Pollution
'o^f P" Pr°jeACtfS- S?ed States Environmental Protection Agency Document No. 600/R-
93/059, Prepared for: Office of Research and Development. April 1993.
Massachusetts Toxics Use Reduction Program. Curriculum for Toxics Use Reduction Planners,
Fourth Edition. The Toxics Use Reduction Institute, University of Massachusetts at Lowell
bpnng 1993.
Northeast Waste Management Officials' Association (NEWMOA) and the Massachusetts Office
of Technical Assistance (MA OTA), posting and Financial Analysis of Pollution Prevention
£ZT^n?* P^'^rk^°P Agenda' W°rkshop Curriculum, Case Studies and
.Report. NEWMOA and MA OTA, Boston. 1992.
\ '
Northeast .Waste Management Officials' Association (NEWMOA) and the Massachusetts Office
of Technical Assistance (MA OTA). Improving Your Competitive Position: Strategic and
f^Ci ^essment of Pollution Prevention Projects - Instructor 's Guide NEWMOA and
MA OTA, Boston. 1994.
Northeast Waste Management Officials' Association (NEWMOA) and the Massachusetts Office
of Technical Assistance (MA OTA). Improving Your Competitive Position: Strategic and
Prevention Pr°Jects ~ Training Manual. NEWMOA and
Tellus Institute. Basic Concepts of Project Financial Analysis: Prepared for: Modern
Manufacturing: The National Videoconference Series for Successful Small Firms
Environmental Cost Accounting and Capital Budgeting, July 12, 1995. Presentation
Overheads, modified. October 1995.
United States Environmental Protection Agency. Waste Minimization Opportunity Assessment
Manual U.S. EPA Document No. 625/7-88/003, Prepared by Jacobs Engineering Group for
Hazardous Waste Engineering Research Laboratory, Cincinnati. July 1988.
United States Environmental Protection Agency. Pollution Prevention Benefits Manual U S
EPA Document No. 230-R-89-100, Prepared by ICF Technology Inc. for: Office of Solid
Waste and Office of Policy Planning and Evaluation. July 1989.
©1995, Tellus Institute
Addendum-3
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Total Cost Assessment Case Studies
'' ! "':i ' , ., : V ' ' ' -
Badgett, Lona, Beth Hawke, and Karen Humphrey. "Analysis of Pollution Prevention and
Waste Minimization Opportunities Using Total Cost Assessment: A Case Study in the
Electronics Industry." Pacific Northwest Pollution Prevention Research Center (PPRQ Seattle
September 1995.
Kennedy, Mitchell L. "Getting to the Bottom Line: How TCA Shows the Real Cost of
Solvent Substitution." Pollution Prevention Review, pp. 155-164. Spring 1994.
Savage, Deborah E. and Allen L. White. "New Applications of Total Cost Assessment,"
Pollution Prevention Review. Whiter 1994-95.
White, Allen L., Monica Becker, and James Goldstein. Total Cost Assessment-Accelerating
Industrial Pollution, Prevention Through Innovative Project Financial Analysis with
Applications to the Pulp and Paper Industry. Prepared for: U.S. Environmental Protection
Agency, Office of Policy Planning and Evaluation, Office of Pollution Prevention. Tellus
Institute, Boston. 1991. Revised Executive Summary, June 1993.
White, Allen L., Monica Becker, and James Goldstein. Alternative Approaches to the
Financial Evaluation of Industrial Pollution Prevention Investments. Prepared for: New Jersey
Department of Environmental Protection, Division of Science and Research, Project No.
P32250. Tellus Institute, Boston. 1991. Revised Executive Summary, June 1993.
White, Allen L., Monica Becker and Deborah E. Savage. "Environmentally Smart Accounting-
Using Total Cost Assessment To Advance Pollution Prevention," Pollution Prevention Review
Summer 1993.
White, A.L., D.E. Savage and A. Dierks. "Environmental Accounting: Principles for the
Sustainable Enterprise," TAPPI International Environmental Conference, Atlanta, GA. May
/*" L Uj
Wittman, Marlene R. "Wraybum Jewelry Company, Inc., Sutton Facility: Costing and
Financial Analysis of Pollution Prevention Projects." Massachusetts Office of Technical
.Assistance and Northeast Waste Management Officials' Association, Boston. July 1991.
Wittman, Marlene R. "Lightolier, Inc., Fall River Division: Costing and Financial Analysis
of Pollution Prevention Projects." Massachusetts Office of Technical Assistance and Northeast
Waste Management Officials' Association, Boston. July 1991
©1995, Tellus Institute
Addendum - 4
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TCA Tools
TCA tools include general guidelines, financial analysis worksheets, and software tools.
General guidelines are addressed in the reference sections above. Financial analysis worksheets
and software tools are described in the following sections, with an emphasis on worksheets and
software that is or will be readily accessible to small businesses, i.e. available and affordable.
A more comprehensive compendium of financial analysis and related tools may be found in:
United States Environmental Protection Agency. Incorporating Environmental Costs and
Considerations into Decision-Mating: Review of Available Tools and Software. Prepared for:
US. EPA Office of Pollution Prevention and Toxics by Research Triangle Institute (RTI)
Research Triangle Park, NC. 1995. Publication Pending (as of November 1995).
TCA Worksheets >
EPA Worksheets
The U.S. EPA has funded the development of a number of manuals and reports on the
topic of environmental project financial analysis, including two manuals that describe
approaches related to TCA.
1) United States Environmental Protection Agency. Waste Minimization Opportunity
Assessment Manual. U.S. EPA Document No. 625/7-88/003, Prepared by Jacobs
Engineering Group for: Hazardous Waste Engineering Research Laboratory, Cincinnati
July 1988.
This manual describes how to perform waste minimization assessments, project
feasibility analyses, and includes blank worksheets for data related to both technical and
^financial feasibility. It should be:noted that the cost/savings inventory used is not a
complete TCA inventory.
- / "
Contact: U.S. EPA Center for Environmental Research Information (CERI), Cincinnati
. tel: 513-569-7562 fax:513-569-7566
' '. i' ' ' '' . '.'.-. -'"
2) United States Environmental Protection Agency. Pollution Prevention Benefits
Manual. U.S. EPA Document No. 230-R-89-100, Prepared by ICF Technology, Inc.
for: Office of Solid Waste and Office of Policy Planning and Evaluation. July 1989.
This 2 volume manual focuses specifically on cost estimation and project financial
analysis. The cost/savings inventory includes many of the same items as a
©1995, Tellus Institute
Addendum-5.
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comprehensive TCA list. Cost estimation equations are provided for many regulatory
compliance costs and some liability costs, and blank worksheets are provided for data
entry. It should be noted that the cost estimation equations (and underlying
assumptions) are now approximately 6-7 years old, and that the financial calculations
are done on an annuah'zed cash flow basis.
Contact: U.S. EPA Pollution Prevention Information Clearinghouse (PPIC)
tel: 202-260-1023 fax:202-260-0178
Industry-Specific Worksheets
The U.S. EPA Design for the Environment (DfE) Program is funding the development
of project financial analysis worksheets based on TCA principles specifically for use
by the dry cleaning ^ industry. These worksheets will incorporate cost/savings
inventories for both dry cleaning and wet cleaning processes and will include several
factual case studies. These worksheets will be available as of March 1996 (estimated
date).
Contact: Deborah E. Savage, Tellus Institute, Boston, MA
tel: 617-266-5400 fax: 617-266-8303 email:dsavage@tellus.com
TCA Software
P2/FINANCE
P2/FINANCE is a spreadsheet software system designed to guide users in the data
collection and analysis essential to a comprehensive financial evaluation of pollution
prevention projects, using a TCA approach. The software is accompanied by a User's
Manual with step-by-step instructions on data entry. The Manual also includes a copy
of the blank spreadsheet, a list of potential costs, a glossary of financial terms, and a
detailed factual case study containing a project description, costing and financial
analysis documentation, and completed spreadsheets.
Program name: P2/FINANCE for Excel 4.0 for Windows
P2/FINANCE for Lotus 1-2-3 for DOS
Availability: currently available
Contact for government agency employees: U.S. EPA's Pollution Prevention
Information Clearinghouse (PPIC), tel: 202-260-1023 fax: 202-260-0178
Contact for other NTU broadcast viewers: Angela Dierks, Tellus Institute, Boston,
Mass, tel: 617-266-5400 fax: 617-266-8303 email:adierks@tellus.com
Cost: Free for government agencies (via PPIC). Cost of current version for other NTU
viewers is $100.00.
©1995, Tellus Institute
Addendum - 6
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Upgrade Information: Upgraded versions of the current spreadsheet systems will be
available to all interested parties via the U.S. EPA Pollution Prevention Information
Clearinghouse (PPIC) starting in April 1996 (estimated date).
Computer requirements: An IBM-compatible computer capable of running either
Microsoft Excel Version 4.0 (or higher) or Lotus 1-2-3 Version 3.1 (or higher). For
ease of use, a 386 computer with a mouse is recommended. For printing the
spreadsheets, a graphics printer such as an HP laseriet is necessary.
PRECOSIS
PRECOSIS was originally developed by The George Beetle Company for use by
participants in U.S. EPA Waste Minimization Seminars in 1989. Since 1989 the
original version has been enhanced and placed in general distribution. The stand-alone
^yen ^S^ is accompanied by a User's Manual. It is important to note that
PRECOSIS does not explicitly follow a TCA format as such, but is mentioned here
because it does include a number of the same cost elements as the TCA methodology.
Program name: PRECOSIS
Funded by: U.S. EPA Center for Environmental Research Information, Cincinnati
Availability: currently available
Contact: George Beetie, Philadelphia tel: 215-438-0598 fax- 215-438-7876
Cost: approximately $50
Computer requirements: Requires an IBM-compatible computer with 512 Kilobytes (or
more) of base memory.
Industry-Specific Software ,
Industry-specific versions of the P2/F1NANCE software have been or are being developed with
financial support from U.S. EPA and the National Institute of Standards and Technology,
(NIST) as described below. In contrast to the generic version of P2/FINANCE, which is
available in a spreadsheet format, the industry-specific versions are/will be available as stand-
alone, menu-driven systems that require no specific commercial software package for
implementation. ',''.','..
The basic P2/FINANCE template and methodology is the same for all industries, but is tailored
to an individual .industry sector via development and inclusion of process categories and
cost/savings inventories specific to that industry.
Each P2/FINANCE packet includes/will include a User's Guide with step-by-step instructions
on date entry and a detailed factual case study containing a project description, costing and
financial analysis documentation, and screen print-outs.
©1995, Tellus Institute
Addendum-7
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Screen Printing .
, ilji ' "' ' ' i ''.':.. 1J,U1,
Program name: P2/FINANCE for Screen Printers, version 1.0
Funded by: U.S. EPA's Design for the Environment (DfE) Program
Availability: June 1995
Contact: Screenprinting and Graphic Imaging Association International (SGIA)
Fairfax, VA Fax: 703-273-2870
Cost: $25 for SGIA members and government entities, $50 for all others
Component
Computer
DOS
Memory
(RAM)
Disk Space
Mouse
Computer Requirements
Required Specifications Recommended Specifications
286 (IBM-AT compatible)
Version 3.3
550 Kilobytes free
6 Megabytes free disk space
Not required
386 or higher
Version 5.0 or higher
at least 2 Megabytes free
Extended (XMS) memory
10 Megabytes free disk
space
Strongly recommended
Other Industry Sectors
.'ill!1 N "' ' ,,,,,"'' , . "' ' '
Funded by: National Institute for Standards and Technology (NIST)
Availability: see below
Contact: Karen Shapiro, Tellus Institute, Boston, MA
Tel: 617-266-5400 Fax: 617-266-8303
email:kshapiro@tellus.com
Industry Sector
Lithographic Printing
Flexographic Printing
Metal Fabrication & Finishing
Printed Wiring Board Manufacture
Date (Estimated^
September 1996
September 1996
September 1997
September 1997
8
©1995, Tellus Institute
Addendum - 8
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PackTraek
i i
Software to iMeasur^ Reductions in
Products and Packaging
tor the
n 1990, Johnson & Jphnion developed a the software focuses on padding, it tan also track
software p.ograrn called PackTraek to mea- the u« and. ruction of nonpackaging materials
sure progress in- implementing voluntary and products, such as office paper
packaging guidelines Establishes by the '" PackTraek is a menu-driven database program
°°[ N"the?Ster^ Go*«*>« .^nd » not for computer :novjCesV buV h can be
.
4^ Pe:enyirbnnichts. A use* guide is supplied with
991, Johnspn. esc Johpsoh faas . , ^ - Ae sc?feware ^ ^ n _
^ £
to companies, govern- T, i. , ' . T«k «'«,TiL r ~**&r-
J<*»>- ftokTrtck ' JSa^f^vJTT?1
. '.-. ' - ' e »!lo«d the Pack Track software
r ^*^«^^^ to better fir^their individual.needs.
has die ability to mdni- . -' . . ra,,,. «; T L i , '
w^ste Auction ^^ ^ ofmon than 57 mil- J°hnso« ^nson also created a
The software p^gram first' compile
the physical characteristics (i e
volume, ind^aterialUen
" j ,'.' '
rials Worth
- '
«- of pducts or.packaging
reduced, reused, '-or recycled For
'
alterations to the product or packaging .to calculate ing waste'^Zl^d^^
potential-cost savuigs and waste reductions. .!, totals ' ' '
m^I^^^f"?!11-1116^ ^^^«^of!McT5«ior'PiAT^k
m^lows^mpames «o formulate. wh« iP ,ce- .Corporate.(for IBM and compatibles only), call the
. WasteWiSe helpline at 800 EPA->
,NJ .OJ
phone at 508
524-6331.
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Tellus Institute - Boston, MA
INVENTORY OF POTENTIAL COSTS/SAVINGS
INITIAL COSTS
Purchased Equipment
Equipment- e.g. process, monitoring, preparedness/protective, safety, storage & materials
handling, laboratory/analytical
Delivery
Sales Tax .
Insurance
Price for Initial Spare Parts
.-;/' -
Materials , , . «
Piping
Electrical
Instruments
Structural
Insulation
Other Materials - e.g. painting, ducting
Utility Systems and Connections
General, Plumbing
Electricity
Steam
Water - e.g. cooling, process
Fuel - e.g. gas, oil
Plant Air .,,*.'
Inert Gas
Refrigeration
Sewerage
Site Preparation (Labor, Supervision, Materials)
,. In-house
Contractor/Vendor/Consultant Fees
Demolition & Clearing
Old Equipment/Rubbish Disposal
Grading, Landscaping .
Equipment Rental
Construction/Installation (Labor, Supervision, Materials)
In-house
Contractpr/Vendor/Consultant Fees
Equipment Rental
©1995, Tellus Institute
Addendum - 9
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Tellus Institute - Boston, MA
Planning/Engineering (Labor, Supervision, Materials)
In-house Planning/Engineering, e.g. design, drafting, accounting
Contractor/Vendor/Consultant Fees
Procurement
Start-up/Training (Labor, Supervision, Materials)
In-house
Contractor/Vendor/Consultant Fees
Trials/Manufacturing Variances
Training
Permitting (Labor, Supervision, Materials)
In-house
Cqntractor/Vendor/Consultant Fees
Permit Fees
Working Capital
Raw Materials
Other Materials & Supplies
Product Inventory
Contingency
(Salvage Value)
OPERATING COSTS
Direct Materials
Raw Materials - e.g. wasted raw materials costs/savings
Solvents
Catalysts
Transport
Storage
Direct Labor
Operating - e.g. worker productivity changes
Supervision
Manufacturing Clerical
Inspection/QA/QC
©1995, Tellus Institute
Addendum - 10
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Tellus Institute - Boston, MA
Utilities
Electricity
Steam
Water - e.g. cooling, process
Fuel - e.g. gas, oil
Plant Air
: Inert Gas , '
Refrigeration
Sewerage
Waste Management (Labor, Supervision, Materials)
Pre-treatment
On-site Handling
Storage, .
. Treatment
Hauling
Insurance \
Disposal
Regulatory Compliance (Labor, Supervision, Materials),
Permitting
Training - e.g. Right-To-Know training
Monitoring/Inspections ,
Testing
Labeling
Manifesting
Recordkeeping
Reporting
Generator Fees/Taxes
Closure/Postclosure Care
Value of Marketable Pollution Permits, e.g. SOx
Avoided Future Regulation, e.g. CAA amendments
Insurance
Future Liability
Fines/Penalties
Cost of Legal Proceedings, e.g. transaction costs
Personal Injury
Property Damage - ,
Natural Resource Damage
Superfund ,
Revenues
Sale of Product - e.g. from changes in manuf, throughput, market share, corporate image
Marketable By-Products
©1995, Tellus Institute
Addendum - 11
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GLOSSARY OF FINANCIAL TERMS
Tellus Institute, Boston, MA
©1995, Tellus Institute
Addendum- 12
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Annual Cash Flow
Break-Even-Point
Capital Budget
Cash Flow (from
an investment)
For an investment, the sum of cash inflows and outflows for a
given year (see cash flow).
The point at which cumulative incremental annual cash flows of
an investment aggregate to 0. The Break-Even-Point designates
the end of a project's investment Payback Period (see Incremental
Cash Flow and Payback Period).
A statement of the firm's planned investments, .generally based
upon estimates of future sales, costs, production and research and
development (R&D) needs, and availability of capital
The dollars coming to the firm (cash inflow) or paid out by the
firm (cash outflow) resulting from a given investment.
Cost Accounting System The internal procedure used to track and allocate production costs
and revenues to a product or process. Defines specific cost/profit
centers, overhead vs. allocated costs, degree of cost
disaggregation.
Cost Allocation
Discount Rate
Financial Accounting
Financial Reporting
Financial Statements
A process within.an internal cost accounting system of assigning
costs and revenues to cost and profit centers for purposes of
product pricing, cost tracking, and performance evaluation.
The discount rate (or Cost of Capital) is the required rate of
return on a capital investment In profitability analysis, the
discount rate is used in Net Present Value (NPV) calculations to
express the value of a future expenditure hi the present year. The
discount rate is expressed as a percentage.
The process that culminates in the preparation of financial reports
relative to the enterprise as a whole for use by parties both
internal and external to the enterprise.
Required by authoritative pronouncement, regulatory rule or
custom, including: corporate annual reports, prospectuses, annual
reports filed with government agencies, descriptions of an
enterprise's social or environmental impact.
The principal means through which financial information is
communicated to those outside an enterprise. Statements include
the balance sheet, income statement, and statement of cash
flows.
©1995, Tellus Institute
Addendum -13
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Hurdle Rate
Incremental Cash Flow
(of an investment)
The internally defined threshold, or minimum acceptable rate of
return, required for project approval, e.g. 15% ROI, or 2 year
payback.
The cash flow of an alternative practice (e.g. after a pollution
prevention investment has been implemented) relative to the
current practice. Incremental cash flow is calculated by taking
the difference between the cash flow for the current practice and
the alternative practice.
Internal Rate of Return
(IRR)
Managerial Accounting
The discount rate at which the net savings (or NPV) on a project
are equal to zero. The computed IRR of an investment is
compared to a company's desired rate of return.
-The process of identification, measurement, accumulation,
analysis, preparation, interpretation, and communication of
financial information used by management to plan, evaluate, and
control all activities within an organization to ensure appropriate
use, and accountability for its resources. Capital budgeting is one
component of managerial accounting.
, ''; i " : ' ii, ' ' ' ', '" , . ' , ' ' '
An index that helps to answer the question: are the future
savings/revenues of a project likely to justify a current
expenditure? Synonyms: "decision rule", or "financial index", or
"Profitability index", or "capital budgeting technique". Includes-
NPV, IRR, payback, ROI.
Net Present Value (NPV) The present value of the future cash flows of an investment less
the investment's current cost.
Profitability Indicator
NPV
where:
1+k
-££2
- I
CFj is cash flow in period 1
CF2 is cash flow in period 2, etc.
I is initial outlay or investment cost
" ' ,,"*"' ' . i " . i " ' '' '' ' '' '
k is cost of capital or discount rate
. ' ,' \ ,' ; " ' ' ,.''"'''
An investment is profitable if the NPV of the cash flow it generates in
the future exceeds its cost, that is, if the NPV is positive.
>1995, Tellus Institute
Addendum -14
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Payback Period
Project Financial
Analysis
Project Justification
Process
Project Justification
Return on Investment
(ROI)
Total Cost Assessment
(TCA)
The amount of time required for an investment to generate
enough cash flow to just cover the initial capital outlay for that
investment
Payback = Investment/Annual Net Income
Costing (i.e. calculating the costs and savings) and calculating
cash flow and/or profitability measures of a project.
A generic term for a series of steps which are necessary to get
approval for a project.
A document prepared in the project justification process which
comprising a written description of the project, a project financial
analysis, and a discussion of benefits and risks which are not
quantified in the financial analysis.
A measurement of investment performance, calculated as the ratio
of annual net income (minus depreciation) over the initial
investment amount.
ROI = Annual Net Income/Investment
A comprehensive financial analysis of the costs and savings of a
pollution prevention project. A TCA approach includes:
.'.'.'' .' " ! ; ' ' , ' ' I .' . '
a) internal allocation of environmental costs to
product lines or processes;
b) inclusion in a project financial analysis of direct
and indirect costs, short and long term costs;
liability costs, and less tangible benefits of an
investment;
c) evaluation of project costs and savings over a long
time horizon, e.g. 10-15 years;
d) use of measures of profitability which capture the
long-term, profitability of the project, e.g. NPV and
IRR.
©1995, TeUus Institute
: Addendum-15
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National Technological University - Modem Alanufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 -9:00am to 12:00noon Eastern -MC95121301
Basic Concepts of
Project Financial Analysis
Tellus Institute
Boston, MA
1995
The Cash Row Concept
The Cash Flow Concept te common
management planning tool
It differentiates between
costs => cash outflow*
and
revenues/savings => cash inflows
Types of Cash Flows
One-Time
Annual
Other
Outflow
Initial
Capital
Cost
Operating
Costs
& Taxes
Working
Capital
Inflow
Equipment
Salvage
Value
Operating
Savings
& Revenues
Working
Capital
©1995, Tellus Institute
Addendum - 16
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National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 -9:00am to 12:00noon pasterni- MC95121301
Analysis Structure
There are two basic ways to structure a
project financial analysis
1) Stand-Alone Analysis
Considers only the cash flows of the
proposed project
2) incremental Analysis
Compares the cash flows of the
proposed project to the "business as
usual" cash flows
Project Cash Rows: Stand-Atone Analysis
e.jj^ for a new product line
Salvage Value
^_ Annual
Revenues
e«g.t from
product
Mies
Working
Capital
Project Cash Flows: Incremental Analysis
e.jk for modification of an existing process
Annual
Incremental
Woridng
Capital
tacrementaJ
Operating Coats
©1995, Tellus Institute
, Addendum - 17
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, National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Incremental Analysis Example
Many environmental projects are
worthwhile because project
implementation reduces annual operating
costs when compared to "business as
usual"
i An incremental analysis example of a
project from the pulp and paper industry
follows: The White Water/Fiber Reuse
Project
Specialty Paper Mill
Manufactures 200 tons/year of uncoated
and coated fine papers
Coating is a latex (non-solvent)
formulation containing clay, styrene
butadiene, starch, and polymers
As a sheet of paper travels across the
paper machine, a mixture of water and
filler (I.e., "whttewateT) and residual fiber
drains off into a collection system
White Water/Fiber Reuse Project
Current Conditions '
2 Paper Machines Share One White Water
System
One Machine Has A Dedicated Saveall
Problems
White Water From Two Machines Often
Incompatible
White Water Is Sewered - Loss Of Fiber,
Filler, Water
\
©1995, Tellus Institute
Addendum - 18
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National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to l?:00noon Eastern - MC95121301
White Water/Fiber Reuse Project
Proposed Solutions
» Separate White Water Systems, And
Install Dedicated Saveall For Second
Machine
Benefits
Recovery And Reuse Of Fiber And Filler
Recovery And Reuse Of Water
WW/FIber Reuse Project
Cashflows: Incremental Analysis
Ofit-Um« Annual
Capital Coatt Operating Co«t»
BuiIrvMt
A«
R«Ut«
Project
0
$1,469.404
\
$788,940
$440,250
\ Annual
\bwrwmntal
) Savings -
/ $350,880
/ A
Initial C*ah
Outflow
Annual
Cuh Inflow
WW/Flber Reuse Project
Cash Row Timing
Cash Annual Incremental Savings
Inflows USOJM sasojtK SBOJUO SKOJM tasojuo
+ t
Annual Tax Payments
Cash
outflows
Project Lifetime
©1995, TeUus Institute
Addendum-19
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National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern -MC95121301
Generic Cash Flow Timing
Incremental Analysis
Cash
rT°" Annual Incremental Saving* Wortdng Capital
lfUlpWS . _ _ I 0-lu.n. U.IIU
r-l 'I .1 .1 .
t t * I
Annual Tax Pavmnnta
Time
Zero
Cash
Outflows
It
' Working Capital
Capital Coat
Working Capital
Working Capital Is the total value of goods
and money necessary to maintain project
operations
It includes items such as:
Raw Materials Inventory
Product Inventory
Accounts Payable/Receivable
Cash-On-Hand
Timing of Working Capital
0880 Sale of Inventory
Inflows
'I .I...I.-J J
e.g. Purchase of Raw Materials Inventory
©1995, Tellus Institute
Addendum - 20
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National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Salvage Value
Salvage Value is the resale value of
equipment at the end of the project's
lifetime.
Sato of Equipment
Cash
Outflows
The
Time Value of Money
The Time Value of Money
* Inflation
Investment Opportunity
©1995, Tellus Institute
Addendum - 21
6
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National Technological University - Modern Manufacturing Video Conference Series
Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am.to 12:00noon Eastern - MC95121301
Money loses purchasing power over time as
product/service prices rise, so
A dollar today can buy more than a dollar
next year.
Cup of coffee
costs $1 now
Cup of coffee costs
$1.05 a year from now
Investment Opportunity
A dollar that you Invest today will bring you
more than a dollar next yeaMtaving the
dollar now provides you with an investment
opportunity
Gives you
$1.10 a yeiir
from now
Interest, or
"return on investment
Investing
$1 now
WW/Fiber Reuse Project
Cash Flow Timing
Cash Annual Incremental Savings
InfiOWS (350*90 (350*90 (350*90 (150*00 (350*90
'*'
t t T t
Cash ^ Annual tax Payments
-- 5S&"
Project Lifetime
©1995, Tellus Institute
Addendum..- 22
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National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Cash Flows In Different Years
In order to accurately estimate cash (lows
occurring in different years and then use
that information in characterizing project
profitability, you need to adjust the cash
flows for
1) Inflation - using an Inflation rate
and
2) Investment Opportunity-using a
discount rate
Inflation of
Operating Cash Rows
Adjusting for Inflation
Future Valuers Present Value (1 + Ip
t t \
The value of
the cash flow
hi yearn,
Le., n years
after project
start-up
The value of
the cash
flow at
Time Zero,"
La., at
project
start-up
The
inflation
rate
©1995, Tellus Institute
Addendum - 23
8
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National Technological University - Modern Manufacturing Video Conference Series
femironmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00nooh Eastern - MC95121301
A Simple Inflation Example
A project Implemented by a firm allow*
manufacture of a new product, which will
bring in annual revenues of $10,000
(estimated at project start-up).
Adjusting for an annual inflation rate of 3%,
what will the revenues be during the fifth
year after project start-up?
Future Value, = Present Value (1 + JOSf
= $10,000 «(1.03)»
WW/Fiber Reuse Project: Adjustment of
Operating Cash Flows for Inflation (5%)
Present Value
of Cash Flows
(Time Zero)
Future Vfllue
ofCaahFUowa
(Inywr
occurrino)
-$1,469,404
$350,690
$350,690
$350,690
$350,690
$350,690
$368^25
$386^38
$406,963
$426^69
$447^79
V+JOSf
(t+M?
(1+.05)*
Another Important Cash Flow -
Taxes
©19-95, TeUus Institute
Addendum-24
9
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National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
Decejnber 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Tax payment
Depending on a facility's location, a firm
may have to pay federal, state, and local
taxes on earnings generated by a project
Tax Payment=Tax Rate x Taxable Income
Taxable Income
The lower the taxable Income from a project,
the lower the tax payment
One potentially significant way of reducing
taxable Income Is to deduct equipment
depreciation costs from the project's annual
total cash flow.
Cub Inflow (».g, rav*ni»s, Mlvig* valiM)
- C«»h outflow (.a, operating cocta)
-T»xd«pr»cUl]on
Depreciation
Depreciation is the toss in value of a
physical asset (e.g., a piece of equipment)
as the asset ages.
This toss in value can occur for a number of
reasons, including physical deterioration,
technological obsolescence, etc.
©1995, Tdlus Institute
10.
Addendum - 25
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National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern-MC95121301
tax Depreciation
The Internal Revenue Sendee (IRS) allow*
companies to deduct the cost of a (one-time)
equipment purchase over a period of years
that approximates the equipment lifetime.
The IRS specifies various property types
and lifetimes for tax depreciation purposes,
Depreciation Periods
Type of Property Depreciation Period
Automobiles, office : ^
machinery, computers
Office equipment,
most manufacturing
equipment
Buildings and real
estate
5 years
7 years
31.5 or 39 years
Depreciation Methods
There are_a number of depreciation methods
(I.e., depreciation equations) for calculating
equipment depreciation over the
equipment's lifetime.
However, for tax depreciation purposes, the
IRS specif ies several acceptable methods:
Straight Une(SL)
* Double Declining Balance/SL (DDB/SL)
150% Declining Balance/SL (1.5DB/SL)
©1995, Tellus Institute
11
Addendum - 26
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National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
A Simple Tax Depreciation Example
Straight Lin* CSL) Tax DapraclaUorc
Tn« annual tax Original Equipment Coat
depreciation amount * Depreciation Parted
Fora $7000 p!ac* of manufacturing aqutpmant, wtth
a comtapondtng dapraciation pariod of 7 yaan
annual tax $7000
dapraclatlon * ^
$1(XKVy«ar
foryaara1-7
ofaqulpmantuaa
WW/FIber Reuse Project
Tax Calculation
Y«ar
405JM 428.2N 447*71
. 147.1M -
172^04 21M3I 2SM10 2M.72I 337*47
Calculating
After-Tax Cash Flows
©1995, Tellus Institute
12
, Addendum - 27
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National Technological University -Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capita! Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9;00am to 12:00noon Eastern - MC95121301
After-Tax Cash Flows
The After-Tax Cash How (ATCF) for each
year of the project lifetime should take Into
account all of the cash inflows and outflown
generated by the project:
Initial Investment Costs
Annual Revenues
Annual Operating Costs/Savings
Annual Taxes
Working Capital
Equipment Salvage Value
WW/Fiber Reuse Project
After-Tax Cash Flows
V«r
Hwn
* Opmttig
MMM 406JM 4MJM 44U71
-MJB
«Hv»9»V»lm
AltwTn Cuh -1,448,404 -f299J01 49*0401 *MO444 «Mt,774 *HX.7H
nov(ATCT)
Discounting
of After-Tax Cash Flows
©1995, Tellus Institute
Addendum - 28
13
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National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
investment Opportunity
At any given time, a company usually has
multiple opportunities for investing its
capital.
When the firm deckles to Invest In a
particular project, the firm Is, In effect,
giving up other potential investment
opportunities that could also be profitable.
Opportunity Cost and Discount
Rate
The cost of turning down the alternate
Investment opportunities Is reflected in
project financial analyses by adjustment of
the cash f tow using a "discount rate."
A company's discount rate can be viewed as
the rate of return that the company expects
from an average risk Investment
When to use the Discount Rate
As an Illustration, take a look ahead to:
Net Present Value (NPV), a "profitability
Indicator," I.e., a number that characterizes
the financial consequences of an
Investment
NPV *. The sum of the discounted cash
Inflows and outflows over the lifetime
of a project
©1995, Tellus Institute
Addendum - 29
14
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National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting anil Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
WW/Fiber Reuse Project
NPV Calculation?
After-Tax
Year Cash Flow*
0 -$1,469,404 Time 0 dollar*
1 +299,303 Year 1 dollar*
2 +299,901 Year 2 dollar*
3 +302,444 Year 3 dollar*
4 +306,774 Year 4 dollar*
5 +312,760 Years dollar*
NPV, .SUM-??
In order to
add up these
project cnsh
flows, th«
futureyeiirS
must be
discounts
backto
TirmOS
Use of the Discount Rate
The company's discount rate (d) (I*., the
rate of return expected on Investments) can
be used to convert future year dollars to
time 0 dollars.
Presentvalue. fH^Y^
Discount rate «d
Discount factors*^-
n = future year of interest
Discount Factors
(Present Value of $1 Received at the End of n Yeant)
BH
©1995, Tellus Institute
Addendum - 30
15
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-N .22 75 \
0) Q DC \
2= \
{H ^
© 1995, Tellus Institute.
Addendum -31
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National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
WW/Flber Reuse Project Discounted Caah Flown
Discount Discounted
After-Tax Factor , After-Tax
Cash Flows * %..,«* = Cash Bows
Year
0 -$1,469,404
1 + $299,303
2 + $299,901
3 +$302,444
4 +$306,774
6 +$312,760
$1,469,404
J258JOSQ
0.743
$193,783
$169^199
$148^08
NPV,«- $476,408
TlmaO$
Cost of Capital
Sources of Capital.
A company can have several sources of
capital $ for investment These sources fall
into two broad categories:
Equity Capital Debt Capital
Cash on-hand Bank loans
Stockholder funds , Bondholder funds
Each source of capital has an associated
cost, e.g., the interest paid to a bank for a
loan
©1995, Tellus Institute
Addendum-32
16
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National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
Cost of Capital
Rather than trying to identify the exact
source of capital (and its associated cost)
for each individual project, the firm usually
develops a single "Weighted Average Cost
of Capital" (WACC) that characterizes the
sources and cost of capital to the company
as a whole.
Discount Rate = Cost of Capital
The Discount Rate used by a firm to
discount the cash flows in a project financial
analysis is usually the firm's WACC, often
simply referred to as the firm's Cost of
Capital.
hi «um, Dlieount Rat* Co*t of Capita)
or
Rat* of Ritum Expected
on m Project of Avarag*
Riik
Weighted Average
Coat of Capital to
the Firm
How to Obtain a Cost of Capital
A company may or may not be able to
provide an estimate for Its cost of capital
* Large firms usually have an estimate,
but may consider it to be confidential
business information
* Small firms may not have an estimate at
all
There are methods for calculating an
approximate cost of capital for a firm
©1995, Tellus Institute
Addendum - 33
17
-------
National Technological University - Modern Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 -9:00am to 12:00noon Eastern - MC95121301
Sensitivity Analysis
In the absence of a reliable estimate of a
company's cost of capital, the best
approach is to do the financial analysis wttSi
several reasonable values, to illustrate a
corresponding range of results.
This type of sensitivity analysis can also to
done if other data in the analysis are
uncertain.
And What About Loans?
It is important to note that principal and
interest payments from loans are not
explicitly included in a project's discounted
cash flow analysis.
This Is because the discount rate, I-*., the
company's weighted average cost of capital,
already includes consideration of loans (a
type of debt capital) taken by the firm.
©1995, Tellus Institute
Addendum - 34
18
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TCA AT WORK: A CASE STUDY IN THE PULP AND PAPER INDUSTRY
Paper Coatinp Mill
White Water/Fiber Reu^e Project
The foUowing case study illustrates the difference between a company's financial analysis of
a pollution prevention project and a Total Cost Assessment (TCA) of the same project The
Company Analysis" is the financial analysis performed independently by the^ompany to
evaluate the profitability of a pollution prevention project. In contrast, the "TCA" isTmore
comprehensive financial analysis of the same project, developed collaboratively by the
company and TeUus^ to illustrate the differences in profitability when a more con^ehensive
approach is used. This case study describes the project under consideration and assesses both
qualitatively and quantitatively the differences in the Company Analysis vs. the TCA.
Tellus Institute, Boston, MA
From work sponsored by:
New Jersey Department of Environmental Protection
Division of Science and Research
Revised June 1993
©1995, Tellus Institute
Addendum - 35
-------
-------
National Technological University - Modem Manufacturing Video Conference Series
Environmental Cost Accounting and Capital Budgeting for Small and Midsized Manufacturers
December 13,1995 - 9:00am to 12:00noon Eastern - MC95121301
The WW/Fiber'Reuse Project
Summary
* Illustrates the application of TCA to a
single environmental project at a single
facility
TCA revealed some relevant, significant
annual savings neglected by the
conventional company analysis
lite neglected items were:
Freshwater treatment chemicals
Freshwater pumping and heating
Wastewater pumping
The WW/Fiber Reuse Project
Summary
Inclusion of the previously neglected
savings more than doubled the annual
cash flow to the project
This resulted in a substantial increase in
project profitability, bom over the short-
term and the long-term
©1995, Tellus Institute
Addendum - 36
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COATED FINE PAPER MILL
Company Background
A^ specialty paper mill is part of a larger corporation of pulp, paper, and coating mills. The
mill is not integrated, i.e. does not manufacture pulp. Most of the pulp used by the mill is
purchased via pipeline from a neighboring bleached kraft mill. The mill supplements .this
pulp with a small amount of purchased market pulp. The mill produces approximately 190
tons per year of a variety of uncoated, on-machine and off-machine coated papers,
carbonizing, book, and release base paper. The coating used is a latex (i.e. non-solvent)
formulation containing clay, styrene butadiene, starch, and polymers.
Project Background
Papermachirie white water, a mixture of water and residual fiber and filler (clay and
calcium carbonate) that drains out of a sheet of paper as it travels across the paper machine
is typically captured by a white water collection system dedicated to one papermachine ?
Some prall white water is usually recycled back into the papermaking system to recapture
water, fiber and filler. In some cases white water is passed through a saveall screening
device to separate fiber and filler from water; fiber, filler and water are then recycled back
into the system. The saveall produces a clear stream of water that can be used in numerous
papermachine operations.
In this mill, two paper machines, sharing a common white water system^ produce a variety
of paper grades made with either acid, neutral, or alkaline sizing chemistry ' Machine 1
has a saveall system that filters fiber and filler prior to discharging into the joint white
water system. This material is recycled back into the papermaking system. When the
machines are using different sizing chemistry, e.g. when Machine 1 is producing acid-sized
paper and Machine 2 is producing alkaline^sized paper, the mixed white water from both
machines is not reusable, and must be sewered. Under these conditions, a large flow of
potentially reusable water from both machines, and fiber and filler from Machine 2 is lost
to the sewer. '
' <, - ' ' , '"'".' '--' ,"'''' . >\
Prompted primarily by the lack of spare water effluent pumping capacity and a desire to
better understand the rather complex, old white water piping system, the mill commissioned
a study titled "White Water Recycle Feasibility Study." The study had several objectives-
1 Sizing is added to pulp to reduce water absorbency in the final paper. The pH (i.e.
acidity or alkalinity) of the pulp must be adjusted according to the type of paper desired and
sizing used.
©1995, Tellus Institute
Addendum - 37
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"..,to review the design and operation of the mill and recommend changes that would help
reduce peak effluent flows, reduce BOD in the effluent and reduce total fresh water intake
on a mill wide scale". The resulting report contained detailed engineering drawings of the
fresh water, white water, and paper machine systems and a recommendation for process
modifications.
Project Description
The recommendation made in the feasibility study was the installation of a second saveall
to handle the Whitewater from Machine 2, and the splitting of the Whitewater systems so
that each machine would have a dedicated system. This would permit fiber, filler and water
^^ on bom machines at all times, thereby conserving raw materials and reducing water
consumption, wastewater generation, and energy use for fresh and wastewater pumping and
freshwater heating. The project would require installation of a new saveall, a new pump,
piping, and controls. Available pulping and stock storage capacity could be used to pulp'
separately for each machine.
Project Financial Analysis
The feasibility study also contained a capital estimate for the project of $1,469,404. The
estimate includes: purchased equipment (including saveall, stock chest, clear white water
chest and associated equipment); process control instrumentation; electrical controls and
lighting; a new building for the saveall; piping; installation (in-house and contracted labor);
engineering; and contingency.
i' , , . ' / ,' '' ':' v .
Company and TCA Analyses
The Company Analysis consists of the capital estimate, and only those operating costs and
savings that the company typically includes in project financial analyses for projects of this
type. These are:
a. raw material.- fiber and filler;
b. ener§J an^ chemical use for new equipment;
c. wastewater treatment fees; and
d. changes in labor costs.
The TCA contains these and other relevant operating costs and savings. On the benefit
side, the TCA includes the following:
a. An average reduction in fiber and filler loss of 1,200 tons/year for a savings
of $421,530/year;
©1995, Tellus Institute
Addendum - 38
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A reduction in fresh water usage of 1 million gal/day, and a'commensurate
reduction in cost for fresh water treatment and pumping, for a savings of
approximately $112,420/year;
A reduction in energy use for fresh water heating amounting to a savings of
approximately $393,400; and
A reduction in wastewater generation of approximately 1 million gal/day, for
a savings of approximately $54,750/year in wastewater pumping and
$68,240/year in wastewater treatment fees.
Annual operating costs are expected to increase in the following areas:
b.
c.
d.
a.
b.
c.
Chemical flocculating agents used in the saveall to promote solids/water
separation will cost approximately $28,700/year;
Electric costs for new equipment operation will increase operating costs by
approximately $107,280/year; and
An increase in,labor cost of approximately $3,120/year is expected for
operation of new equipment '..,'
The project does not affect wastestreams that require on-site management or disposal, nor
does it affect any regulatory compliance activities at the site; therefore the financial analysis
does not include costs for these activities. In addition, no impacts on revenue are expected
since neither product quality nor production rates will be improved, nor does the mill
expect to visibly enhance its product or company image. Finally, no tangible impact on
avoided future liability is expected for this project.
Table 1 summarizes the cost categories addressed in the Company Analysis and the TCA
for this project, and Table 2 reports the results of the financial analysis.
Effect of Cost Inclusion on Financial Indicators
As shown in Table 2, the inclusion in the TCA Analysis of savings associated with
freshwater pumping, treatment, and heating, and waste water pumping dramatically
increases the annual savings and financial indicators above the Company Analysis base
case. These savings, which would typically not be included hi the mill's calculation of
profitability, bring the project hi line with the mill's 2 year payback rule-of-thumb. By
excluding these savings in the Company Analysis, the project looks reasonably "profitable"
only over the longer time horizon of 15 years.
© 1995, Tellus Institute
Addendum - 39
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Table 1 Comparison of Cost Items in Company and TCA Cost Analyses
X » Cost(s) Included
P « Costfs) Partially Included Company
Capital Costs
Purchased Equipment
Materials (e.g., Piping, Elec.)
Utility Systems
Site Preparation
Installation (labor)
Engineering/Contractor
Contingency
Operating Costs
Direct Costs:*
Raw Materials/Supplies
Labor
Indirect Costs:*
Utilities:
Energy
Water
Sewerage (POTW)
X
X
X
X
X
X
X
P
X
P
X
TCA
X
X
X
X
X
X
X
X
X
X
X
X
* We use the term "direct costs" to mean costs that are typically allocated to a product or process line (i.e. not
charged to an overhead account) and are typically included hi project financial analysis. "Indirect costs" here mean
costs that are typically charged to an overhead account and typically not included in project financial analysis
Table 2 Summary of Financial Data for the White Water and Fiber Reuse Project
i'1; ' * ,',' '
Company Analysis TCA
Total Capital Costs $1,469,404 $1,469,404
Annual Savings (BIT)* $ 350,670
Financial Indicators
Net Present Value - Years 1-5 ($ 476,408)
Net Present Value - Years 1-10 $ 47,240
Net Present Value - Years 1-15 $ 359,544
Internal Rate of Return - Years 1-5 1%
Internal Rate of Return - Years 1-10 17%
Internal Rate of Return-Years 1-15 21%
Simple Payback (years) 4.2
* I.''
* Annual operating cash flow before interest and taxes
$ 911,240
$ 783,232
$2,072,306
$2,849,725
37%
46%
48%
1.6
Some uncertainty exists in the wastewater treatment cost estimate. Because the mill does
not have its own wastewater treatment facility, wastewater from the mill is pumped to a
neighboring mill for treatment In the per ton flow, Total Suspended Solids (TSS) and
©1995, Tellus Institute
4
Addendum - 40
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Biological Oxygen Demand (BOD) for the subject mill is reportedly higher than the
industry average. The neighboring mill has asked the subject mill to reduce wastewater
flow, although no such measures have been put into effect to date. The treatment charge is
not based on TSS or BOD so the subject mill has no direct economic incentive to reduce
TSS and BOD in its wastewater. The contract between the mills establishes a ceiling for
wastewater flow, BOD and TSS from the mill. Currently, the subject mill is meeting its
flow limit, but is substantially exceeding its contract limits on BOD and TSS
The treatment contract will be renegotiated in 1993, but it is not clear whether, or how, the
terms will be changed. However, the mill's environmental engineer speculated that the
charge rate formula might be changed to include a BOD or TSS variable and that the
overall cost could increase. To test the sensitivity of the project analysis to these potential
changes, the TCA was recalculated twice, doubling and tripling the wastewater treatment
costs. In both cases, the financial indicators change slightly: 50% IRR (years 1-10) and
1.5 payback for double the cost, and 53% (years 1-10) IRR and 1.4 payback for triple the
treatment cost. While there is no dramatic change in projected profitability, a tripling of
wastewater treatment costs, may make this project somewhat more competitive with other
projects competing for capital in a particular budget year. This may be especially true if
the firm applies its rule-of-thumb, 2 year payback criteria as a screening test for the project.
©1995, Tellus Institute
Addendum-41
-------
White Water/Fiber Reuse Project
Costing and Financial Analysis Documentation
A. Capital Costs
" !"' ,, ,
Purchased Equipment: $345,985
Savcall and White Water Pump
Materials: $374,822
Piping, Electrical, Instruments and Structural
Installation:
Engineering:
Contingency:
$397,148
$211,046
$140,403
B. Operating,Costs
Key: M-thousand
MM - million
GD - gallons/day
Current Process
I. RAW MATERIALS
1J. Fiber and Filler Loss (includes freight)
Estimated solids loss « 1,500 tons/yr
White water solids - 67% fiber, 33% filler
Fiber loss:
1,500 tons/yr * 0.67 - 1005 tons/yr
Fiber cost - $445/ton
Lost fiber cost - 1005 tons/yr * $445/ton -
S447,220/year
', ;,!'i,
Filler loss:
1,500 tons/yr * 033 =495 tons/yr
Filler cost - $161/ton
Lost filler cost - 495 tons/yr * $161/ton =
S79,700/year
White Watef and Fiber Reuse
l.b. Fiber and Filler Loss (includes freight)
Estimated recoverable solids = 1,200 tons/year
Estimated solids loss = 1,500 - 1,200 * 300 tons/yr
Fiber loss:
300 tons/yr * 0.67 = 201 tons/yr
Fiber cost = $445/ton
Lost fiber cost = 201 tons/yr * $445/ton =
S89,450/year
i. '.'.'' ' ' .
Filler loss:
300 tons/yr * 0.33 = 99 tons/yr
Filler cost = $161/ton
Lost filler cost = 99 tons/yr * $161/ton =
S15,940/year
©1995, Tellus Institute
Addendum - 42
-------
Current Process
1. RAW MATERIALS (cont)
l.c. Freshwater Treatment
Annualized freshwater use = 1.5MMGD
Chemical Costs:
S/MG ,
Alum 0.025
Sodium aluminate 0.009
Polymer 0.034
Sodium hypochlorite 0.003
Total $0.071
- ' (
1 - f
1.5 MMGD * 365 days/yr *($0.071?1000)/MMG
S38,870/year
White Water and Fiber Reuse
l.d. Freshwater Treatment
0.5MMGD freshwater '> = $12,960
2. UTILITIES
2.a. Freshwater Pumping
Annualized freshwater use = 1.5MMGD
Energy Costs:
$/period' S/MG
Variable freshwater pumping 133,098 0.234
Miscellaneous 1.479 0.0026
. Total $134,577 $0.237
"period = 8 months, 1990
total freshwater use = 566,460 MG
1.5MMGD * 365 days/yr * ($0.237*1000yMMG *
$129,760/jear
I.e. Flocculating Agents for Saveall
Avg. white water flow through saveall - 600 GPM
(864 MOD)
Chemical Costs:
Cationic polymer cost = $0.056/Mgal
Anidnic polymer cost = $0.03S/Mgal
total $0.091/Mgal
864MGD * $0.091/Mgal * 365 days/yr - .
$28,700/year
2.b. Freshwater Pumping
0.5MMGD freshwater' > = $43^50/year
©1995, TeUus Institute
Addendum - 43
-------
Current Process
FUTILITIES (cont)
2.c. Freshwater Heating
1.5MMGD freshwater comes in at 57°F, must be
raised to 95T
1.5MMGD * 1 Btu/lbT * 8.4 Ib/gal * (95 - 57°F) -
4.788 x 10* Btu/day
Fuel cost (No. 6) - $0.39/gal
Estimated boiler efficiency - 82.5%
4.788 x 10* Btu/day * 1 gal No. 6 fiiel/1.4 x 105 Btu
* $OJ9/gal * 1/0.825 * 365 days/yr - $S90,100/yr
White Water and Fiber Reuse
2.d. Freshwater Heating
0.5MMGD freshwater > = $196,700/yr
2.e. Wastewater Pumping
4.0MMGD * 365 days/yr * S150/MMGD
S219,000/yr
2.f. Wastewater Pumping
3.0MMGD > = S164,250/yr
2.g. Wastewater Treatment
»
Average, annualized wastewater discharge rate
4.0MMGD
Wastewater treatment cost - S187/MMG
4.0MMGD * 365 days/yr * S187/MMG -
S273,020/yr
2.h. Wastewater Treatment
3.0MMGD > = $204,760/yr
2J. Energy for Equipment Operation
Electricity cost «= $0.08/kWh
New Equipment
Drive Pump
Scoop Pump
Pressure Pump
Feed Pump
Recovered Stock Chest Agitator Motor
Recovered Stock Chest Pump
Clear White Water Chest Pump
White Water Surge Pump
Total
49
20
5
25
125
125
342 HP
342 HP * 0.6 * 0.746 kWh/HP * 8,760 hr/yr *
$0.08/kWh = $107,280
©1995, Tellus Institute
Addendum - 44
-------
Current Process
3. LABOR
White Water and Fiber Reuse
3.a. Equipment Operation - Saveall
4 hours/week labor
SIS/hour - fully loaded wage rate
4 hrs/week * 52 weeks/yr * $15/hr = S3,120/yr
©1995, Tellus Institute
Addendum-45
-------
COMPANY ANALYSIS
WHITE WATER/FIBER REUSE PROJECT
10
©1995, Tdlus Institute
Addendum - 46
-------
P2/FINANQE
Version 2.2
Page 1.
Date: 9/1/95
PROJECT TITLE: WW/FIBER (Company Analysis)
PREPARED BY: Risk Analysis Group
ORGANIZATION: Tellus Institute
COMMENTS:
This spreadsheet incorporates the data from the company's original financial
anarysis of ttie wrtijtewater/fiber recycle project
P2/FI NANCE
©1995, Tellus Institute
Pollution Prevention Financial Analysis
and Cost Evaluation System
Version 2.2
Copyright 1995
Tellus Institute
Boston, MA
Addendum - 47
-------
I reOJECT TTTtE:
I (Company Analysis)
CAPITAL COSTS
j A box*d c*it contains us*r input
Purchased Equipment
Equipment - Phase I
Equipment - Phase II
Delivery
Sales tax
Price for Initial Spare Pans
330,853
15,132
Materials
Bactrical
tructural
Insulation
183,690
67.721
68,465
54,946
Utllty Connection* and New Utility Systems
Refrigeration
Fuel
loan Gas
Preparation
Demolition and Clearing
Old Equipment/Rubbish Disposal
Comtruction/InstaBation
In-house
Contractor
Vendor
397,148
En
gtrMwring/Contractor
In-house Planning
In-house Engineering
Procurement
Contract or/Consultant
166,946
44,100
©1995, Tellus Institute
Date: 9/1/95
Page 2
345,986
Saveall and associated pumps & tanks
White water pump
374,822
397.148
211,046
Addendum - 48
-------
PROJECT TITLE:
/FIBER (Company Analysis)
CAPITAL COSTS
A ooxwj cm contains user input
Start-up/Training
Vendor/Contractor
Rials/Manufacturing Variances
140,403| |.l Q% of materials, labor "ft
Contractor/Consultant
Initial Charge for Catalysts and Chemicals
Working Capital
Raw Materials
Materials and Supplies
Product Inventory
Salvage Value
©1995, Tellus Institute
Addendum - 49
-------
I PROJECT TITLE:
V7F18ER {Company Analysis)
1A boxed celt contains user input |j
hr~~"~~~~^ rr-r-T _ 'f
Ent«f oo«t* a« positive values; Enter savings/revenues as negative value*
OPERATING COSTS
Date: 9/1/95
Page 4
ALTERNATIVE PROCESS
Ham
Annual uost
($/year)
Total
Item
Annual Cost
($/vear)
Total
Difference
m (Curr -Alt I
I Direct Materials
Fitwr Lois (+ transport)
Filter Lose (+ transport)
447.220
79,700
S26.920
I Wast* Management (materials & labor)
j|pr»-tr«»tmant
ion-irte Handling
Storage
Traatnwnt
Hauling
Ifwurinca
Disposal
Utftti**
Etactricity
Staim
Wrtif
Sewange
Diraet Labor
0
273,020
273.02C
0
Oth«r
0
R*out«tory Compfi»nc« (mMwials ft labor)
Marrif acting
Rt porting
Monhoring
Tasting
Labaling
Permitting
Training
Direct Materials
Fiber Loss ( + transport)
Filler Loss (+ transport)
Flocculating Agents
89,450
1 5,940
28,700
Waste Management (materials & labor)
Pre-treatment
On-stte Handling
Storage
Treatment
Hauling
Insurance
disposal
UtiHties
Electricity
Steam
Water
Sewerage
107,280
204,760
Direct Labor
Equipment Operation
3,120
Other
Regulatory Compliance (materials & labor)
Manifesting
Reporting
HMonitorinfl
{nesting
t
0
(rMKKWie*
0
Bavaflues - Sato of Product
0
R«VMHMS - Markatibi* By-products
f
1
Labeling
Permitting
Training
Insurance
Revenues - Sale of Product
Revenues - Marketable By-products
N
ol 1
134,090
0
312,040
3,120
0
0
0
0
0
111 '
Total 799,940J| Total 449.260
0
-39,020
-3,120
0
0
0
0
0
3B0.690
©1995, Tellus Institute
Addendum -50
-------
I PROJECT TITLE:
V/FIBER ((
rAnalysis)
CAPITAL AND OPERATING COST SUMMARY
Date: 9/1/95
Page 5
I NOTE: on this page, boxed
| cell contains user input - default
1 values are for illustration only,
IT"^=5==5=^=^=^^^^^^^^
I NOTE: all entries shown as percentages
I must be entered as decimal numbers
I EXAMPLE; enter 0.4 for 40%
[Capital Costs
1 Purchased Equipment
|| Materials
| Utility Connections
Site Preparation
|| Installation
|| Engineering/Contractor
|| Start-up/Training
1 Contingency
|| Permitting
fl Initial Catalysts/Chemicals
Depreciable Capital '' /
|| Working Capital
|| Total Capital Requirement
|| Salvage Value
II Depreciation Period, years
1 Operating Period, years
1 Income Tax Rate, %
Escalation Rate, %
Cost of Capital, %
(Discount Rate)
* I Operating Costs Current Alt*, ,0"!"°? 1
345,98!
374,822
> (
c
397,148
211,046
f
140,40:
o
0
1,469,404
0
1,469,404
'. - : - '' 0
15
15
4O%
Sow.
16.00%
i
=====
i Direct Materials
i|| Waste Management
M Utilities
HI Direct Labor
Other
|| Regulatory Compliance
| Insurance
Maintenance, % Capital
Overhead, % Totaf Labor | 0%
Labor Burden | p%
,% Total Labor
Revenues - Sale of Product
Revenues - Marketable .
By-Products
TrtTAI ' . ^
IUIAL
^utura Liability Raf.
526,92(3
i
273,020
0
0
0
0
0
t
0
o
0
0
799.940J
Year Expected
134,090
312,040
3.120
0
0
0
0
0
0
0
0
0
449,250
' ' ' . '" ' ".
(Year expected
-1,2,3,etC.)
. .
392,830J
-39,020|
-3.120J
Ol
0
0
' 0
350.690
Cost
(Curr.-Alt.)
'':--. . --.'"" ',.,.',. - '
©1995, Tellus Institute
Addendum.-51
-------
I PROJECT TITLE:
WFISER (Company Analysis)
[Date: 9/1/95
j A boxedcell contaiiuuter input
CASH PLOW ANALYSIS
Page 6
Operating Year
Escalation Factor
REVENUES
Revenue - Sate of Product
I Revenue By-products
Total Revenues
OPERATING (COSTSJ/SAVINGS
Direct Material*
j Wasta Management
[Utilrtrtt
Dirt ct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
I Labor Burden
I Total Operating (Costs)/Savings
I CAPITAL COSTS
DepradaWe Capital
j Book Value
I Tax Depredation (by SL)
1 Tax Depredation (by DDB)
j Tax Depredation (by DDB /SL)
CASH FLOWS
Revenue*
+ Operating (Coats]/Savings
Operating Cash Flow (BIT)
Depreciation (DDB/SL)
Taxable Income
- Income Tax at:
Met Income
+ Depredation (DDB/SL)
- Initial Investment
1.469,404
1.469,404
40.0%
1.469,404
368,225
1,273,483
97,960
195,921
195,921
0
368.225
368.225
195,921
172,304
68,922
103,382
195.921
1,103,686
97,960
169,798
169,798
0
386,636
386,636
169.798
216,838
86,735
130,103
169.798
956,528
97,960
147,158
147,158
0
405,968
405,968
147.158
258,809
103,524
155,286
147,158
11 1- rtrui year wonting uapnai
1 + Final Year Salvage Value
I After-Tax Cash Flow
1 Cumulattv* Cash Flow
1 Discounted Ca*h Row
-1,469,404
-1.469,404
-1 ,469,404
0
0
299,303
-1,170,101
258,020
0
0
299,901
-870,201
222,875
0
0
302,444
-567,757
193.763
ict 0
0
0
0
0
0
0
0
0
o , c
0 0
0 0
454,750
0
-45,171
-3,612
0
0
0
0
0
0
0
405,968
477,487 5
0
-47,429
-3,792
0
O
0
O
0
0
0
426,266 44
501,362
447,573
828,991
97.960
127.537
127,537
0
426,266
426.266
127,537
298,729
119,492
179,237
127.537
0
0
306.774
-260,982
169,429
^sssssssssstsss
718.458
97,960
110,532
110,532
Q
447.579J
447,579
110,532
337,047
134,819
202.228
110,532
0
0
312.760
51,778
148,909
©1995, Tellus Institute
Addendum - 52
-------
PROJECT TITLE:
WVWFIBER (Company Analysis)
Date: 9/1/95
A boxed cell contains user I
sassses==^ES=B==
CASH FLOW ANALYSIS
Page 7
Operating Year
Escalation Factor
REVENUES
Revenue - Sale of Product
Revenue - By-products
Total Revenues
0
0
o
0
0
0
0
0
0
0
0
0
OPERATING (COSTS)/SAVINGS
II Direct Materials
11 Waste Management
|| Utilities
|| Direct Labor ,
1 Other .
Regulatory Compliance
Insurance '
Maintenance
Overhead
Labor Burden
Liability
Total Operating (Costsl/Savings
CAPITAL COSTS
Depreciable Capital
Book Value
Tax Depreciation (by SL)
Tax Depreciation (by DOB) ., '
Tax Depreciation (by DDB /SL)
CASHFLOWS
Revenues
+ Operating (Costsl/Savings
Operating Cash Flow (BIT)
- Depreciation (DDB/SL)
Taxable Income
- Income Tax at: , 40.6%
Net Income -
+ Depreciation (DDB/SL)
- Initial investment
f Final Year Working Capital
'+ Final Year Salvage Value
After-Tax Cash Flow
Cumulative Cash Flow
Discounted Cash Row
', -
526,430
0
-82.291
4.181
A
1 U
0
.,
n
u
0
469.958
646:613
97,960
95,794
71.846
0
469,958
469,958
71,846
398,112
159,245
238,867
71,846
O
0
310,713
362.491
127,530
552,751
o
-54,905
-4,390
O
O
0
' ff\
0
0
0-
0
493.453
574,767
97.960
86.215
71,846
0°
.
493,456
493,456
71.846
421.610
168,644
252,966
71,846
, O
0
324,812
687.303
114,928
580.389
o
-57,650
-4,610
0
0
0
0
0
0
518,129
502,921
97,960
76.636
71,846
0
518,129
518,129
71.846
446.283
178.513
267.770
71,846
o
0
339,616
1.026,919
103,591
^sssssssss:
609,408
-60,533
-4.840
0
,
0
0
0
0
0
544,035
431,075
97,960
67,056
71,846
0
544,035
544.035
71,846
472,,189
188,876
283,314
71,846
_
0
355.160
1,382,078
93,390
======
639,879
.0
-63,559
-5,082
0
Ojl
o||
o
0
"0
571.237
359,229
97.960
57.477
71.846
. 0
571,237
571.237
499,391
199,756
299,635
71,84,6
0
o
371,481
1,753,559
84,209
SS:^SSBS^S
©1995, Tellus Institute
Addendum - 53
-------
I PROJECT TTTLE:
hvW/HBER (Company Analysis)
Data: 9/1/95
(} A boxed c*H contains uier input |
1 CASH ROW ANALYSIS
I Escalation Factor
| REVENUES
| Ravamw - Sato of Product
Revenue - By-products
OPERATING (COSTS1/SAV1NQS
Direct Materials
Waste Management
1 Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Uabitrty
CAPtTAL COSTS
Depreciable Capital
Book Value
Tax Depredation (by SL)
Tax Depreciation (by DDE)
Tax Depreciation (by DDB /SL)
CASHFLOWS
Revenues
+ Operating (Coets)/Savjngs
Operating Cash How (BIT)
» Depreciation (DDB/SL)
Taxable Income
- Income Tax at: 40.0%
Net Income
f Depredation (DDB/SL)
- Initial investment
+ Final Year Working Capital
1 «f Final Year Salvage Value
I Cumulative Cash Flow
1 Discounted Cash Row
«HW ° i
1.710 1.796
0 0
0 0
0 0
671,873 705.466
0 0
-66,737 -70,074
-5,336 -5,603
0 0
0 0
0 0
0 0
0 0
0 0
0 0
599.799 629,789
287,383 215,538
97,960 97.960
47.897 38,318
71,846 71,846
0 0
599,799 629,789
699,799 629.789
71.846 71.846
527.953 557,943
211,181 223,177
316,772 334,766
71,846 71.846
0 0
0 0
388.618 406,612
2,142,177 2.548,788
75,942 68.499
" ' ' ,'". "" , '. ' , '"', '"' ,.
13
0
0__
0
740,740
0
-73.578
-5,883
0
0
o
o
o
o
0_
661,278
143,692
97,960
28,738
71.846
o
661,278
661,278
71,846
589,432
235.773
353,659
71,846
0
0
425.505
2,974.293
61,795
=====3=1
14
n
0
0
777.777
o
-77,257
-6.177
0'
0"
694,342
71,846
97,960
19.159
71,846
694,342
694,342
71,846
622,496
248,999
373,498
71,846
0
445,344
3,419,637
55,755
15
816,665
-81,120
-6,486
729,059|
If
II
97,96o|
9,579
71,846
,
729,059
729,059
71.846
657.213
262,885
394.328
71,846
n
(J
466,174
3,885,81 1
50,313
©1995, Tellus Institute
Addendum - 54
-------
PROJECT TITLE:
WW/FIBER (Company Analysis)
Page 9
PROFITABILITY ANALYSIS SUMMARY
Net Present Value ($)
Internal Rate of Return
Payback (years)
Years 1-5
-476,408
1%
4.2
Years 1-10
47,240
17%
Years 1-15
359,544
21%
Net Present Value ($)
Internal Rate of Return
Year 1-Year of Choice
Year of Choice =
-233,950
10%
©1995, Tellus Institute
Addendum-55
-------
TOTAL COST ASSESSMENT
WHITE WATER/FIBER. REUSE PROJECT
20
©1995, Tellus Institute
Addendum - 56
-------
P2/FINANCE
V*raiofi2.2
Page 1
Data: 9/1/96
PROJECT TITLE: WW/FIBER (Total Cost Assessment Method
D
PREPARED BY: Risk Analysis Group
ORGANIZATION: Tellus Institute
COMMENTS:
This spreadsheet incorporates the data from a Total Cost Assessment of the
whitewater/fiber recycle project
Method 1 was used for entering the TCA data, i.e., operating costs
and revenues were entered for both the current and alternative processes.
©1995, Tellus Institute
P2/FINANCE
Pollution Prevention Financial Analysis
and Cost Evaluation System
) -',"'
Version 2.2 ~
Copyright 1995
Tellus Institute .
Boston, MA
Addendum - 57
-------
JpflOjeCT TITLE: CAPITAL COSTS Date: 9/1/95
fWW/HBER {Total Co«t Assa*smant, Mathod 1}
| A boxad call contain* uur input |j
JM
Ut
1urch***d Equipment
Equipment - Phase 1
Equipment - Phase It
Delivery
Sates tax
Price for Initial Spare Parts
atariai*
Instruments
Structural
ttty Connections and Naw Utility Systems
Refrigeration
Fual
Plant Air ~~ '
loan Gac
Co*
r
Enfl
1
1
t
<
m 1 1VJJMBUUII
Demolition and Clearing
Did Equipmant/Rubbish Disposal
latmction/kirtaJlation
n-houta
Contractor
Candor
kMarinfl/Contractor
n-nou«e Planning
ivhouio Engineartng
'rocurarrwnt
;ontractor/Con»ultant
Page 2
-,
330,85:
15,132
183,690
67,721
68,465
54,946
397,148
166 946
44,100
J
>
345,986
374,822
O
0
397,148
211.046
Savealf and associated pumps & tanks II
White water pump
L
©1995, Tellus Institute
Addendum - 58
-------
I PROJECT TITLE:
WgjBER (Total Cott Assessment. Method 1)
| A boxed call contains user input
CAPITAL COSTS
bate: 9/1/95
II waniim ousu UOSi Totals
St
Co
-
~
Inrt
art-up/Training
In-house - ,
Vendor/Contractor
Trials/Manufacturing Variances
Training '
ntingency ,
mining
Fees :
In-house
Contractor/Consultant -
ill Charge for Catalysts and Chemicals
% ._ .
-
' .
Page 3
»
0
0
l_ I
. -.
.
' ,
1
; .
Working Capital
Haw Materials
Materials and Supplies
Product Inventory
Salvage Value
©1995, Tellus Institute
Addendum-59
-------
I PROJECT TITLE:
WFjgfgJTotal Co*t A«»e««ment, Method 1)
I A poxeo cell contains user input jj
OPERATING COSTS"
JIM* co«u M positive value.; Enter «avinfl«/revenue« a« neaative value*
CURRENT PROCESS
(tern
Al TCPM*TIWE BP»^gP^
ALTERNATIVE PROCESS
To*.
Item
Total
Date: 9/1/95
Page 4
Difference
=(Curr.-Ah.)
n tweet Material*
|Ftbflf Lots {+ transport)
Filter Lot* (+ warwport)
iwatar Treatment Chems
g
Iwarte Manepem«it fiMt«
fcn-«te MamUtno
447.220
79,700
38,870
iai*& labor)
Direct Material*
IJFiber Loss (+ transport)
IJFiller Loss <+ transport)
(Water Treatment Chems
(Flocculating Apents
565.790] '
H Waste Management (n»t«i
On-site Handling
Treatment
1
89,450
15,940
12,960
28,700
1 147.0So| 418.740
IJSttim
jfw«ter
ISewirao*
L
348,760
590,100
273.020
1.211.880
iDioctUbof
Electricitv
Steam
Water
Sewerage
314,780
196,700
204,760
I Direct Ubor
Othw>
716.:
3.
©1995, Tellus Institute
495,£
-3.1J
Regulatory Compliance hnateriate & labor)
Sate of Product
Revenue* - Sale of Product
n*venue* - Marketable By
Revenues Marketable Bv-produet.
Addendum - 60
-------
I PROJECT TITLE:
V/FIBER (Total Co«t AMMsmant, Method 1)
I NOTE: on this page, a boraT
II cell contains user input -default
j values are for Illustration only.
I Capital Com
I Purchased Equipment
Materials
I Utility Connections
Site Preparation
Installation
I Engineering/Contractor
I Start-up/Training
I Contingency
I Permitting
I Initial Catalysts/Chemicals
Depreciable Capital
Working Capital .
Total Capital Requirement
Salvage Value
I Depreciation Period, years
I Operating Period, years
I Income Tax Rate, %
Escalation Rate, %
Cost of Capital, %
(Discount Rate)
CAPITAL AND OPERATING COST SUMMARY
NOTE: all entries shown as percentages
must be entered as decimal numbers
EXAMPLE; enter 0.4 for 40%
345,985
374,822
0
. .' c
397.148
211,046
C
140,403
o
1,469,404
0
1,469,404
15
15
40%|
5f\QS\
16.00%
Direct Materials
Waste Management
Utilities
Direct Labor
Other
I Regulatory Compliance
Insurance
Maintenance, % Capital
Overhead, % Total Labor | 0%
Labor Burden | p%
% Total Labor
Revenues - Sale of Product
Revenues Marketable
By-Products
TOTAL
Future Uabffity Ref .
(Year expected
-l,2,3,etc.)
565,790
- - 'i
1,211,880
0
0
0
0
0
0
0
0
0
0
1,777.670
147,050
716.240
3,120
0
0
0
0
0
0
0
0
0
866,410
iv.urr.-Ait.)
418.740J
(J
495.640J
-3.12d
0
0
0
: 0
0
0
0
.
911,260
(Curr.-Altl
©1995, TeUus Institute
Addendum-61
-------
"!
I PROJECT TITLE:
BWW/FJ8ER (Total Co«t Assessment, Method 1)
I One: 9/1/95
1 A boxed ctfl contains ui«r input ||
CASH ROW ANALYSIS
1
Escalation Factor 1 .000 i .050
REVENUES
Revenue - Sale of Product 0
Revenue - By-products 0
I
Page 6
2 3 4 5
0000
0 0 0_ _0
1 OPERATING (COSTS)/SAVINQS
I Direct Materiak
I Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
Total Operating (Const/Savings
439,677
0
520,422
-3,276
0
0
956,823
461,661
0
546,443
-3,440
0
o
0
0
0
0
0
1,004,664
484,744
o
573.765
-3.612
0
0
0
0
0
0
1.054,897
508,981
602,454
-3.792
0
0
0
0
0
0 .
1,107,642
534,430
0
632,576
-3,982
0
0
0
oil
Oil
o
1,163,024
CAPITAL COSTS
Depreciable Capital
Book VakM
Tax Depredation (by SL)
Tax Depredation (by DOB)
Tax Depreciation (by DDB /SL)
1,469,404
1,469,404
1.273.483
97,960
195,921
1.103,686
97,960
169,798
956,528
97.960
147,158
828,991
97,960
127,537
718,458
97,960
110,532
CASH FLOWS
Ravanutc
+ Operating (Const/Savings
Operating Cath Row (BIT)
- Depreciation (DDB/SL)
1 Taxabto Income
I - Income Tax at:
Net Income
+ Depredation (DDB/SL)
- Initial Investment
+ Rntl Year Working Capital
f Final Year Salvage Value
Cumulative C**h Flow
Discounted Cath Ftow
: , ' :''..
100,9^1
O
956,823
956,823
195,921
760,902
40.0% 304.361
456,541
195.921
1,469,404
0
0
-1.469.404 652.462
-1,469,404 -816,942
-1.469,404 562.467
1 03, /i»B
0
1.004,664
1,004,664
169,798
834,866
333,947
500.920
169,798
0
0
670,718
-146,224
498.452
1*7,158
0
1.054,897
1,054,897
147,158
907,739
363,096
544,644
147,158
0
0
691,802
545,577
443.208
127,537
0
1.107.642
1,107,642
127,537
980,105
392,042
588,063
127,537
0
715,600
1.261,177
395,220
110,532
0
1,163,024
1,163,024
110,532
1,052,492
420,997
631,495
110,532
742.027
2,003,205
353,289
©1995, Tellus Institute
Addendum - 62
-------
PROJECT TITLE:
M....H iuui Hum \fomt **»»»»»m«fn. mnnoo
|| Date: 9/1/95
II A boxed cell contains user input
if CASH FLOW ANALYSIS
Operating Year ,
Escalation Factor
REVENUES
Revenue - Sale of Product
Revenue - By-products
OPERATING (COSTSJ/SAVINQS
Direct Materials
Waste Management
I Utilities
Direct Labor
Other
Regulatory Compliance
Insurance "
Maintenance ,
Overhead
Labor Burden
Liability
Total Operating (Costs)/Savings
CAPITAL COSTS ,
Depreciable Capital
Book Value > -
Tax Depreciation (by SL)
Tax Depreciation (by DOB)
Tax Depreciation (by DDB /SL)
CASHFLOWS
Revenues
+ Operating (Costs)/Savings
Operating Cash Flow (BIT)
- Depreciation (DDB/SL)
II Taxable Income
»- Income Tax at: 40.O%
Net Income
+ Depreciation (DDB/SL) '
- Initial Investment
+ Final Year Working Capital
+ Final Year Salvage Value
I Cumulative Cash Flow
Discounted Cash Flow
, Pade 7 I
1 ' - ^ MJJW * , - II
1 II
b
1.340
0
0
0
S61.152
0
664.205
-4.181
0'
0
0'
.
0
0
0
0
1.221.176
646,613
97.960
95,794
71.846
0
1.221.176
1.221.176
71.846
1,149.330
459,732
689,598
71.846
0
0
2,734,649
312,529
^^^^^^^iiMa^i^H^B
7
1.407
^VMa^B^MsIi^BHIBfl
0
0
589,209
0
697,415
4,390
0'
0
0
0
, o
0
1,282.234
574,767
97.960
86,215
71,846
0
1,282,234
1,282,234
71.846
1,210,388
484,155
726,233
71,846
0
0
3,562,727
282,384
= ====!
.8
1.477
0
0
618,670
: 0
732,286
-4,610
0
o
0
0'
0
0
1,346,346
502,921
97,960
76,636
71.846
P
1,346,346
1,346.346
71.846
1.274.500
509,800
764,700
71,846
0
0
836,546
4.399.273
255,168
^^s^Hsss^s:^H!
9
1.551
0'
0
0
649,603
O1
768,900
-4,840
0
0'
0
i /\
u
0
1,413,663
431.075
97,960
67,056
71.846
.
1,413.663
1,413,663
71.846
1.341,818
536.727
805.091
71.846
0'
876,936
5.276,210
230.593
=====
=====
1C
1.62S
0
682,083
Jl
t
807,345
, -5,082
0
0
-.
3
Q
'0
1.484.347
359,229
97.960
57,477
71,846
f\
. 0
1.484,347
1.484.347
71,846
1.412.501
565.00CN
847.500
71,846
919,346
6,195,556
208,401
=====
©1995, TeUus Institute
Addendum - 63
-------
1 PROJECT TITLE:
[IWW/RBER (Totml Cost Assesament, Method
Hone: 9/1/95
I A boxed cell contains user input |
I CASH FLOW ANALYSIS
1 Escalation Factor
REVENUES
Revenue - Sale of Product
Ravemjo - By-products
OPERATING (COSTSJ/SAVINQS
Direct Materials
Waste Management
Utilities
Direct Labor
Other
Regulatory Compliance
Insurance
Maintenance
Overhead
Labor Burden
Liability
CAPITAL COSTS
Depreciable Capita!
Book Value
Tax Depreciation (by SU
Tax Depreciation (by DDE)
Tax Depreciation (by DDB /SU
CASH FIOWS
Revenues
+ Operating (Costal/Savings
Operating Cash Bow (BIT)
- Depreciation (DDB/SL)
Taxable Income
- Income Tax at: 4O.O%
Net Income
f Depredation (DDB/SL)
- Initial Investment
+ Final Year Working Capital
+ Final Year Salvage Value
Cumulative Cash Flow
Discounted Cash Ftow
Page 8
1.710
0
0
0
716.188
0
847,713
-5,336
0
0
0
0
0
0
0
1,558,564
287.383
97.960
47.897
71.846
0
1.S58.564
1,558,664
71,846
1.486.718
594,687
892.031
71.846
0
0
963,877
7.159.433
188,358
1.796
0
0
0
751.997
0
890,098
-5,603
0
0
0
o
0
0
0
1,636,492
215,538
97,960
38,318
71,846
0
1,636.492
1.636,492
71,846
1,564,646
625.858
938,788
71,846
0
0
1,010,634
8,170,066
170.254
13
0
0
0
789,597
0
934,603
-5,883
0
o
n
o
o
0
1,718,317
143,692
97,960
28,738
71.846
0
1,718,317
1.718,317
71,846
1,646.471
658.588
987,882
71,846
0
0
1,059,728
9.229,795
153,901
14
o
0
0
829,077
o
981,333
-6,177
0"
0
1.804,232
71,846
97,960
19,159
71,846
o
1.804,232
1,804.232
71,846
1.732,387
692,955
1,039,432
71,846
o
0
1.111,278
10,341,072
139,127
: isi
0
870,530
1,030,400
-6,486
nil
3
jjl
0
1,894,444
0
97,960
9,579
71,846
|
rl
1.894,444
1.894.444
71.846
1,822,598
729,039
1,093,559
71,846
1.165,405
11,506,477
125,779
^«I=K=====JJ
©1995, Tellus Institute
Addendum - 64
-------
PROJECT TITLE:
WW/FIBER (Total Cost Assessment, Method 1)
Page 9
PROFITABILITY ANALYSIS SUMMARY
Net Present Value {$)
Internal Rate of Return
Payback (years)
Years 1-5
783,232
37%
1.6
Years 1-10
2,072,306
46%
Years 1-15
2,849,725
48%
Net Present Value ($)
Internal Rate of Return
Year 1-Year of Choice
Year of Choice =
L
J
1,378,145
43%
©1995, Tellus Institute
Addendum - 65
-------
-------
Business Expansion
Knowing When to Add
People or Equipment
Mike Ukena, MBA
Screenprinfing & Graphic Imaging Association, International
Technical Staff
Addendum - 66
-------
Business expansion decisions are more difficult for small and medium sized companies
than they are for large ones. Large companies can put much greater weight on the
financial aspects of the process than can small or medium sized companies. Large
companies usually have the resources to allow a higher degree of "risk" in their decision
process which makes equipment and personnel decisions easier.
Small and medium companies do not have the luxury of making too many "bad"
decisions. If a small company decides to add a major piece of equipment and the
business does not materialize, the company may fail. A large company can just write it
off as a bad decision and keep going.
Failure may also result if any other aspect of the process is incorrect. For instance, if a
small company buys a large piece of equipment, the business does materialize, but the
cost of production is much higher than anticipated, the results may be as disastrous as in
the case where the volume estimate was wrong.
Major staff increase require the same level of study and attention. It may be easy to add
one or two people but an entirely different process to add several. The aspect of staff
increases that is usually overlooked is the training costs and the productivity curve. New
staff always requires some training and is never as efficient as established personnel. A
new production line running at 50% productivity for the first several weeks is not very
profitable.
Staff increases also mean that more attention needs to be paid to downturns in your
business. The larger the staff, the greater the drain when sales slow down. Management
must be more vigilant when the staff is larger. In addition, if you do have major
fluctuations in your work load, the staff fluctuations that this situation requires will
increase your overall training costs because every time you bring people back in, some of
them will always be new.
The following list represents the areas that should be addressed before making such
decisions on plant, equipment, or staffing.
Financial Aspects
Cost of Capital
Bank Relationships Financial Options
Tax Implications
Cash Flow Impact
Total Cost Assessment
'" 'i !""'! ' . , '''".''?''
Sales Issues
Sales Projections - Market Research
Product Appeal and Life Cycle
Addendum -67
-------
Gut Issues .-_
Management Staff Competence,
Hourly Staff Competence
Local Regulations
Federal Regulations , .
Timing
Legal Ramifications
Courage ;
These three general groupings are not clean ones. There are many pverlaps and it could
be argued that they some of them could just as well be in other groups. The important
thing is that they all be considered. While some issues carry more weight than others,
they should all be considered.
' - ' '.-'*-
Cost of Capital ,
The cost of capital seems to vary with the wind. Overall business and national health
play major roles in the cost of capital. When the economy is down, the government
usually lowers interest rates to stimulate business. These interest rate reductions affect
buying and leasing rates. The important issue to business is to try not to finance
equipment when rates are at their high end. If you must, make sure that you can
refinance when the rates drop.
Bank Relationships
A key aspect of the cost of capital is your overall relationship with your bank(s). If you
have a good track record with the bank, it is much easier to get advantageous loan or
lease rates. If your record is not so great, or if you are running with minimal business and
personal equity, it is going to be much more difficult to get good rates.
There are a myriad of ways to finance expansion. A company can obtain equipment using
a bank loan, cash, bank lease, third party lease, consignment, stock offering, etc. The
important thing is to analyze the options carefully to get the one that fits your situation.
Some easy decisions can be made concerning leasing versus buying. If cash flow is tight,
leasing may be more viable to preserve cash, even though the overall cost may be higher.
If,cash is not a significant issue, then the decision may be between financing and cash.
Whichever way you decide, do not finalize on a method until all other factors are looked
at. ---': . . . . . :."..... -.-. ,'
Tax Implications
Any plant, equipment, or staffing decision has tax implications. Plant and equipment
purchases will increase depreciation; equipment leases will increase expenses; and
staffing increases will increase PICA and FUTA expenses.
Addendum - 68
-------
Cash Flow Impact
,'!" I' , |!1 , ' ' " ' ' ; " , ,
A small business always has to be concerned with cash flow. New equipment purchases,
staffing increases and even a jump in sales can all have an adverse affect on short term
cash flow. It is very important to work up a cash flow analysis as a part of any business
decision. Make sure to run the cash flow projections at several levels of business; best
case, worst case, and something in the middle.
Total Cost Assessment
TCA is the best method for figuring the financial aspects of any new business investment.
This method complements the standard business valuation systems Net Present Value
(NPV) and Internal Rate of Return (IRR). The difference is that TCA takes more
information into account. In our industry, we not only have to consider the financial
impact of a buying decision, we often times have to also consider the environmental
impact of our decisions. The TCA process considers all costs and not just productivity,
sales projections, depreciation, and cash flow. ,'.,,,''
. !;:,': ;>! ' 1 . '. . . ,.-' , . '..,'', '
NPV or IRR are still an important part of TCA but the scope is increased. For example,
let's say that you want to buy a new press and dryer to replace an older slower
comb'nation- TCA l^uires that y°u include the environmental impact of the decision in
the process. In most cases, this method is superior because it will push you towards the
most efficient system for the long haul, not just the one that looks good at the start. In
companies that have the option of switching their production to lower solvent usage
systems, TCA will show the true benefits and costs savings.
Sales projections
i ' i II " . ' : '.'. : "' ' . *>
Everyone in business is aware that sales projections prepared by sales personnel tend to
be very optimistic. There is nothing wrong with this approach, just be aware that it is not
the only one. A business manager should always prepare multiple scenarios. The first
one using these optimistic sales projections, the second one cutting the numbers by 20%
and a third one cutting the numbers by 30% to 50%. Your own experience with your
sales department's projections will help you decide which end of the spectrum to weight
your calculations.
The best rule of thurnb is that if the pyerall. expansion decision still looks positive when
you usS your lowest scenario, the project is very likely a good one. If the project looks
good at the 80% scenario and only fair at the lowest scenario, then the project should be
considered marginal and much more dependent on the other factors described in this
paper. :'
Addendum - 69
-------
Product Appeal and Like Cycle
I V. " '' '
Product appeal and life cycle are two very overlooked factors in expansion decisions. One
of the biggest mistakes that you can make is to assume that a new machine will be as
profitable in the years ahead as it appears to be on paper at the beginning. Our
marketplace is changing rapidly and will continue to do so. With the emerging
prominence and popularity of Digital Imaging, it would be unwise to assume that a screen
printing press and dryer Will always be profitable. At the same time, a very expensive
digital imaging system may be superseded by a much less expensive and productive
system in just a few years.
If we were trying to decide to build a new cement factory, we would have the confidence
to assume that the plant would be productive and cost effective for a very long time.
Unfortunately, screen printing is not such an industry. For these reasons, I would advise
you to use very short life cycle calculations in your analysis. Our industry does not have
the "luxury" of stable markets or products. At the high end, I would use five years and
at the low end, I would recommend three years. If the buying decision fits within these
parameters, it will probably be a good one ..'-,'.'
Management Staff Competence ,
The ability of your management staff to cope/train, adjust, and work effectively with
expansion plans is probably one of the most overlooked areas of the decision process.
We usually assume that our managers and supervisors, whom we selected, will do a good
job no matter what we throw at them. Unfortunately, many of them loose their comfort
level when the job gets bigger or more complicated.
It is important to analyze your management staff and decide if they will fit into the new
plans. The following checklist is a starting point for the evaluation of each'manager.
1. Ability to handle pressure
2. Ability to handle new ideas - resistance to change will hurt expansion
3. Creativity - new systems mean new procedures V
4. Compatibility with other managers - new systems mean more interaction
5. Ability to train - how good is the manager at training and motivating workers
If you predict problems in any of these areas, it is recommended that they be resolved
before the addition of staff or equipment. If allowed to persist, management staff
competence problems can seriously undermine, reduce the effectiveness, and lower the
profitability of any investment.
Addendum 70
-------
Hourly Staff Competence
The reasons for reviewing the competence of your hourly staff are almost as important as
with the management staff. The only difference, is that hourly staff is usually a little
easier to shuffle around to get the right mix for the task at hand. However, the smaller
the company and staff, the more difficult it becomes to be flexible. A review of the staff
will make you aware of potential problems so that they can be addressed well in advance
of the investment.
Government Regulations
Many of the processes used by screen printers are affected by government regulation.
Federal regulations tend to concentrate on air quality, solvent usage, and safety issues.
Local and state regulations tend to concentrate on wastewater and air quality. Even if
you do not think that your project has environmental or governmental impact, it will serve
you well to check. It is much better to plan ahead in this area rather than be fined later
and go on a "watch list" with a governmental agency.
Timing
It is important to make sure that you are making your move at the right time. However,
over-concern about timing may cause you to loose faith in a good project. Your concern
must be factored in with the other categories. Timing issues can include the following
items:
Cost of capital - interest rate
' Equipment delivery "promise date"
Staff training timetable
Learning curve to full productivity
Marketplace timing - is the machine arriving at the right time to hit the market?
Permits - are any permits required (electrical, plumbing, building, etc.) and will they be
ready in time?
Permits and the related construction issues are probably one of the most poorly timed
items related to expansion. There are many horror stories about the new equipment that
could not be installed because the electrical or plumbing was not ready. Or, "we didn't
know we had to get a permit to add that gas line".
Legal Ramifications
This issue mainly comes into play where you are planning to produce licensed products.
Make sure that you have a license before you make a major investment. It can be an
expensive mistake to buy equipment or train a lot of new people when you do not get a
license to product the intended product.
6
Addendum - 71
-------
Courage
Do you have the entrepreneurial zest to make a major decision. You had to have it to
start a business. Unfortunately, many small business owners loose there courage over
the course of time. If you are net good at making major growth decisions, it will be
difficult to increase the size of your business.
Fortunately, if you cover all of the steps covered in this discussion plus any others that
occur to you, it should take a minimal amount of courage to make the right decision. A
well informed manager or business owner makes far fewer mistakes than someone that
makes quick arbitrary decisions. '
Making the Decision
Any business decision is an analysis of risk. Whether you are deciding to buy one press
over another or hire one person instead of another, you are "risking" that you are making
the correct decision. Through the use of detailed analysis, we try to minimize the risk
associated with major business decisions. In doing so, we try to compare the risk of
doing something versus the risk of doing something else, or of doing nothing.
For example, you can put money in the bank at 5% interest with very low risk. You can
put money in bonds with a slightly higher risk and make 6-8% interest. You can put
money in stocks with a moderate risk level and make anywhere from 10% or more. If a
major business decision did not show the likelihood of making'a higher return on
investment than what can be achieved by one of these other methods, it would not be
made.
Net Present Value (NPV) calculations require you to input a discount rate based on the
relative risk of the venture. The normal range to use is 10-15%. If a project looks good
using discount rates in this range, the project is probably a good one.
Example
The ABC Screen Printing Company prints decals, signs, and posters. They are considering
adding a new product to their line which will require additional equipment. The new
product is decorative static-cling vinyl refrigerator decals. The ink system that will be
used is UV which will alleviate any need for environmental permit for additional VOC
emissions. The decision will be based on the following information.
Addendum -72
-------
A. Sales Forecast 1st year--$ 200,000 (400,000 units)
2nd year - $ 600,000 (1,200,000 units)
3rd year--$ 800,000 (1,600,000 units)
4th year-$ 1,000,000 (2,000,000 units)
5th year--$ 1,250,000 (2,500,000 units)
B. Equipment Cost
/ , " ','',
1. In line or carousel semi-automatic press w/built in UV reactors: $250.000
Details:
Staff-2
Production - 2,000 decals/hr
Avg. Total cost/unit - $0.30
2. Single-color semi-auto flatbed w/takeoff and separate UV reactor: $120.000
Details:
Staff - 2
Production - 750 decals/hr
Avg. Total cost/unit - $0.35
8
Addendum 73
-------
ia
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