Analysing the environmental, financial, social and economic issues

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The aim of this report is to discuss the 4 issues that the company needs to take into account with the 3 problems given in the scenario. It also provides further information helping company resolve the 4 issues. Finally, this report provides some assessments of identfying potential strategic plans to managers so as to determine its impact on the organisation..

Parks Spice Company has several issues to be taken into account in order to solve the three problems outlined.

The company also needs to gather both financial and physical information generated from environmental management accounting (EMA). EMA consists of financial oriented EMA and physical oriented EMA.

'The balanced scorecard' and 'lag and lead indicators' are a part of strategic performance measurement systems (SPMS). Besides, after objectives are categorised as 4 different perspectives, strategy map may be used to explain the cause and effect relationship between the categorised objectives and the original objectives.

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Du Pont chart is used to identify the relationship between financial measure and non financial measures.

Benchmarking is a process of comparing with other companies in terms of functions, activities and products, and there are 4 types of formal benchmarking.

Body of Report

1.1

Parks Spice Company has several issues to be taken into account in order to solve the three problems outlined. The details of the issues related to the 3 problems are shown below: (First means in the first problem, and so on)

Financial performance

First, the company has to consider the impact of cost and quality if a factory is built for pre-processing in Vendora. Second, the cost of purchasing and operating an improved filtering system should be considered. Third, the company should consider the cost of lying off the 12 staff or improving their morale through consultation.

Environmental performance

First, the company should consider whether choosing Vendora as a place of pre-processing spices as the country is using toxic chemical sprays for plantation purposes. Second, an improvement of filtering system, recycling ponds and septic system should be taken into account.

Social performance

First, the company should consider about the working hours and working atmosphere for employees' health and benefits. Second, it needs to consider whether it needs to reduce the pollution in order to reduce the disturbance to neighbours even through it meets the required environment emission standards. Third, the style of production should be considered to help the 12 workers feel happy and hence improve the morale.

Broader economic performance

First, the company should consider about the level of wages and whether the factory should be built in the local country. Second, it should consider the investment for social benefit such as further improvement of air quality although the facility meets the government standards. Third, the investment for improving staff morale should be taken into account.

1.2

Not only should the company know what issues the company needs to take into account, but it also needs to consider about what stakeholders desire. Recently, the stakeholders concern more on the sustainability issues. Their preferences can influence the business and the value of sustainability, and hence the influence on the four issues.

The company also needs to gather both financial and physical information generated from environmental management accounting (EMA). Financial oriented EMA provides managers some information including environmental costs, which are incurred to prevent environmental impacts; environmental product costing, which is used to trace environmental costs to products; environmental performance indicators are about setting target and monitoring environmental performance based on both physical and financial measures; environmentally induced capital expenditure is capital investment for improvement of environment or required by environmental regulations; environmentally induced revenues are earned from actions in favour of environment. Physical oriented EMA provides some information about, in physical terms, the use of resources for management that accounts for the impact on environment. (Langfield-Smith, Thorne & Hilton, 2009)

Here is the information based on financially oriented EMA the company should gather. First, the management should concern about how the atmosphere with chemical fumes affects the workers performance, and hence the direct labour cost (i.e. environmental product costing). Besides, it should know how much revenue the company can generate through selling recyclable materials and so to compensate the higher production costs (i.e. environmentally induced revenues). Second, it needs to know about how much the filtering system needed to run in long term and the amount of fines due to prosecution for environmental issues (i.e. environmental cost). To avoid any prosecution and complaint, it also needs to know how much the "further improved" filtering system is (i.e. environmentally induced capital expenditure). To reduce the cost, the management can use operational performance indicators to monitor how much waste produced relative to production (i.e. environmental performance indicators).

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The company has to know how much resources, such as chemical sprays, are used during the production (i.e. physically oriented EMA).

2

Before making a decision such as whether setting up a factory overseas, the company should assess different potential strategic plans through some assessment such as strategic performance measurement systems (SPMS).

The balanced scorecard is a part of SPMS. It is used to measure degree of balance between objective and performance. First, the company identifies organisational objective and strategies, then translate strategies into different objectives reflecting 4 objectives. They are financial perspective, including measurement of cost and profit; customer perspective, including how many products launched; internal business perspective processes, including product quality; and learning and growth, including measures of employee skills and motivation.

After objectives are categorised as 4 different perspectives, strategy map may be used to explain the cause and effect relationship between the categorised objectives and the original objectives. Through the map managers can identify and verify the linkage among objectives. It also helps achieve a strategy through different departments. For instance, the map explains how the objective of improving employee skills (human resources) leads to the objective of improving manufacturing quality (production line).

Lag and lead indicators is also a feature of SPMS. Lag indicators are used to monitor progress towards objectives. In financial objective, economic value added, and in internal business processes objective, number of completed goods, are examples of lag indicator. Lead indicators are used to "measure that drive the outcomes and provide information that is actionable and manageable" (Langfield-Smith et al. 2009, p.702). In financial objective, cost per product, and in internal business processes objective, number of product defects, are examples of lead indicator.

Du Pont chart is used to identify the relationship between financial performance measures (financial measure), key performance indicators and key performance drivers (last two are non-financial measures). The chart shows and allows managers to understand the relationship among each financial and non-financial measure.

Benchmarking is a process of comparing with other companies in terms of functions, activities and products. The aim of doing so is to identify and perform continuous improvement such as higher level of performance. There are 5 steps in the benchmarking process, including identifying the functions or activities to be benchmarked, and performing measures, selecting benchmark partners, data collection and analysis, establishing performance goals and implementing plans. (Shetty, 1993)

Besides, there are 4 types of formal benchmarking. The first one is internal benchmarking. It involves benchmarking among different affiliations within same company. The second one is competitive benchmarking, which involves identifying and comparing differences to competitors so as to speed up a particular improvement. The third one is industry benchmarking, which involves comparing performance to companies having similar interests and conditions. The last one is best-in-class or process benchmarking, which involves targeting to the best practices occurred across different industries. (Reider, 2000; McNair & Leibfried, 1992)

Conclusion

Parks Spice Company has several issues to be taken into account in order to solve the three problems outlined. They are environmental performance, environmental performance, social performance and broader economic performance.

The company also needs to gather both financial and physical information generated from environmental management accounting (EMA). EMA consists of 'financial oriented EMA', including environmental costs, environmental product costing, environmental performance indicators, environmental induced capital expenditure and environmental induced revenues, and 'physical oriented EMA'.

'The balanced scorecard' and 'lag and lead indicators' are a part of strategic performance measurement systems (SPMS). Besides, after objectives are categorised as 4 different perspectives, strategy map may be used to explain the cause and effect relationship between the categorised objectives and the original objectives.

Du Pont chart is used to identify the relationship between financial measure and non financial measures.

Benchmarking is a process of comparing with other companies in terms of functions, activities and products. There are 4 types of formal benchmarking, including internal benchmarking, competitive benchmarking, industry benchmarking and best-in-class or process benchmarking.