- 4 Marks
Question
After the presentation of the SAM four-step approach to the management team, the Director of Finance and Operations made the following statement: ‘The data required for FCA is usually only available in organisations that are at the forefront in responding to the environmental agenda’ (Bebbington, Gray, Hibbitt, and Kirt, 2001).
Required:
Explain to the management team why it might be difficult to use FCA to support the ongoing discussion about the new product HVSC.
Answer
- Data Availability: Full-Cost Accounting (FCA) requires extensive data on environmental, social, and economic impacts, which is typically only available in companies that are highly advanced in addressing sustainability challenges. SavvyTech may lack the comprehensive data needed to make accurate full-cost assessments, especially as HVSC is a new product.
- Complexity of Converting Impacts to Monetary Terms: FCA requires converting physical environmental and social impacts into monetary values, which is complex. For HVSC, quantifying elements like carbon emissions, social exclusion reduction, or long-term resource use in monetary terms can be particularly challenging and prone to significant judgment errors.
- Uncertainty in Long-term Costs: Predicting and accurately assigning future costs, like potential environmental fines or taxes related to HVSC’s lifecycle, adds uncertainty. Additionally, future regulatory changes, such as potential carbon taxes, are hard to estimate at this stage.
- Tags: Environmental Data, Full-Cost Accounting, Product lifecycle, Risk Management
- Level: Level 3
- Topic: Controlling Risk
- Series: JULY 2023
- Uploader: Theophilus