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Profitability Analysis for Cleaner Production
To ECDM, ONE-L, SBN, P2TECH, INFOTERRA
Re: Reminder: Free Downloadable Software for Profitability Analysis of
Cleaner Production Investments
Greetings. This is a reminder that there is excellent FREE DOWNLOADABLE
software for analysis of pollution prevention/cleaner production (P2/CP)
investments available at the following sites. Get P2FINANCE and the users
guide and learn how to use them (at least a little).
Why should you care? Because P2/CP implementation often breaks down when
capital investments are considered. Managers simply don't do a good job of
figuring out the NPV/IRR/discounted payback valuators. Often they say "I
can't afford it" when in fact they have done their math wrong. Seriously,
folks, every business manager we meet underestimates the actual cash cost
of creating pollution and this is documented extensively in the literature
and in the fine book "Green Ledgers" from World Resources Institute
(www.wri.org). How the heck can we argue that P2/CP saves money when they
don't know how much money they are spending now in the first place?? !
P2/CP profitability analysis is not by itself Sufficient, but it is
Necessary, for a successful P2/CP program. So it needs to be in your
toolbox. The P2FINANCE software is the closest thing to a perfect solution
you can get at the moment:
- It's a DOS Lotus 123 *** OR *** Windows Excel 95 spreadsheet with macros
that make it easy to use. Also export/fool around with since you have
Lotus or Excel anyway.
- Extremely comprehensive inventory of environmental and pollution-related
cost items that could be affected in a P2/CP investment
- Baseline cost structure plus future costs - "What will it cost me if I
don't do anything different?"
- Two different alternative analysis worksheets so you can run 3 options
including do nothing
- long term cash flow forecasting - if it aint 5 years long it aint worth
- adjustable discount rates - if it is P2/CP it should REDUCE risk, and
therefore the discount rate should be LOWER than for other investments,
right? more risk, greater discount, etc.
- Adjustable tax and depreciation schedules for you accounting wonks - just
remember that long-term cash flow rules
- Multiple profitability indicators - NPV, IRR, discounted payback
All this neat stuff makes corporate finance officers drool - there are now
several industry users who adopted it for environmental programs and now
use the software for ALL capital investment analysis because it is FREE and
EASY so EVERYONE can use it, even the engineers(;-).
Why am I telling you this? Because training in CP profitability analysis
is a growing field with a number of international banks etc waking up and
asking for it (to be blunt, they are asking ME for it and I need help,
there is way too much for me to do alone)), and if more people know how to
train others in using this software we can put together some good training
programs in interesting places. There are not enough people around who can
really run a profitability analysis case study using worksheets and this
software, and the demand for them is jumping.
I am working with Illinois EPA and Tellus Institute to develop a course on
profitability analysis of P2/CP investments for the Philippine Institute of
CPAs. We have high hopes for this course becoming a standard module for
Continuing Professional Education of accountants around the world; so far
the response from accountants has been very enthusiastic, which is not
surprising since most of the CPE courses they are offered tend to be boring
as hell. We are developing some case studies in the Philippines and using
P2FINANCE there. Interested people should contact me for more info,
especially anyone with projects in the Philipppines that could benefit.
Here are the sites to download the software. Please note that it was
produced by Tellus Institute (http://www.tellus.org), where Dr. Deborah
Savage is the contact, if you want to talk about modifying the software or
other technical issues, please contact her directly.
As always the EPA Environmental Accounting Project has lots of info in
addition to the software, see their page at
http://www.env.gov.bc.ca/epd/epdpa/embi/tca/p2f/p2financ.html - version of
P2FINANCE developed for Canada, using Canadian tax rates
http://www.sgia.org/p2finance/index.html - version of P2FINANCE developed
for the screen printing industry
http://www.epa.gov/opptintr/acctg/download/p2finan.htm - US version of
P2/CP is a nice idea, but as one manager told me, "If it don't make a buck
it aint worth a F---". Now you have a tool to prove it makes a buck.
Adjunct Professor of Corporate Environmental Management
Asian Institute of Management, Manila Philippines
President, Hamner Associates, Inc.