Municipalities now have the opportunity to focus on the activities that really drive their recycling costs and act immediately to reduce them.
Activity-based costing (ABC) is a widely accepted accounting method which was developed initially to determine full costs of developing, producing and marketing individual products and services in multi-product operations. Activity- based costing is a management tool especially useful for improving operational efficiency and to slash budgets.
An independent industry study commissioned by PPEC and supported by Consumers Glass and Industry Canada applies activity-based costing to representative curbside recycling systems, using actual operating data. Put simply, ABC identifies each activity responsible for incurring a cost, e.g. volume, weight, number of units, time spent, avoided costs, etc. Each of these activity costs is then allocated to the appropriate material or product.
In this study by First Consulting Group of Toronto, the ABC methodology has been used to identify the costs associated with the most common recyclable materials collected in Ontario curbside programs and the ways in which they are generally collected.
The ABC process is flexible and relevant to any actual or possible residential curbside program. By identifying details about a specific program, the model can be used to prepare cost estimates and "what if" scenarios. By choosing variations to existing operations, the "true" cost implications of changes can be assessed to determine the most cost-effective way to manage any municipality's particular circumstances.
For copies of the report contact Doug Symington, Director of Public Affairs at 416-232-3214.
Let's look at a representative example from the study of a lower cost urban program serving 140,000 households, collecting old newspapers/old magazines (ONP/OMG), aluminum, PET, steel and container glass every second week. [Note: Where there is an economic benefit to an activity (not a cost) this is indicated by placing brackets around the number, like this (50)].
In this scenario Total Operational costs are assessed at plus $20 a tonne using both weight (traditional accounting method) and the ABC method. Operations include collection, processing, administration costs (promotion and education) and material or product revenues. Under the traditional scenario, these costs are assumed to be the same for all materials. However, the reality is that each material or product is different, requiring different handling techniques and therefore incurring different costs (See Column A).
The second part of this equation includes the avoided costs. Recycling activity results in avoided costs by reducing the cost of garbage collection, landfill operations and landfill development and closure (see Column B).
Putting these two components together, Total Operations and Total Avoided Costs (Column C) shows the overall system cost. In this case the total is a plus $125 per tonne.
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