A Conceptual Foundation for Management Accounting Information to Support Sustainability Strategies
Advances in Accounting, Vol. 31, No. 1, 2016
30 Pages Posted: 17 Mar 2016
Date Written: October 16, 2015
This paper derives an actionable model that serves as a basis for cost variance analysis to support the pursuit of environmental and traditional financial goals within a decentralized organization. The model identifies two distinguishable departures from optimality. The first consists of what might be considered a natural outcome of pursuing the traditional economic goal of efficiency through cost-minimization, a “waste” variance. The second part consists of sustainability gains that produce societal benefit but may be incongruent with short-term economic goals, a “sustainability” variance. While elimination of waste variances can be encouraged using a traditional performance evaluation and reward structure, elimination of sustainability variances requires re-design of performance evaluation tools and reward structures. We demonstrate that differing production functions across operational units within organizations can impact the relative magnitude of the two variances. The failure to recognize and incorporate these differences can lead to inefficient allocation of resources and/or only partial fulfillment of the strategic environmental goals of the organization.
Keywords: Performance measurement, Production function, Shadow prices, Sustainability, Waste, Variance
JEL Classification: E12, C61, D61
Suggested Citation: Suggested Citation