The Research of Environmental Costing Based on PAF Approach

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Quality costing is a tool for cost management which classifies quality costs into prevention, appraisal, internal failure, and external failure costs in line with the PAF (prevention-appraisal-failure) approach. Since both quality and the environment have similar characteristics, some studies of quality costing have incorporated environmental factors into the area of academic research. Specifically, quality costing for the environment applies the PAF approach to environmental cost classification, and provides useful information for management decision making.The purpose of this research was to verify the validity of PAF approach to environmental management, especially to planning and budgeting for environmental conservation activities. First, some former studies about environmental budgeting and quality cost accounting methods were reviewed, then Green Budget Matrix Model (GBMM) was developed originally and introduced into several Japanese companies.The aim of the GBMM is not only just the reduction of environmental costs. Its main objective is to generate various information which will support environmental activities, such as environmental investment projects or environmental conservation measures, in order to reduce the environmental burden. The experiences of four Japanese firms which implemented the GBMM show the usefulness and relevance of the model as the strong driving tool for EMA (environmental management accounting).