A purchasing manager needs clear direction when faced with a difficult choice between social or environmental enhancement and best value.
What should it do to get the best value for its money? Should it buy substandard or more expensive products to protect the environment, or promote a social goal such as better working conditions?
Is it more important recycle or reduce overall environmental impact? If it is the former, who decides its impact? Do you look at the purchase transaction in isolation or do you consider its wider implications?
Numerous studies have shown that recycling can save trees and other natural resources, reduce energy consumption, create desirable jobs, and save money.
Each approach can lead you to different purchasing decisions.
These policy decisions should be made by politicians for governments. The gap between high-level policies and daily organizational operations often shows up in the implementations.
Like all governments, many operate in a world with limited funding. Additionally, municipalities compete with one another to secure investments and business.
High taxes are rarely a reason to invest.
Low taxes can mean that there is not enough money to buy everything the government would (in a cost-free universe). Different options are available. Taxes paid to retrofit a water treatment facility to remove trace amounts heavy metals cannot be used for improving local social or bus services.
Sometimes, even opposing environmental goals must be traded against each others.
For example, a municipality council decided that it would purchase equipment to reduce PM emissions years ago, citing concerns about PM as a form air pollution.
Staff discovered that PM-abating machines were twice as expensive than those of more traditional designs and that there was very little evidence that they actually reduced PM emissions.
Should the PM reducing options be used in such a situation?
Cost isn’t just a budget issue for one department. It can have broad implications.
If a city has eight street sweepers, and the high-tech model costs $200,000 per sweeper, it will be a financial drain on other programs.
While one could buy only half of the units, it would mean that four of the older models would still be available for purchase. Older units not only run dirtier than new low-tech equipment but also consume more fuel.
When considering budget cuts, it is important to remember that older equipment can also pose safety concerns and operational reliability.
Cost-benefit analysis is a method that helps to understand the implications of different policies. This analysis should not be used as the sole basis for decision making, but it allows decision-makers the opportunity to evaluate the tradeoffs involved in allocating resources to one over another.
CBA forces decision-makers face to face the consequences of their decisions. Unfortunately, this approach is difficult to use in the environment context. CBA requires that tradeoffs are compared in monetary terms.
This leads to the obvious objection of having to price life or nature. Many people find this concept to be absurd.
However, the problem is deeper than this. CBA calculations often have to be done using rudimentary models for complex systems. These models are more notable for their inaccuracy and precision than their accuracy.
Worse, many figures used in such calculations are only rough estimates based on uncertain assumptions.
Stephen Bauld is a government procurement expert and can be reached at [email protected]. Butterworths published excerpts in some of his columns.
