The Activity Based Costing (ABC) Model developed by the CIF for municipal Material Recovery Facilities (MRF) owners and/or operators is a tool that can be used to gain a thorough understanding of the current costs associated with the management of your Blue Box materials.
Once populated, the model can be used to quantify the impact of any changes you may be contemplating to the bottom line and operating efficiencies. Given anticipated regulatory changes and market issues, Ontario recycling programs will need to make some tough decisions such as:
- improving commodity quality by increasing the number of sorters (temporary fix) or by undertaking a capital upgrade (long term fix)
- choosing grades to sort (i.e. hardpack vs. mixed paper)
- deciding whether or not to expand the list of targeted materials
- improving effectiveness by slowing the line, adding another shift, or speeding it up and running the materials a second time
The CIF’s MRF ABC Model can help you explore the impact of a variety of options like these and decide on next steps before making costly changes.
An easy to use Excel-based tool
The CIF’s ABC Model looks at the entire cost of the MRF operation and assigns a portion of all costs – capital, administrative, and operational – to every targeted item in your Blue Box program.
It is a Microsoft Excel based tool comprised of a series of tabs and drop down menus to simplify data entry. Users populate it with site-specific data. Inputs include: capital equipment costs, maintenance expenditures, inbound and outbound material details, and manual labour activity breakdowns.
Why use the Model?
The model is based on a set of cost allocation principles and calculations that were established through consultation with the CIF MRF Working Group.
CIF’s MRF ABC Model is a robust tool. With it programs can:
- evaluate the impact of decisions before and after any spending or changes occur
- establish benchmark metrics for a particular point in time to better understand variables that impact costs (e.g. seasonal variation)
- compare and contrast multiple approaches to a problem to determine which option will yield the desired outcome. Users manipulate the corresponding data inputs in the model, and let it forecast the change to costs
Let’s look at a hypothetical example
Let’s use the model to analyze some of the options to improve the quality of the fibre stream. Municipalities need to determine what grade to sort to:
- China-standard – Sorted Residential Papers (SRP) #56 (<0.5% contamination)
- SRP #56 – domestic/export excluding China
- Mixed Papers #54
Some of the options to produce a higher grade include:
- adding labour (sorters) to produce a SRP #56 for domestic/export excl. China
- adding equipment (an optical sorter) to produce a SRP #56 for domestic/export excl. China
- adding labour and equipment to produce a China grade
- consolidating and transferring: convert fibre operations to transfer operations to produce a mixed paper grade
Complete three steps to populate the CIF’s MRF ABC Model:
- Enter your MRF’s cost driver information:
- building and related operational
- sorting equipment and maintenance
- residue disposal
- Enter anticipated revenues
- Enter material related data (e.g. inbound material mix)
…. and let the model carry out all the calculations for you! The model can be used to produce a table such as the one that follows.
Table 1: Options Analysis for Higher Grade Paper
The model quantifies the annual impact to each of the cost drivers. In the example above we are able to easily compare and contrast the four different options. It is clear which key cost driver is being affected by the option being proposed. This option analysis helps facilitate discussion and decision-making.
Adding four sorters has no impact on the building costs but increases labour costs. Labour complement can be reduced if/when no longer needed.
Converting fiber operations to transfer operations to enable transfer trailers to be loaded at the current site. This requires an increase in tip floor space, wider bay doors, etc. This in turn results in a jump in building costs. As fibre would no longer be sorted onsite, equipment costs go down – but you may have to deal with stranded assets.
Adding an optical sorter increases the amortized equipment costs but does not affect labour. Unlike labour costs, however, equipment costs cannot be easily reduced if the equipment is no longer needed.
Residue disposal costs increase as the sorting accuracy improves – more contaminates are removed.
Revenue earning capacity improves as sorting capabilities improve.
The benefit of using the model is that each option can be evaluated for its impact to the bottom line (net cost), AND its impact to the operation. For example one option may be more expensive, but it may reduce risk exposure if market standards tighten and only high quality materials are finding a home. The model quantifies the cost of minimizing that risk exposure.
Users can change the scenarios and the outcomes update quickly – making it easier for staff to generate a wide range of options for comparison.
Groups are free to use the model to generate cost scenarios for their facilities and work with their colleagues in other communities to compare outcomes*. The cost allocation principles and equations used are the same for all those using the model, to facilitate apples-to-apples comparisons of results.
*Disclaimer: The MRF ABC Model is a tool developed by the CIF through consultation with its municipal MRF Working Group. The CIF does not collect or retain model data outputs. Only individual users have access to their unique model data and outputs. The sharing of the model data and output is at the sole discretion of the individual municipalities or programs.
The model can provide information on a range of variables. For example, it allows users to zero in on specifics such as the costs to manage individual material types as well as quantifying the overall impact to the entire operation. The outputs can be as varied as the questions asked of it.
Interested in running your numbers? What do you need to get started?
You’ll need operational cost and field data to begin. On the operational side this includes: building and contract cost data. For the field data (inside the MRF): tip floor, bunker and residue composition data is needed as well as time and motion measurements of sorting and material handling for each commodity and sorter.
Funding opportunity through the CIF
To use the model, municipalities must have or be prepared to collect the raw data to populate it. Partial funding is available through the CIF to support interested municipalities to hire a consultant.
Interested in a demonstration?
Contact Carrie Nash for a copy of the model and to see if your program qualifies for a partial subsidy to run your first test.
I found this tool helpful!
It allows us to monitor and evaluate the processing operations associated with specific materials and identifies potential opportunities to improve efficiencies with either operational changes or capital investments.