When presented with a difficult choice between environmental or social enhancement and best value for money, a purchasing manager requires clear direction as to how to balance these competing goals.
To what extent should it sacrifice best value for money and thereby acquire products that are substandard or more costly in order to protect the environment or promote some social goal like improved working conditions.
Is it more important to recycle or to reduce overall environmental impact? If it is the latter, who determines that impact? Further, does one look only at the specific purchasing transaction or does one consider its wider implications?
Numerous studies have cast great doubt on claims that recycling usually saves trees and other resources, reduces energy consumption, reduces pollution, creates desirable jobs or saves money.
Each approach taken can lead to very different purchasing decisions.
For governments, policy decisions of this kind should ultimately be made by political decision-makers. Sadly, the implementations of environmental policy frequently illustrates the glaring gap between high-level policy statements and day-to-day organizational operations decisions.
Like everyone, most governments operate in a world of limited funding. As well, municipalities compete against each other to secure business and other investments.
High taxes are rarely an incentive to invest.
Low taxes mean insufficient money to purchase everything that (in a cost-free world) the government would. Scarce funding necessitates different choices, taxes used to retrofit a water treatment plant to remove trace amounts of heavy metals cannot be used to improve local social or bus services.
Even competing environmental goals must often be traded against each other.
For instance, some years ago one municipal council, due to concerns about small particulate matter (PM) as a form of air pollution, decided in the future it should purchase equipment designed to abate PM emissions.
However, when the municipality decided to purchase street-cleaning equipment, staff discovered that PM abating machines were twice the cost of those of more traditional design and that there was little proof that the PM emissions reduction actually occurred in real operating conditions.
Should the PM reducing option be followed in such a case?
Cost is not just a budget matter for one department. It can have wide implications.
For example, if a city needs eight street sweepers and the cost per sweeper is $200,000 for the high-tech model, meeting that cost will place a financial drain on other programs.
One could buy only half the units needed, but this means that four old models would then stay on the street. Not only do older units generally operate “dirtier” than even new low-tech equipment, but they also consume more fuel.
Older equipment also tends to present an element of safety concern and operational reliability — something to keep in mind when looking at cuts in fleet replacement as a possible means of producing a balanced budget.
In principle, cost-benefit analysis (CBA) affords an understanding of the necessary choices different policies imply. Such an analysis should not be the exclusive basis for decision, but allows decision-makers to assess the tradeoffs implicit in allocating resources to one thing over something else.
CBA forces decision-makers to confront the specific implications of their decisions. Unfortunately, such an approach is difficult to apply in the environmental context. CBA requires tradeoffs to be compared in monetary terms.
This leads to the obvious objection that it requires us to “price” life or nature, something that many people find conceptually repugnant.
However, the problem is actually deeper than this. In many cases, CBA calculations must be made relying on rudimentary models of complex systems that are, for the most part, noteworthy more for their inaccuracy than their precision.
Worst yet, many of the figures used in any such calculation are no more than rough estimates, based on uncertain assumptions.
Stephen Bauld is a government procurement expert and can be reached at firstname.lastname@example.org. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.