One of the main tasks of Cost accountants is mitigating costs to ensure that we get the maximum benefits from the provision of goods and services. While some costs can be completely eliminated from the production process, others are ineliminable and can only be controlled. One of these costs is Energy
costs which have risen in the past months, resulting in high monthly electricity bills. Energy plays a critical role in the production process and its increased costs therefore have a significant influence on the prices of the final output. With this in mind, it, therefore, becomes a nightmare for the cost
accountant to manage these costs.

Why is energy considered a pain point for accountants?

Expense management-Energy costs form a major significant cost, especially in the processing and manufacturing sectors. Accountants will therefore have to track these expenses to ensure adherence to the budgets while optimizing production.

Budgeting & Forecasting-With the high fluctuations in prices, it is difficult to forecast precisely onto how much will go into energy costs. Accountants, therefore, need to anticipate these changes and incorporate them into the forecasts.

Invoice verification-Accountants are expected to analyze and verify the correctness of the electricity bills. It is therefore necessary for them to understand the cost components therein the bill. Billing errors and discrepancies can lead to financial losses for the company.

Cost Allocation-In larger organizations, electricity costs have to be allocated across departments or to cost centers. This requires careful allocation criteria to ensure a fair distribution of the energy costs.

Energy Efficiency Investments-When considering investments in energy efficiency projects, accountants play a crucial role in determining if the initial investment is justified by the long-term savings. This decision relies heavily on historical performance and future forecasts.

Environmental sustainability-Accountants may be expected to report on the impact of energy consumption on the environment. This makes their reporting more complex.

In conclusion, Energy costs can present challenges to accountants all the way from Budgeting, and expense management to reporting. However, accountants can adopt the measures below to overcome this challenge:

  • Collaboration with the operations department to implement energy efficiency practices and technologies
  • Set a budget aside for staff training on Energy efficiency
  • Engage an energy management expert to advise on energy efficiency and possible energy- efficient investments to undertake.
  • Maintain proper records on energy costs to establish past trends and predict the future
  • Support the use of renewable energy such as Solar PV, use of Biogas to reduce overreliance on grid energy. This comes with low costs compared to the grid costs
  • Consider alternative models of Financing where the organization has constraints in raising the initial investment such as the ESCO model. In this Model, the ESCO company Implements the energy efficient project and you only get to pay back with the energy savings obtained from such project