Flexible Budgeting Meets Sustainability at Bacardi Limited: This Article Is Based on a Study Funded by the IMA[R] Research Foundation

Article excerpt

Bacardi Limited excels at innovation. One of its latest creations is an innovative application of flexible budgeting to physical measures of sustainability performance to get a more accurate picture of that performance. This picture is important because the company is seeking to become as environmentally friendly as possible and is leading and participating in a number of initiatives to do so.

One of the world's largest spirits companies, the family-owned and privately held enterprise is headquartered in Hamilton, Bermuda (its Americas headquarters is in Coral Gables, Fla.); employs nearly 6,000 people; and operates 27 production facilities in 16 countries on four continents. It's also an active member of the Beverage Industry Environmental Roundtable (BIER), a consortium of leading global beverage companies and suppliers focused on resource protection, energy efficiency, and climate change mitigation.

In 2009, Bacardi Limited became the only major spirits company to attain certification with all of its production facilities globally achieving ISO 9001, ISO 14001, and OHSAS 18001 certifications. The company began setting aggressive operating goals for quality, environmental impact, and health and safety under a global platform launched in September 2009. The underlying platform aims to connect and align all employees across the globe behind one set of values, strategies, and common ways of working. The Bacardi values are trust, passion, caring, and excellence. This ongoing foundation makes environmental, health, and safety objectives integral to the operations of every site through the use of key performance indicators (KPIs). The company has published Corporate Responsibility Reports since fiscal year 2008, and in 2011 its report followed the Global Reporting Initiative G3 framework at a self-declared application level B.

Bacardi pays special attention to nonfinancial performance measures, which are growing in importance. For example, the IMA[R] Statement on Management Accounting (SMA) titled "The Evolution of Accountability--Sustainability Reporting for Accountants" raises this issue: "One of the greatest challenges the management accountant will face is creating metrics that provide insight into an organization's performance in the nonfinancial areas of the triple bottom line." Yet companies need new decision-making tools to analyze their sustainability performance and resulting impacts. Bacardi Limited leadership asked Stephen Harvey, its global director of environment, health and safety, to develop a single efficiency measure for each sustainability KPI. In 2009, Harvey successfully developed and began applying an innovative measurement methodology to three environmental aspects: water consumption, energy consumption, and greenhouse gas emissions. The methodology advances the company's sustainability efforts through an application of the principles of activity-based flexible budgeting to produce indices of improvement (efficiency metrics) for sustainability KPIs based on physical quantities rather than monetary amounts. The new metrics have transformed the way Bacardi measures progress in meeting its key sustainability objectives, and they represent an innovative best practice for management control and for external reporting. The methodology can be readily understood by management, and it provides an avenue for management accountants to participate in the analysis and reporting of physical sustainability measurements. Consistent with many companies that begin the sustainability measurement journey, management accountants haven't been significantly involved in the Bacardi measurement process. But considering that the process is built on flexible budgeting principles, management accountants have an opportunity to significantly contribute to sustainability efforts by discussing the activity-based flexible budgeting approach outlined in this article with those charged with enhancing the organization's sustainability efforts. …