Hidden Business Costs: Where Are Money and Resources Being Lost?

CERMA Knowledge Hub | Circular Economy in Practice

As a rule, a business knows exactly how much it spends on raw materials, energy, water, packaging or transport. However, a more important question often goes unnoticed: what share of the resources purchased creates real value, and what share is lost along the way, coming back to the company as an additional cost?

Rejected products, unused raw materials, excess stock, food waste, unnecessary packaging, inefficient transport or excessive water and energy use may be perceived as a normal part of day-to-day operations. In reality, each of them hides a concrete financial and resource loss.

The real cost of waste is not just the price of removing it

Imagine a company that bought 100 kg of raw material but used only 90 kg in production. If the remaining 10 kg was lost as rejected products, offcuts or other waste, the company lost more than the money paid for the material. The loss also includes the value added to the material at the various stages of production. That is why it is important to know not only how much waste a business generates, but also how much that loss really costs.

This can be assessed using Material Flow Cost Accounting (MFCA) — the accounting of material flows and costs defined by the international standard ISO 14051. The company tracks how many resources it uses, what share is turned into product, what share is lost, and then calculates the real value of that loss. This makes visible the costs that may not show up as a separate problem in ordinary accounts.

Where should we look for losses?

1. In raw materials and production

Offcuts, defects, damaged material, incorrect dosing or raw material left over during production can all be sources of financial loss. That is why the question “how much waste do we have?” is not enough. It is more important to know: what share of the raw material purchased became a saleable product? If a company used 10 tonnes of material in a month but only 8.5 tonnes ended up in the final product, the remaining 1.5 tonnes deserves investigation — where was it lost, why, and could it have been avoided? Answering such questions often reveals practical ways to manage resources more sustainably.

2. In energy and water consumption

If energy and water are spent on a product that is later rejected, damaged or unsold, the value of the resources used to produce it is lost too. So, in addition to the total bill, it is useful to know how much energy and water is used to produce one unit of product. If production volume stays the same but this indicator rises, the cause of inefficiency should be sought in the process.

3. In inventory and purchasing

Expired products, overstocked raw materials, damaged goods or materials that sit unused for months are effectively frozen money. To begin with, one question is enough: what do we have in the warehouse that we haven’t used in the last 6–12 months? Then it is worth calculating how much money is tied up in that stock.

4. Everyday food loss

In hotels and restaurants, this problem is especially visible. Research by WRAP (the Waste and Resources Action Programme) and the World Resources Institute (WRI) showed that hotels gained an average economic benefit of 7 dollars for every 1 dollar invested in reducing food waste.

The reason is simple: the value of discarded food is not limited to its purchase price — the resources used to store, prepare and serve it are an additional cost. If the food eventually becomes waste, part of those costs has also been wasted, so reducing waste lowers several costs at once.

Practical change starts with measurement. For one week, a restaurant can separately record how much food is lost during preparation, how much spoils in storage and how much is left on guests’ plates. The cause then becomes clearer: are portions too large? Is more being prepared than needed? Are purchases poorly planned? Is a particular dish often left over? Such records show a business where its approach needs to change.

A simple practice: measure losses for one week

Choose one specific process — a production line, a kitchen, a warehouse, a packaging process or an office — and observe it for one week. Record how many resources you use and what share is used as intended. Separately note what was left over, spoiled, damaged or turned into waste.

Then look for the cause: was it unnecessary purchasing, poor planning, a technical fault, improper storage, oversized portions or another factor? Finally, calculate the real value of the loss. Don’t rely only on the cost of waste removal — take into account the money paid for the resource itself and the additional costs of its transport, storage, processing and waste management. Even a seemingly small loss can add up to a significant cost over a year.

Could your waste be someone else’s resource?

Not every loss can be avoided, but leftover material is not always waste. Wood waste, textile offcuts, used packaging, organic material, construction waste or production by-products can sometimes turn out to be a resource another company needs. This approach is called industrial symbiosis: material or by-products unused by one company become a resource for another. “How do we get rid of this waste?” is not always the best question. Sometimes it is more important to ask: could what is surplus for us be needed by someone else?

Five questions every business should ask itself

• Which resource do we spend the most on, and do we know what share of it is lost?
• Which loss have we become so used to that we no longer investigate its cause?
• Where are we paying twice — first to buy a resource and then to get rid of it?
• What do we have in the warehouse that we paid for but no longer use?
• Could our unused material be a resource another business needs?

The circular economy does not always start with a large investment or the purchase of new technology. Often the first step is much simpler — seeing where we are losing what we have already paid for. When a business measures the flow of materials, energy and other resources, losses become visible. And a visible loss is a manageable cost. This is where the most practical ways to manage resources more sustainably, cut costs and create new business opportunities can emerge.

Sources:

• International Organization for Standardization (ISO) — ISO 14051:2011, Environmental management — Material flow cost accounting — General framework.
• International Organization for Standardization (ISO) — ISO 14053:2021, Environmental management — Material flow cost accounting — Guidance for phased implementation in organizations.
• WRAP / Champions 12.3 — The Business Case for Reducing Food Loss and Waste: Hotels.
• World Resources Institute (WRI) / WRAP — business cases on reducing food loss and waste.

Note: This publication was prepared on the basis of international sources and practical business approaches and adapted by CERMA.