Enhancing Public Health and Safety Through Laboratory Cost Accounting

1. Protecting the air we breathe, the water we drink, and the soil that nourishes us Enhancing Public Health and SafetyThrough Quality Testing and Engineering Cost Accounting in the Laboratory C. Bruce Godfrey, Ph.D. bgodfrey@montrose-env.com ACIL Annual Meeting October 3, 2019

2. Antitrust Statement In todays presentation, there shall be no discussion of: current or future prices of services; price lists or procedures for coordinating price changes, sales quotas, allocation or division of territories or clients; boycotting any party or denying any party access to markets, products, or information; commercial practices of competitors or clients; anything dealing with trade abuses or excluding or controlling competition.

3. State of the Testing Industry The US testing industry US has changed markedly over the last decade. Consolidations Closures Multinationals New entries & spaces

4. Consequences Increasing, relentless competition Pricing pressures Increased potential for “unacceptable” laboratory practices Destabilizing public and private sector laboratories Unsustainable operations at many small environmental labs Lab users are beneficiaries of reduced measurement costs. For some lab businesses.. a philosophy of survival!

5. What to Do ? Stop believing that market pricing is the only cost accounting needed. A simplistic belief that sustains downward pricing pressure Use knowledge of the true cost of tests and analyses to inform and make pricing decisions.

6. Cost Modeling Components Fixed Costs RUM: rent, Utilities & Maintenance SG&A: Selling, General & Administrative Variable Costs Batch Size and QC Sample Frequency Direct Material Costs Sampling media, solvent, supplies Labor Including taxes, benefits, etc..

7. Pricing vs Costs Pricing below cost is dangerous. “Market Memory” raising prices is difficult. Labs have implemented most if not all of the available process efficiencies. Size matters- Larger labs are more efficient, most are well managed

8. Solutions Sophisticated accounting and/or LIMS assist in developing accurate cost data. Costing models are as accurate as the assumptions and data inputs allow Mangers must carefully review the models used, laboratory environment is dynamic. The loss or transfer of one (or part of one) analyst can dramatically change your costs of a test. Changing technology and methods change costs, (small volume extraction example)

9. Direct Cost Model Spreadsheet model incorporating labor rates by type of personnel, time allocated to specific lab activities, cost of reagents, supplies and equipment Converts Specified Labor Time to cost $ Shows the affect of batch size on per sample costs Does not account for RUM, Cost of Sales, or Lab Management Allows variable number of QC samples per batch. As presented, the spreadsheet allows 4: Blank, MS/MSD, & LCS Provides a cost number assumed to be the lowest cost possible, below which the lab is sure to loose money.

10. Initial/Project Data Collection

11. Summary of Costs

12. Indirect Costs

13. Direct Costs

14. Simple Spreadsheet Model