Module 1

Today a greater attention is given to the environmental analysis as it is an essential prerequisite

for a successful business journey. But prior to that we should look into the term ‘business’. In the
lay man’s language “business is an activity through which one earns profit”. According to
Prof. L.H. Hanney, “Business means human activity directed towards producing or acquiring
wealth through buying and selling goods”. But this definition does not cover certain rules and
regulations framed by the government from time to time to regulate the business activities.

K. Ashwathappa defines the business that “It is a complex field of commerce and industry in
which goods and services are created and distributed in the hope of profit within a framework of
laws and regulations”. Thus business is an economic activity performed by human connected
with the production and exchange of goods and services with a profit motive under the laws and
regulations of the country.

Business environment can be classified into two major categories: the economic environment
and the non-economic environment. The economic environment consists of factors like the fiscal
policy, the monetary policy, the industrial policy, the physical limits on output, the price and
income equation, nature of the economic system, the pace of the economic development, etc.

The non-economic environment refers to social, cultural and political, legal, technological
factors, etc. Despite this segregation, the economic environment has economic implications. In
today's business environment, considerable sell and dexterity is required in adjusting, coping
with and managing the environment of business. This becomes more so due to the changing
nature of today's business context.

Business environment refers to all factors that have a direct or indirect bearing on the functioning
of the business. Every business firm encounters with a set of internet and external factors. The
internal environment consists of the factors which influence the various strategies and decisions
which happen within an organization’s boundaries. These factors include human resources,
company image, management structure, physical assets, technological capabilities, marketing
resources, and financial factors. The external environment comprises of micro and macro
environmental factors. Micro environment is just and immediate environment of the firm which
include suppliers, consumers, competitors, intermediaries and publics. These factors are
generally regarded as controllable factors because the organization commands control over these
factors and can modify or alter as per the requirements of the organization.

The businessmen must monitor the major macro environmental factors which include
demographic, economic, political/legal, technological and social/cultural factors. In the

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demographic environment, marketers must be aware of growth of population, composition of
age, educational levels and geographic shifts in population. In the economic arena, they need to
focus on per capita income, distribution of income, saving pattern and credit availability etc. In
the technological factors, accelerating pace of technological changes, opportunities for
innovation and increased regulations of the government towards adopting technology are the
main concerns to be monitored. In the political/legal factors, businessmen must work within the
laws and regulations so as to protect their as well as society’s interest. Finally, in the
social/cultural environment, marketers must understand the prevalent culture and its nature and
must address the needs of different subcultures within a society. A continuous and vibrant
monitoring of the environment is indispensable for business growth. The environment in which
an organization exists could be broadly divided into two parts : external and internal
environment. We began by aging an understanding of the concept of environment. This is done
through a description of four important characteristics of the environment leading its
external and internal parts.

We see how the external environment, especially that part which is more relevant to an
organization can be divided into different components. For the purpose of understanding and
analysis we have discussed many components of the external environment - social, political,
economic, regulatory, market, supplier and technological. For each component we have
explained through appropriate illustrations, the type of factors and influences which operate in
that part of the environment. The significance of these factors for the strategic management of
the organization has also been highlighted.

Organizational strategic capability could be understood in terms of strengths and weaknesses

existing in the different functional areas of an organization. We have considered five such areas -
finance, marketing, operations, personnel and general management. For each of these, we have
mentioned the important factors influencing them and through examples clarified the nature of
the various functional capability factors.

Environmental analysis is a crucial part of the strategic management process. If the environment
is ignored (or partially ignored) by strategic decision makers, the process cannot be effective.
Effective strategists try to anticipate what is coming or attempt to influence the environment in
favourable directions.

The environmental strategic analyst interrelates with the formation of objectives, the generation
of alternative strategies and the other aspects of strategic management.

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CONSTITUENTS OF BUSINESS ENVIRONMENT
Every business firm consists of a set of internal factors and it also confronts with a set of
external factors. The present figure gives you a more clear and comprehensive picture about the
different factors.

Internal Environment
There are number of factors which influence the various strategies and decisions within the
organization’s boundaries. These factors are known as internal factors and are given below :

(a) Human Resources : It involves the planning, acquisition, and development of human
resources necessary for organizational success. It points out that people are valuable resources
requiring careful attention and nurturing. Progressive and successful organizations treat all
employees as valuable human resources. The organization’s strengths and weaknesses is also
determined by the skill, quality, morale, commitment and attitudes of the employees.
Organizations face difficulties while carrying out modernizations or restructuring process by the
resistance of employees. So, the issues related to morale and attitudes should seriously be
considered by the management. Moreover, global competitive pressures have made the skillful
management of human resources more important than ever. The support from the different levels
of employees support the management in the different decisions and their implementations.

(b) Company Image : One company issues shares and debentures to the public to raise money
and its instruments are over subscribed while the other company seeks the help of different
intermediaries like underwriters to generate finance from the public. This difference underlies
the distinction between the images of the two companies. The image of the company also matters
in certain other decisions as well like forming joint ventures, entering contracts with the other
company or launching of new products etc. Therefore, building company image should also be a
major consideration for the managers.

(c) Management Structure : Gone are the days when business was carried out by the single
entrepreneur or in the formation of partnerships. Now it has reshaped itself into the formation of
company where it is run and controlled by the board of directors who influence almost every
decision. Therefore, the composition of board of directors and nominees of different financial
institutions could be very decisive in several critical decisions. The extent of professionalisation
is also a crucial factor while taking business decisions.

(d) Physical Assets : To enjoy economies of scale, smooth supply of produced materials, and
efficient production capacity are some of the important factors of business which depends upon
the physical assets of an organization. These factors should always be kept in mind by the
managers because these play a vital role in determining the competitive status of a firm or an
organization.

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(e) R & D and Technological Capabilities : Technology is the application of organized
knowledge to help solve problems in our society. The organizations which are using appropriate
technologies enjoy a better competitive advantage than that of their competitors. The
organizations which do not possess strong Research and Development departments always lag
behind in innovations which seems to be a prerequisite for success in today’s business.
Therefore, R & D and technological capabilities of an organization determine a firm’s ability to
innovate and compete.

(f) Marketing Resources : The organizations which possess a strong base of marketing resources
like talented marketing men, strong brand image, smart sales persons, identifiable products,
wider and smooth distribution network and high quality of different services, make an effortless
inroads in the target market. The companies which are having so strong basis can also enjoy the
fruits of brand extension, form extension and new product introduction etc. in the market.

(g) Financial Factors : The performance of the organization is also affected by the certain
financial factors like capital structure, financial position etc. Certain strategies and decisions are
determined on the basis of such factors. The ultimate survival of organizations in both the public
and private sectors is dictated largely by how proficiently available funds are managed. So, these
were some of factors related to the internal environment of an organization. These factors are
generally regarded as controllable factors because the organization commands control over these
factors and can modify or alter as per the requirement of the organization.

External Environment
Companies operate in the external environment that forces and shape opportunities as
well as threats. These forces represent “noncontrollable”, which the company must monitor and
respond to. SWOT (Strengths, weaknesses, opportunities and threats) analysis is very much
essential for the business policy formulation which one could do only after examination of
external environment. The external business environment consists of macro environment and
micro environment.

Micro Environment :
The company’s immediate environment where routine activities are affected by the
certain actors. Suppliers, marketing intermediaries, competitors, customers and the publics
operate within this environment. It is not necessary that the micro factors affect all the
firms. Some of the factors may affect a particular firm and do not disturb to the other ones. So, it
depends that to what type of industry a firm belongs. Now let’s discuss in brief some of the
micro environmental factors.

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(a) Suppliers : The supplier to a firm can alter its competitive position and marketing capabilities.
These can be raw material suppliers, energy suppliers, suppliers of labour and capital. The
relationship between suppliers and the firm epitomizes a power equation between them. This
equation is based on the industry conditions and the extent to which each of them is dependent
on the other. For the smooth functioning of business, reliable source of supply is a prerequisite.
If any kind of uncertainties prevail regarding the supply of the raw materials, it often compels to
a firm to maintain a high inventory which ultimately leads to the higher cost of production.
Therefore, dependence on a single supplier is a risky venture. Because of the sensitivity of the
issue, firm should go to develop relations among the different suppliers otherwise it could
lead to a chaotic situation. Simultaneously firms should reduce the stock so as to reduce the
costs.

(b) Customers : According to Peter F. Drucker “the motive of the business is to create
customers”, because a business survives only due to its customers. Successful companies
recognize and respond to the unmet needs of the consumers profitably and in continuous
manner. Because unmet needs always exist, companies could make a fortune if they meet those
needs. For example it is the era when we could witness the increasing participation of women in
the different jobs which has already given birth to the child care business, increased consumption
of different durable items like microwave ovens, washing machines and food processors etc. A
firm should also target the different segments on the basis of their tastes and preferences because
to depend upon a single customer is often risky. So, monitoring the customer sensitivity is a pre
condition for the success of business.

(c) Competitors : A firm’s products/services are also affected by the nature and intensity of
competition in an industry. A firm should extend its competitive analysis to include substitutes
also besides scanning direct competitors. The objective of such an analysis is to assess and
predict each competitors response to changes in the firm’s strategy and industry conditions. This
kind of analysis not only ensures the firm’s competitive position in the market but also
able to pick up as its major rival in the industry. Besides the existing competitors, it is also
necessary to have an eye on the potential competitors who may join the industry although
forecasting of such competitors is a difficult task. Thus an analysis of competition is critical for
not only evolving competitive strategy but also for strengthening a firm’s capabilities.

(d) Marketing Intermediaries : Marketing intermediaries provide a vital links between the
organization and the consumers. These people include middlemen such as agents or brokers who
help the firm to find out its customers. Physical distribution firms such as stockiest or warehouse
providers or transporters ensure the smooth supply of the goods from their origin to the final
destination. There are certain marketing research agencies which assist the organization in
finding out the consumers so that they can target and promote their products to the right
consumers. Financial middlemen are also there who carry out to finance the marketing activities

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such as transportation and advertising etc. A firm should ensure that the link between
organization and intermediaries is appropriate and smooth because a wrong choice
of the link may cost the organization heavily. Therefore, a continuous vigil of all the
intermediaries is a must.

(e) Publics : an organization has to confront with many types of publics during its life time.
According to Cherrunilam “A public is any group that has an actual or potential interest in or
impact on an organization’s ability to achieve its interests”. The public includes local publics,
media publics and action groups etc. The organizations are affected by the certain acts of these
publics depending upon the circumstances. For example if a business unit is establishment in a
particular locality then it has to provide employment to the localites at least to the unskilled
labour otherwise local group may harm to that very business or they will interrupt the
functioning of the business. The media public has also to be taken into confidence because some
time they tarnish the image of the organization unnecessarily. Simultaneously media public may
disseminate vital information to the target audience. Action groups can also create hindrances in
the name of exploitation of consumers or on the issue of environmental pollution. The business
suffers due to their activities. Therefore, their concern should also be kept in mind. Albeit, it is
wrong to think that all publics are threats to the business yet their concerns should be considered
up to a certain level.

Macro Environment :
With the rapidly changing scenario, the firm must monitor the major forces like
demographic, economic, technological, political/legal and social/cultural forces. The business
must pay attention to their casual interactions since these factors set the stage for certain
opportunities as well as threats. These macro factors are, generally, more uncontrollable than the
micro factors. A brief discussion on the important macro environmental factors are given below:

(a) Demographic Environment : The first macro environmental factor that businessmen monitor
is population because business is people and they create markets. Business people are keenly
interested in the size and growth rate of population across the different regions, age distribution,
educational levels, household patterns, mixture of different racial groups and regional
characteristics. For determining the success of the business and to sustain in the market,
incessant watching of these demographic factors is a prerequisite. To enter into a particular
segment, a marketer needs to understand the age composition in that very segment so as to
decide the optimal marketing mix and also take certain strategic decisions related to it. For
example, if the youth form a large proportion of the population, it is but natural for firms
to develop their products according to the requirement of this group. Besides the age, it is also
necessary to break up population according to sex-wise and also the role of women. Today we
can observe that more and more women have taken to work and professions and hence it can be
seen that many time saving appliances are available in the market. Each gender group has

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different range of product and service needs and media and retail preferences, which helps
marketers fine-tune their market offers. There is yet another dimension of population changes
which a businessman needs to address. For example, occupation and literacy profile of the
targeted segment. The higher literacy level will imply a more demanding consumer as he is in
the touch of the various media which acquaint him with many information on the other hand low
literacy make the marketers look for other method of communication. The occupation of the
population also affects the choice of the products range and media habits. Any significant
moves of the population from one area to another, rural to urban, is another important
environmental factor which determines the marketing attention. For example, the movement
from north-India to South-India will reduce the demand for warm clothing and home heating
equipment on the one hand and will increase the demand for air conditioning on the other hand.
So, the companies that carefully analyze their markets can find major opportunities.

(b) Economic Environment : Besides people, markets require purchasing power and that depends
upon current income, savings, prices, debt and credit facilities etc. The economic environment
affects the demand structure of any industry or product. The following factors should always be
kept in mind by the business people to determine the success of the business.
(i) Per capita income
(ii) Gross national product
(iii) Fiscal and monitory policies
(iv) Ratio of interest changed by different financial institutions
(v) Industry life cycle and current phase
(vi) Trends of inflation or deflation
Each of the above factors can pose an opportunity as well as threat to a firm. For
example, in a developing economy, the low demand for the product is due to the low income
level of the people. In such a situation a firm or company can not generate the purchasing
power of the people so as to generate the demand of the products. But it can develop a low priced
product to suit the low income market otherwise it will be slipped out from the market. Similarly,
an industry gets a number of incentives and support from the government if it comes under the
purview of priority sector whereas some industries face tough task if they are regarded as
inessential ones.

In the industry life cycle, timing is every thing when it comes to making good cycle-sensitive
decisions. The managers need to make appropriate cutbacks prior to the onslaught of recession
because at that time sales is bound to decline which leads to increasing inventories and idle
resources and that is costly situation. On the other hand, business people cannot afford to get
caught short during a period of rapid expansion. This is where accurate economic forecasts are a
necessity and therefore, a manager must pay careful attention to the major economic changes.

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(c) Technological Environment : Technology is a term that ignites passionate debates in many
circles these days. According to some people technology have been instrumental for
environmental destruction and cultural fragmentation whereas some others view that it has been
the main cause to economic and social progress. But no doubt it has released wonders to world
such as penicillin, open-heart surgery, family planning devices and some other blessings like
automobile, cellular phones and internet services etc. It has also been responsible for hydrogen
bomb and nerve gas. But the businesses that ignored technological developments, had to go from
the world map. For example, in India, cars like Ambassador and Premier had to go from the
scene because of obsolete technology. Likewise, containerized movement of goods, deep
freezers, trawlers fitted with freezers etc. have affected the operations of all firms including those
involved in seafood industry. Now it has been ensured that perishable goods can be transported
in a safer manner. Explosion in information technology have made the position of some firms
vulnerable. The life cycle of the products have reduced and expectations of the consumers are
becoming higher and higher due to all these technological changes. But to cope up with this kind
of scenario, a continuous vigil of the happenings and adequate investment on R & D department
is to be earmarked by the marketer. Marketers must also be aware of certain government
regulations while developing and launching new products with latest technological innovations.

(d) Political/Legal Environment : Business decisions are strongly affected by developments in

the political and legal environment. This environment is consists of laws, regulations and
policies that influence and limit various organizations. Sometimes these laws create opportunities
for the business but these also pose certain odds or threats at the other time. For example, if the
government specifies that certain products need mandatory packaging then it will boost the
cardboard and packaging companies but it will add to the cost of the product. Regulations in
advertising, like a ban on advertisement of certain products like liquor, cigarettes and pan
masalas and hoarding of food products, gas and kerosene are the reality of today’s business.
Business legislations ensure specific purposes to protect business itself and the society as well
like unfair competitions, to protect consumers from unfair business practices and to protect the
interest of the society from unbridled business behaviour. In India business is regulated through
certain laws like Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), Foreign
Exchange and Regulation Act, 1973 (FERA), Partnership Act 1932, Consumer Protection Act,
1986 (CPA), and Companies Act, 1956 etc. A businessman needs to understand the various
policies and political ideologies because these things have a profound impact on the functioning
and success of the business.

(e) Social-cultural Environment : Society shapes the beliefs, values, norms, attitudes, education
and ethics of the people in which they grow up and these factors exercise a great influence on the
businesses which by far are beyond the company’s control. All these factors are classified as
social-cultural factors of the business. The buying and consumption pattern of the people are

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very much determined by these factors and cost of ignoring the customs, tastes and preferences
etc. of the people could be very high for a business. Consumers depend on cultural prescriptions
to guide their behaviour, and they assume that others will behave in ways that are consistent with
their culture. Culture unites a group of people in a unique way and support the group’s unity. As
consumers, people expect that businessman will deliver according to the values, customs and
rituals of the existing culture. As the business is going global day by day and the world is at the
verge of ‘global village’ the need for developing understanding cultural differences has become
an essential element to survive in such a scenario.

Therefore, the marketers who wish to be the part of the ongoing process need to understand the
process of acculturation so that they can develop ways to handle the consumers of different
cultures. People’s attitudes toward business is also determined by the culture. What is right and
what is wrong are basic to all businesses and for doing or not doing a particular work is judged
on the basis of prevalent culture and also determines certain ethical code of conduct.

Despite the pervasive nature of culture, not all the people within a society think, feel, and act the
same way. Every society has subcultures-group of people that share values but exhibit them in
different ways. Within a society such as the India, there are the different tastes and preferences of
the different starta like a Punjabi or a north Indian has altogether different preferences then that
of a South Indian in the name of certain products especially in case of food and clothing and the
shrewd marketers have always capitalized on this kind of opportunities. Hence, a thorough
understanding of social-cultural environment is imperative to be successful.

Environmental Analysis
Environmental analysis is a strategic tool. It is a process to identify all the external and internal
elements, which can affect the organization’s performance. The analysis entails assessing the
level of threat or opportunity the factors might present. These evaluations are later translated into
the decision-making process. The analysis helps align strategies with the firm’s environment.
Our market is facing changes every day. Many new things develop over time and the whole
scenario can alter in only a few seconds. There are some factors that are beyond your control.
But, you can control a lot of these things.
Businesses are greatly influenced by their environment. All the situational factors which
determine day to day circumstances impact firms. So, businesses must constantly analyze the
trade environment and the market. There are many strategic analysis tools that a firm can use, but
some are more common. The most used detailed analysis of the environment is the PESTLE
analysis. This is a bird’s eye view of the business conduct. Managers and strategy builders use
this analysis to find where their market currently. It also helps foresee where the organization
will be in the future.

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PESTLE analysis consists of various factors that affect the business environment. Each letter in
the acronym signifies a set of factors. These factors can affect every industry directly or
indirectly.
The letters in PESTLE, also called PESTEL, denote the following things:
 Political factors  Technological factors
 Economic factors  Legal factors
 Social factors  Environmental factor
Often, managers choose to learn about political, economic, social and technological factors only.
In that case, they conduct the PEST analysis. PEST is also an environmental analysis. It is a
shorter version of PESTLE analysis. STEP, STEEP,STEEPLE, STEEPLED, STEPJE and
LEPEST: All of these are acronyms for the same set of factors. Some of them gauge additional
factors like ethical and demographical factors.

P FOR POLITICAL FACTORS

The political factors take the country’s current political situation. It also reads the global political
condition’s effect on the country and business. When conducting this step, ask questions like
“What kind of government leadership is impacting decisions of the firm?”
Some political factors that you can study are:
 Government policies  Stability of government
 Taxes laws and tariff  Entry mode regulations

E FOR ECONOMIC FACTORS

Economic factors involve all the determinants of the economy and its state. These are factors that
can conclude the direction in which the economy might move. So, businesses analyze this factor
based on the environment. It helps to set up strategies in line with changes.
 The inflation rate  Unemployment rates
 The interest rate  The monetary or fiscal policies
 Disposable income of buyers  The foreign exchange rate
 Credit accessibility

S FOR SOCIAL FACTORS

Countries vary from each other. Every country has a distinctive mindset. These attitudes have an
impact on the businesses. The social factors might ultimately affect the sales of products and
services.
Some of the social factors you should study are:
 The cultural implications

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  The gender and connected  The domestic structures
demographics  Educational levels
 The social lifestyles  Distribution of Wealth

T FOR TECHNOLOGICAL FACTORS

Technology is advancing continuously. The advancement is greatly influencing businesses.
Performing environmental analysis on these factors will help you stay up to date with the
changes. Technology alters every minute. This is why companies must stay connected all the
time. Firms should integrate when needed. Technological factors will help you know how the
consumers react to various trends.
Firms can use these factors for their benefit:
 New discoveries  Rate of technological advances
 Rate of technological obsolescence  Innovative technological platforms

L FOR LEGAL FACTORS

Legislative changes take place from time to time. Many of these changes affect thebusiness
environment. If a regulatory body sets up a regulation for industries, for example, that law would
impact industries and business in that economy. So, businesses should also analyze the legal
developments in respective environments.
I have mentioned some legal factors you need to be aware of:
 Product regulations  Patent infringements
 Employment regulations  Health and safety regulations
 Competitive regulations

E FOR ENVIRONMENTAL FACTORS

The location influences business trades. Changes in climatic changes can affect the trade. The
consumer reactions to particular offering can also be an issue. This most often affects agri-
businesses.
Some environmental factors you can study are:
 Geographical location  Energy consumption regulation
 The climate and weather  People’s attitude towards the
 Waste disposal laws environment
There are many external factors other than the ones mentioned above. None of these factors are
independent. They rely on each other.
If you are wondering how you can conduct environmental analysis, here are 5 simple steps you
could follow:

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 1. Understand all the environmental factors before moving to the next step.
2. Collect all the relevant information.
3. Identify the opportunities for your organization.
4. Recognize the threats your company faces.
5. The final step is to take action.
It is true that industry factors have an impact on the company performance. Environmental
analysis is essential to determine what role certain factors play in your business. PEST or
PESTLE analysis allows businesses to take a look at the external factors. Many organizations use
these tools to project the growth of their company effectively.
The analyses provide a good look at factors like revenue, profitability, and corporate success. If
you want to take the right decisions for your firm, employ environmental analysis. The analysis
you should conduct depends on the nature of your company.

ENVIRONMENTAL AUDIT
Case study; A company has reportedly established a soft-drink manufacturing unit in Kerala. By
2002, the unit has not only begun dumping foul smelling waste slurry on the nearby land, but
also succeeded in contaminating the water to the extent that it turns white on boiling and is unfit
for drinking, washing or even bathing. Over 1000 families have been affected in the surrounding
villages within a radius of 5 kms., of which a quarter are adivasis. It is also reported that the
tribals in that area protesting peacefully demanding that the factory from which over 39 lakh ml
of beverages are crated out daily, be closed down. The slurry was earlier sold as fertilizer to ill-
informed farmers. Later, as buyers turned wiser, it was given off free. Now, it is dumped
forcibly. Source :Hindustan Times
Introduction :
Organizational response to the environment and the role of the accounting profession for
the environmental protection are fairlyrecent developments.Environmental issues are business
issues and have considerableimplications for audit in all its semblance leading to a
separatespecialized area viz., environmental auditing. It is seen as an essential element in any
organizations environmental response. In view of their core competencies in the field of auditing,
chartered accountants can play a significant role in the environmental protection - which is one
of the essential objectives of the environmental auditing. .
Definition & Meaning
The Confederation of British Industry has defined environmental auditing as “the
systematic examination of the interactions between any business operation and its
surroundings.”This includes all emissions to air, land and water; legal constraints; the effects on
the neighboring community, landscape and ecology; the public perception of the operating
company in the local area -Environmental audit does not stop all compliance with legislation.Nor

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is it a „green-washing‟ public relations exercise…. Rather it is a total strategic approach to the
organizations activities.
Article 2(f) of the European Union Eco Management And Audit Scheme defines EA as
“A management tool comprising a systematic, documented, periodic and objective
evaluation of how well environmental organization, management and equipment are performing
in the aim of helping to safeguard the environment by facilitating management and control of
environmental practices, assessing compliance with company policies, which would include
meeting regulatory requirements”.
Why Environmental Audit
Business can assess the environmental impact of their operations. Corporate decisions are
spoiling company‟s market for its products, destroying the source of essential supply, damaging
or polluting the very infrastructure that makes usage and demand of the product grow. EA can
highlight areas of inefficiencies in process. e.g. where the amount of resources used are out of
proportion to the amount of saleable items/services produced. It can highlight excessive wastes.
It can provide opportunity for business to decrease its wastes output and reduce the cost of waste
treatment or waste disposal
EIA goals
• Environmental Impact Assessment is a tool designed to identify and predict the impact of a
project on the bio-geophysical environment and on mans health and well-being, to interpret and
communicate information about the impact, to analyze site and process alternatives and provide
solutions to sift out, or abate/mitigate the negative consequences on man and the environment.
• The EIA is a means of avoiding environmental disturbances that are always much more
expensive to correct after their occurrence than before. It is also important to underline that very
few projects have been deemed not viable merely because of the cost of pollution control and
that modern environmental control, in a new plant, is less than 3% of the initial investment.
• The environmental issues must be addressed as soon as possible during project planning. There
should not be any hesitation in abandoning a project or a process at an early stage, or in
proposing alternatives to any project which would have very detrimental impact on the
environment. In the same way as economic, financial, institutional, or technical analyses, EIA is
an integral part of the project.
Steps for EA Audit
The International Chamber of Commerce presents the different steps of an EA as
follows:
• Pre-audit activities: which include: – Selection and scheduling of facility to audit, –
Selection of audit team, – Contact with facility and planning of the audit.
• Site activities: which are divided into 5 steps: – First understanding of internal controls,
– Assessment of internal controls, – Gathering of audit evidence, – Evaluation of audit findings,
– Report of findings to facility.

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 • Post audit activities: which include: – Production of a draft report, – Production of a
final report, – Preparation and implementation of an action plan, – Monitoring of action plan.
Scope of EA
1. Material Audit : The thrust areas of material audit is the effective utilization of materials,
conservation of materials and minimizing wastages in different processes.
2. Energy Audit : It deals with overall energy consumption, minimizing pollution etc.
3. Water Audit : Evaluation of raw water intake facilities and evaluation of water treatment
facilities.
4. Health and Safety Audit : Health and safety measures are examined e.g. occupational diseases,
compliance with labour laws, adequacy of safety measures etc.
5. Environmental Quality Audit : It examines noise level, status of existing air quality, review of
greening program undertaken by the enterprise, Installation and functioning of anti pollutant
equipment.
6. Water Disposal Audit : Review of waste disposal measures relating to solid and hazardous
wastes, recycling etc.
7. Engineering Audit : It analyses the aspect relating to efficiency of plant and machinery,
engineering designs, cost effective methods of production etc.
Benefits
• Facilitating comparison and interchange of information between operation or plants
• Increasing employee awareness of environmental policies and responsibilities,
• Identifying cost-savings including those resulting from waste minimization,
• Evaluating training programmes and providing data to assist in training personnel,
• Providing an information base for use in emergency response arrangements,
• Assuring an adequate, up-to-date environmental database for internal management awareness
and decision making in relation to plant modifications, new plans, etc.,
• Helping to assist relations with authorities by convincing them that complete and effective
audits are being undertaken, by informing them of the type of procedure adopted.
Environmental Audit : Indian Status
In India there is no Statutory requirement for EA in Corporate sector or in the
Government sector. Few private sector companies like TISCO,ITC are periodically conducting
EA.
• In India a procedure for EA was first notified under the Environment Protection Act in
1986 by the Ministry of Environment of Forests.• This notification requires submission of an “
Environmental Audit Report” or statement to the concerned state Pollution Board
• As per the Indian Companies Act, 1956, details relating to energy consumption/energy
conservation are presented in the Director‟s Report as annexure and it highlights the
environment related policies/problems.

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