Analysing costs in libraries

Citation

Poll, R. (2001), "Analysing costs in libraries", The Bottom Line, Vol. 14 No. 3. https://doi.org/10.1108/bl.2001.17014caf.001

Analysing costs in libraries

Analysing costs in librariesKeywords: Libraries, Cost management

AbstractLibraries today share the general demand for cost transparency and effective cost management. With the data they have traditionally collected, libraries can assess details about the costs of collection building; what they need now are reliable data about the costs of their services and products. The University and Regional Library Münster, together with two partner libraries, has tested activity-based costing in a project sponsored by the German Research Foundation. The project resulted in a handbook and software describing the method and helping libraries to introduce cost analysis. The paper shows the method of analysis, actual cost data that were assessed in the project, and the possible effects of cost analysis for management decisions.

Introduction

Why should we know the costs of our services? And what exactly should we know about them? Imagine some situations that recently occurred in our library and might have happened elsewhere.

1. 1.

   A newly founded polytechnic wants to use the library and information services of the existing university at the same place. In order to establish the conditions for a formal agreement, the Ministry of Science asks for the following data: What does the provision of literature and information cost per student in your university? Please include building depreciation, operating costs, staff costs and collection building. What does the same provision cost if you deduct special tasks that would not apply to the polytechnic (e. g. rare book department, archival and restoration services, exhibitions, services for departmental libraries)? You would need exact data about the total costs of each service.

2. 2.

   A group of libraries has joined an online delivery service. In order to determine fees, they want data about the costs of an online delivery (including staff costs and depreciation of equipment). This time you would need to know the costs of the single product. Could you answer?

Similar occasions occur regularly today. When introducing or enlarging services, thinking about outsourcing, or applying for funding, libraries need reliable data about the costs of their services and products.

The project

The Münster University and Regional Library had been involved in topics of performance measurement and quality management in libraries for a couple of years (Poll and te Boekhorst, 1996). We had developed a system of mission statements and three year goals, adequate performance indicators and regular user surveys. There was elaborate statistical data about collections and use. But we realised that effective management cannot stop with quality measures, but must include the question of cost-effectiveness. Services might be excellent, but too many resources might be spent on some services, narrowing the possibilities for change and development. Transparency of costs is needed for the library's politics as well as for the justification of costs to the funding institution.

The library therefore applied for a project of cost analysis in libraries and got the funding from the Deutsche Forschungsgemeinschaft (German Research Foundation). Partners in the project were the Düsseldorf University and Regional Library and the Paderborn University Library, both in the same region, so that contact was easy. The project started in April 1997 and finished with the handbook (including the necessary software) in July 1999 (Ceynowa and Coners, 1999). The project was supported by the faculty of economics in Münster and by a commercial firm that is well known for its role in cost accounting for service institutions.

After a review of existing cost analysis methods, experts and libraries decided on activity based costing as the best adapted for evaluating library products. Activity based costing was developed in the 1980s in the USA (Cooper and Kaplan, 1988; Johnson and Kaplan, 1987). The method was tested in the three project libraries and other interested libraries. The results of the project stages were widely published and got nearly too much publicity. While the handbook was still being written, the team in Münster was already involved in supporting cost analysis projects in different libraries.

Since last year, the project has been succeeded by a second one that will result in an all round controlling system for academic libraries, using the balanced scorecard. This time, the partners are the Bavarian State Library and Bremen State and University Library.

Cost analysis

What most libraries currently assess are the yearly data concerning income and expenditure of the library:

1. 1.

   Income

• •

  (from different sources)

1. 1.

   Expenditure:

• •

  on collection building and maintenance;

• •

  on automation;

• •

  on the operating of the library; and

• •

  on staff.

Very often these data are incomplete, because data such as costs of heating or data transmission are the responsibility of the institution and therefore unknown to the library, and depreciation of building, equipment and computer system are seldom included as yet.

What libraries count in these traditional statistics are "expenses", not "costs" and that means sums that appear on bills or payrolls. Costs, on the other hand, can be defined as the consumption of resources to acquire, produce or maintain goods and services within a defined period (a similar definition appears in various handbooks of economics).

A general overview shows the connection between services and costs: Services need Activities consume Resources cause Costs. Cost analysis in public service institutions such as libraries is affected by several problems.

The products of libraries are non-materialLibraries do not produce physical objects; they produce services. The production process cannot be separated from the product; production and delivery of a service coincide. A typical example in normal life would be hair cutting (service = product); the same applies to reference service.

Capacity costs are predominantLibraries must build up and maintain a huge potential for the delivery of services: qualified staff, collections, reading-rooms, etc. Most of the costs will not only occur in relation to the actual use of this potential, but independent of the number of uses.

Many costs are fixedIf circulation goes down, this will not immediately reduce the costs of the circulation department. It will need medium-term or even long-term planning to adapt the resources spent for a service to its use.

Cost accounting is a management information system that assigns costs to products and services created by the library. It comprises cost type accounting, cost centre accounting and cost unit accounting. The model of cost analysis can be summarised in one question: Which resources (cost type accounting) are consumed where (cost centre accounting) by which activities (activity based analysis) with what result (cost unit accounting)?

The different steps can be defined thus: cost type accounting, the ascertaining and calculation of all relevant cost factors of a library within an accounting period; cost centre accounting, the calculation of the costs of the various sections or departments of the library; cost unit accounting, the calculation of a single unit or performance of the library's products/services.

The overview in Figure 1 shows the method of assigning cost types to cost centres, then to processes or activities occurring in the cost centres, and lastly to the products or services.

Figure 1

Figure 2 demonstrates how the costs for one product (electronic document delivery) are composed of process costs originating in different cost centres or departments.

Figure 2

Cost type accounting

The first step – cost type accounting – will prove difficult the first time it is done:

• •

  Data may not be easily available. As the library is not autonomous, but in most cases part of an institution, many expenses are paid outside the library (e.g. heating, cleaning, telephone etc.) and must be collected from different sources.

• •

  Standards for depreciation differ between countries, often between institutions. In the project we have calculated the imputed depreciation allowances for building and inventory (equipment, facilities, hardware) according to the purchase costs, not the replacement costs (costs that would be needed to replace the asset at the end of the period of use). As libraries do not have an obligation to generate profits for financing replacements beforehand, using the purchase costs seems sensible. For calculating depreciation, we need the supposed time of use for assets. We have taken a standard time of 50 years for buildings, ten years for equipment, and four years for computer hardware.

• •

  Staff costs could be calculated in different ways. In most cases, it would be possible to get the data of the real costs. But the disadvantage is, that the data then would be influenced by the personal circumstances of the individuals. A cataloguing department with staff aged over 40 and each with several children would seem more expensive than one with young unmarried employees – although the job ranking is the same. Therefore, we propose that standardised average rates should be taken as a basis. Such standardised rates are in most cases available from the funding institutions.

Calculation of the total costs of a library allows a rough estimate of whether resources are spent where the library intends to spend them, whether costs are high or low compared to other libraries, in what direction certain cost types are developing within years, and the relation of fixed and variable costs.

The cost structure of the three project libraries shows – as might be expected – a majority of staff costs (Figure 3).

Figure 3

The list of cost types that was drawn up in our project (see Appendix 1) was tested with other libraries and proved reasonably comprehensive.

Cost centre accounting

For practical reasons, cost centre accounting should follow the existing organisational structure of the library: departments, working groups, etc. This facilitates the assignment of costs.

Cost centre accounting is most important, if the centres are budgeted and are responsible for their resources as well as their products. This might be the case in a separate undergraduate library or a printing and photocopying department. Usually, in academic libraries the high proportion of fixed costs and the cooperation of various cost centres in the production of services do not allow much space for cost management in a cost centre. But the step of assigning costs to cost centres is necessary for assessing the costs of the separate activities or processes.

Two forms of allocation have to be distinguished when assigning the library's total costs to its cost centres:

1. 1.

   Some costs can be registered exactly per cost centre, e.g. staff costs, telecommunication, travelling expenses.

2. 2.

   Others must be allocated by keys, e.g. depreciation or cleaning (per square metre), software maintenance (per PC).

The costs for collection building and collection maintenance have been dealt with differently in cost analysis. If there are separate subject departments that can be regarded as cost centres, collection costs for that subject can be allocated to them. It has even been proposed to fix depreciation periods for media, so that the yearly costs can be allocated according to the years of depreciation. We did not think it possible to fix dates of general uselessness for literature in a subject – and we do not think that it makes sense in a cost analysis of libraries. Libraries know the costs of media very well; what they must assess is the costs of their services.

In our method, the costs for collection building are allocated neither to cost centres nor to processes. The collection is regarded as the external factor with whose help services and products are produced. The services and products consist of collecting, offering and lending media – not of the media themselves.

In our library 44 cost centres were defined. Figure 4 shows broad groups of cost centres and their yearly costs.

Figure 4

Analysis of processes/activities

In this analysis, the cost centre becomes relevant as an intermediate step: all activities occurring in a cost centre are listed in interviews with staff, and the total costs of the centre can then be allocated to the separate activities. As staff costs are predominant, all other costs of the cost centre can be allocated to an activity according to the percentage of staff time spent on that activity.

Staff fill out log sheets for two weeks. This of course has to be negotiated beforehand with staff representatives, and it must be ensured that this is not a measurement of performance, only of the time needed for each activity. The results of the log sheets are then extrapolated to a year with due consideration of holidays and absences due to illness.

In our project we defined 442 separate processes or activities. In the circulation department the most important processes are:

• •

  recording loans;

• •

  cancelling loans;

• •

  issuing user cards;

• •

  monitoring loan periods;

• •

  account of fines; and

• •

  delivery in electronic form.

For example, the "Subject librarians" cost centre gives the following results, shown in Table I,

for the "subject cataloguing" process. Which activities are chosen for separate analysis will, of course, depend on the library's needs for controlling and planning. Münster, for instance, wanted to assess the costs of its duties as a regional library and, therefore, book processing for legal deposit documents was dealt with separately.

Furthermore, it will always be worthwhile to distinguish between those activities that are directly involved in a product (ordering, cataloguing) and other activities such as controlling or administration.

Cost unit accounting (costs of one product)

Finally, the costs of a process are divided by the number of "cost drivers" for that special process, that is the number of units of the product or service, e.g.:

• •

  number of reference transactions;

• •

  number of documents issued.

We defined 55 "products" of the library (see Appendix 2), that are shown in Figure 5 in comprehensive groups.

Figure 5

The example of the undergraduate library shows nine different activities and their costs (Figure 6).

Figure 6

The costs for one book ready for lending (activities from ordering to final control) would be DM 26,39.

Cost management

The cost analysis in our library resulted in 4,698 different pieces of data that can be combined and searched with the help of the software.

The first comprehensive analysis, of course, gave us much better knowledge of where and why resources are spent. We now know:

• •

  the total costs of the library in a year;

• •

  the costs originating in cost centres;

• •

  the costs of processes/activities;

• •

  the costs of each single product or service; and

• •

  a by-product of the cost analysis – the time needed for the production of one unit (e.g. one book catalogued).

How can we use all these data for the management of resources? The outcome of process optimisation is that the same result can be obtained with less resources or a better result can be achieved with the same capacity input (Figure 7).

Figure 7

Possible starting points for process optimisation might be:

• •

  muddled responsibilities;

• •

  detours in processes;

• •

  waiting times;

• •

  unnecessary controls;

• •

  overly complex processes;

• •

  duplication of processes;

• •

  error correction; and

• •

  the use of different media in the same process.

The example of the book processing department shows where we found disposable capacity: controlling what had already been done took up to 13 percent of the time spent on cataloguing (Figure 8).

Figure 8

The principle of every person being responsible for his or her work ("first time right") gave us a disposable capacity of – theoretically – 0.66 man years. And although controlling could not be totally removed, the result was 0.5 man years free for retrospective cataloguing.

Optimising processes can help to:

• •

  gain in productivity without higher costs;

• •

  or to reduce costs without loss in productivity.

The results of a cost analysis can be used in various ways:

1. 1.

   to justify claims for resources (e.g. service level agreements);

2. 2.

   to estimate costs:

• •

  for new or enlarged services;

• •

  gained by reduction or deletion of services;

• •

  for taking fees;

1. 1.

   benchmarking;

2. 2.

   decisions on outsourcing;

3. 3.

   process optimisation, especially to adapt capacity costs to output; and

4. 4.

   comparing cost-efficiency and quality.

Assessing the costs of a library's services and single products will enable the library to manage resource allocation according to topical goals and needs. It should always be seen in comparison to quality issues, comparing the costs caused by a service to its effectiveness and relevance for the clientele.

When we reported the results of our project to other libraries, one question occurred again and again: can a library afford the amount of time it surely takes to assess its costs, even when using a system and software that have already been tested? For our own library we can say that in spite of all measuring, normal work was not impeded, and indeed it was well worth the effort. We have gained detailed knowledge about processes and the time spent on the different services and thus have been able to streamline processes, to set priorities, and to gain resources for products such as user education or Web site services. Just as importantly, in funding negotiations we can now present reliable data and can assist the institution in its efforts to attain general cost transparency.

Appendix 1. Cost types

1 Staff costs

• •

  11 Professionals12 Non-Professionals13 Students assistants14 Others15 Administrative overheads extra charge

2 Costs of collection building and maintenance

• •

  21 Research literature

  • •

    211 Monographs212 Periodicals

  22 Electronic media

  • •

    221 Acquisition222 Licenses

  23 Other media24 Preservation241 Binding

  • •

    242 Restoration243 Filming244 Deacidification

3 Administrative costs

• •

  31 Communication

  • •

    311 Telecommunications312 Postage313 Data transmission

  32 Costs of maintenance/repair

  • •

    321 Technical equipment322 IT equipment/software maintenance323 Other equipment, machines, furniture

  33 Materials

  • •

    331 Equipment (not IT)332 IT consumables incl. hard- and software333 Supplies (office stationery, sundry supplies etc.)34 Standard allowance copiers35 Travel expenses36 Continuing education37 Other current costs of materials

4 Operating costs

• •

  41 Costs of energy

  • •

    411 Heating412 Power413 Water and sewage

  42 Cleaning expenses43 Costs of waste disposal44 Costs of security45 Building maintenance costs46 Other operating costs

5 Depreciations

• •

  51 Depreciations building and technical equipment52 Depreciations movable property

  • •

    522 Depreciations other equipment and machines523 Depreciations office and library furniture524 Depreciation service vehicle

  53 Depreciations software

Appendix 2. Product catalogue in libraries

Product group 1: building of media collection(acquisition, indexing, book processing)

• •

  textbooks;

• •

  monographs;

• •

  periodicals;

• •

  electronic media; and

• •

  other non-book-materials.

Product group 2: information services

• •

  reference service (general);

• •

  reference service (subjects);

• •

  online searches (online information service);

• •

  Internet-based information services (e.g. access to networked databases, electronic documents, Web-OPAC); and

• •

  support of inhouse-use.

Product group 3: circulation of media

• •

  lending of books from open stacks (self-service); and

• •

  lending of books from closed stacks

Product group 4: inter-library loan

• •

  supplying monographs/articles (conventional lending function in ILL)

• •

  demanding and providing monographs/articles (conventional inter-library borrowing); and

• •

  electronic document delivery.

Product group 5: user education

• •

  introductions to library use; and

• •

  instructions in using electronic media.

Product group 6: archival and restoration services

• •

  production of microfilms and -fiches;

• •

  digitisation;

• •

  conservational treatment;

• •

  restoration; and

• •

  mass deacidification.

Product group 7: providing valuable/historical/rare collections(collection processing and providing for use, advising users)

Product group 8: exhibitions and events

Product group 9: special services e.g.

• •

  special subject collection in a cooperative collection plan;

• •

  tasks of a deposit and regional library; and

• •

  services for departmental libraries.

Product group 10: internal services

• •

  library management and administration;

• •

  computer services; and

• •

  public relations.

Roswitha PollLibrarian, University and Regional Library Münster, Germany