dr. Roswitha Poll ANALYSING COSTS IN LIBRARIES Abstract ...
dr. Roswitha Poll ANALYSING COSTS IN LIBRARIES Abstract ...
dr. Roswitha Poll ANALYSING COSTS IN LIBRARIES Abstract ...
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<strong>Poll</strong>, R.: Analysing costs in libraries 83<br />
<strong>dr</strong>. <strong>Roswitha</strong> <strong>Poll</strong><br />
Universitäts- und Landesbibliothek Münster<br />
<strong>ANALYS<strong>IN</strong>G</strong> <strong>COSTS</strong> <strong>IN</strong> <strong>LIBRARIES</strong><br />
<strong>Abstract</strong><br />
UDK 021.9:657<br />
Libraries today are included in the general demand for cost transparency and<br />
effective cost management. With the data they have traditionally collected, libraries<br />
can assess details about the costs of collection building; what they need now are<br />
reliable data about the costs of their services and products.<br />
The University and Regional Library Münster, together with two partner libraries, has<br />
tested activity - based costing in a project sponsored by the German Research<br />
Foundation. The project resulted in a handbook and software describing the method<br />
and helping libraries to introduce cost analysis.<br />
The paper shows the method of analysis, actual cost data that were assessed in the<br />
project, and the possible effects of cost analysis for management decisions.<br />
Keywords: libraries, cost analysis, Germany<br />
ANALIZA STROŠKOV V KNJIŽNICAH<br />
Izvleček<br />
Danes se tudi knjižnice srečujejo z zahtevami po čim boljši preglednosti stroškov<br />
poslovanja in učinkovitem zmanjševanju le-teh. Tradicionalno so knjižnice zbirale v<br />
glavnem podatke o stroških izgradnje knjižnične zbirke, sedaj pa vedno bolj<br />
potrebujejo tudi zanesljive podatke o stroških <strong>dr</strong>ugih dejavnosti in storitev. V članku<br />
je predstavljen projekt analize stroškov knjižnice, ki so ga ob podpori Nemške<br />
znanstvene fondacije v letih 1997-1999 izvedle tri univerzitetne in deželne knjižnice<br />
iz Münstra, Düsseldorfa in Paderborna. Rezultat projekta je bil priročnik in<br />
računalniški program za podporo analiziranja stroškov delovanja knjižnice.<br />
Predstavljeni so potrebni podatki in metoda ovrednotenja stroškov poslovanja ter<br />
učinki, ki jih ima analiza stroškov na učinkovitejše upravljanje in odločanje v<br />
knjižnicah.<br />
Ključne besede: knjižnice, analiza stroškov, Nemčija<br />
1 Introduction<br />
Why should we know the costs of our services?<br />
And what exactly should we know about them?<br />
Imagine some situations that recently occured in our library - and might have<br />
happened everywhere.
84<br />
Case 1: A newly founded polytechnic wants to rely with its library and information<br />
services on the existing university at the same place. In order to establish the<br />
conditions for a formal agreement, the ministry of science asks for the following<br />
data:<br />
• What does the provision with literature and information cost per student in your<br />
university? Please include building depreciation, operating costs, staff costs and<br />
collection building.<br />
• What does the same provision cost if you deduct special tasks that would not<br />
apply to the polytechnic (e. g. rare book department, archival and restoration<br />
services, exhibitions, services for departmental libraries)?<br />
You would need exact data about the total costs of each service.<br />
Case 2: A group of libraries has joined in an online delivery service. In order to<br />
determine on fees, they want data about:<br />
• The costs of one online-delivery (including staff costs and depreciation of<br />
equipment)<br />
• This time you would need to know the costs of the single product. Could you<br />
answer?<br />
Similar occasions occur regularly today. When introducing or enlarging services,<br />
thinking about outsourcing, or applying for funding, libraries need reliable data about<br />
the costs of their services and products.<br />
2 The project<br />
The University and Regional Library Münster had for a couple of years been<br />
involved in topics of performance measurement and quality management in libraries<br />
(<strong>Poll</strong>, te Boekhorst, 1996). We had developed a system of mission statement and 3-<br />
year-goals, adequate performance indicators and regular user surveys. There was a<br />
background of elaborate statistical data about collections and use. But we realised<br />
that effective management cannot stop with quality measures, but must include the<br />
question of cost-effectiveness. Services might be excellent, but too many resources<br />
might be spent on some services, narrowing the possibilities for change and<br />
development. Transparency of costs is needed as well for the library's politics as for<br />
the justification of costs to the funding institution.<br />
The library therefore applied for a project of cost analysis in libraries and got the<br />
funding from the Deutsche Forschungsgemeinschaft (German Research<br />
Foundation). Partners in the project were the University and Regional Library<br />
Düsseldorf and the University Library Paderborn, both in the same region, so that<br />
contacts were easy. The project started in April 1997 and finished with the handbook<br />
(including the necessary software) in July 1999 (Ceynowa, Coners, 1999). The<br />
project was supported by the Faculty of economics in Münster and by a commercial<br />
firm that is well known for its role in cost accounting for service institutions.<br />
After a review of existing cost analysis methods, experts and libraries decided for<br />
activity based costing as best adapted for evaluating library products. Activity based<br />
costing was developed in the eighties in the USA (Cooper, Kaplan, 1988; Johnson,<br />
Kaplan, 1987). The method was tested in the three project libraries and other
<strong>Poll</strong>, R.: Analysing costs in libraries 85<br />
interested libraries. The results of the project stages were widely published and got<br />
nearly too much recall. While the handbook was still being written, the team in<br />
Münster was already involved in supporting cost analysis projects in different<br />
libraries.<br />
Since 2000, the project is succeeded by a second one that will result in an allround<br />
controlling system for academic libraries, using the balanced scorecard. This time,<br />
the partners are the Bavarian State Library and Bremen State and University<br />
Library.<br />
3 Cost analysis<br />
What most libraries assess by now are the yearly data concerning income and<br />
expenditure of the library:<br />
• Income (from different sources)<br />
• Expenditure:<br />
- on collection building and maintenance<br />
- on automation<br />
- on the operating of the library<br />
- on staff<br />
Very often these data are incomplete, because data like costs of heating or data<br />
transmission are the responsibility of the institution and therefore unknown to the<br />
library, and depreciation of building, equipment and computer system are seldom<br />
included as yet.<br />
What libraries count in these traditional statistics means "expenses", not "costs" and<br />
that means sums that appear on bills or payrolls. Costs, on the other side, can be<br />
defined as the consumption of resources to acquire, produce or maintain goods and<br />
services within a defined period. A similar definition appears in various handbooks of<br />
economics.<br />
A general overview shows the connection between services and costs:<br />
Services<br />
Costs<br />
<br />
<br />
need<br />
cause<br />
<br />
<br />
Activities consume Resources<br />
Cost analysis in public service institutions like libraries is affected by several<br />
problems:<br />
- The products of libraries are non-material<br />
Libraries do not produce physical objects; they produce services. The<br />
production process cannot be separated from the product; production and<br />
delivery of a service coincide. A typical example in normal life would be hair<br />
cutting (service = product); the same applies to reference service.
86<br />
- Capacity costs are predominant<br />
Libraries must build up and maintain a huge potential for the delivery of<br />
services: Qualified staff, collections, reading-rooms, etc. Most of the costs will<br />
not only occur in relation to the actual use of this potential, but independent of<br />
the number of uses.<br />
- Many costs are fixed<br />
If circulation goes back, this will not immediately reduce the costs of the<br />
circulation department. It will need medium-term or even long-term planning to<br />
adapt the resources spent for a service to its use.<br />
Cost accounting is a management information system that assigns costs to products<br />
and services created by the library. It comprises cost type accounting, cost center<br />
accounting and cost unit accounting. The model of cost analysis can be summarized<br />
in one question:<br />
Which resources<br />
are consumed where<br />
by which activities<br />
with what result?<br />
(cost type accounting)<br />
(cost center accounting)<br />
(activity based analysis)<br />
(cost unit accounting)<br />
The different steps can be defined thus:<br />
• Cost type accounting: the ascertainment and calculation of all relevant cost<br />
factors of a library within an accounting period<br />
• Cost center accounting: the calculation of the costs of the various sections or<br />
depart - ments of the library<br />
• Cost unit accounting: the calculation of a single unit or performance of the<br />
library's products/services<br />
The following overview shows the way of assigning cost types to cost centers, then<br />
to processes or activities occuring in the cost centers, and lastly to the products or<br />
services (figure 1):<br />
Figure 1
<strong>Poll</strong>, R.: Analysing costs in libraries 87<br />
One example may demonstrate, how the costs for one product (electronic document<br />
delivery) are composed of process costs originating in different cost centers or<br />
departments (figure 2):<br />
Figure 2<br />
4 Cost type accounting<br />
The first step - cost type accounting - will prove difficult when realized for the first<br />
time:<br />
• Data may not be easily available. As the library is not autonomous, but in most<br />
cases part of an institution, many expenses are paid outside the library (e.g.<br />
heating, cleaning, telephone etc.) and must be collected from different sources.<br />
• Standards for depreciation differ between countries, often between institutions.<br />
In the project we have calculated the imputed depreciation allowances for<br />
building and inventory (equipment, facilities, hardware) according to the<br />
purchase costs, not the replacement costs (costs that would be needed to<br />
replace the asset at the end of the period of use). As libraries do not have the<br />
obligation to generate profits for financing replacements beforehand, an<br />
orientation by the purchase costs seems sensible. For calculating depreciation,<br />
we need the supposed time of use for assets. We have taken a standard time of<br />
- 50 years for building,<br />
- 10 years for equipment,<br />
- 4 years for computer-hardware.<br />
• Staff costs could be calculated in different ways. In most cases, it would be<br />
possible to get the data of the real costs. But the disadvantage is, that the data<br />
then would be influenced by the personal circumstances of the individuals. A
88<br />
cataloguing department with persons over 40 and each with several chil<strong>dr</strong>en<br />
would appear as more cost-expensive than one with young unmarried<br />
employees - though the job ranking is the same. Therefore, we propose that<br />
standardized average rates should be taken as a basis. Such standardized rates<br />
are in most cases available from the funding institutions.<br />
Calculation of the total costs of a library allows a rough estimate of whether<br />
resources are spent, where the library intends to spend them, whether costs are<br />
high or low compared to other libraries, in what direction certain cost types are<br />
developing within years, and the relation of fixed and variable costs.<br />
The cost structure of the three project libraries shows - as might be expected - a<br />
majority of staff costs (figure 3):<br />
Figure 3<br />
The list of cost types that was <strong>dr</strong>awn up in our project (see Annex A) was tested with<br />
other libraries and proved rather comprehensive.<br />
5 Cost center accounting<br />
Because of practical reasons, cost center accounting will best follow the existing<br />
organizational structure of the library: departments, working groups, etc. This<br />
facilitates the assignment of costs.<br />
Cost center accounting is most important, if the centers are budgeted and are<br />
responsible as well for their resources as for their products. This might be the case<br />
in a separate undergraduate library or a printing and photocopying department.<br />
Usually, in academic libraries the high proportion of fixed costs and the cooperation<br />
of various cost centers in the production of services do not allow much space for
<strong>Poll</strong>, R.: Analysing costs in libraries 89<br />
cost management in a cost center. But the step of assigning costs to cost centers is<br />
necessary for assessing the costs of the separate activities or processes.<br />
Two forms of allocation have to be distinguished when assigning the library's total<br />
costs to its cost centers:<br />
• some costs can be registered exactly per cost center, e.g. staff costs,<br />
telecommunication, travelling expenses,<br />
• others must be allocated by keys, e.g. depreciation or cleaning (per m²),<br />
software maintenance (per PC).<br />
The costs for collection building and collection maintenance have been dealt with<br />
differently in cost analysis. If there are separate subject departments that can be<br />
regarded as cost centers, collection costs for that subject can be allocated to them.<br />
It has even been proposed to fix depreciation periods for media, so that the yearly<br />
costs can be allocated according to the years of depreciation. We did not think it<br />
possible to fix dates of general uselessness for literature in a subject - and we do not<br />
think that it makes sense in a cost analysis of libraries. Libraries know the costs of<br />
media very well; what they must assess is the costs of their services.<br />
In our method, the costs for collection building are neither allocated to cost centers<br />
nor to processes. The collection is regarded as the external factor by the help of<br />
which services and products are produced. The services and products consist of<br />
collecting, offering and lending media - not of the media themselves.<br />
In our library 44 cost centers were defined. The following table shows broad groups<br />
of cost centers and their yearly costs (figure 4):<br />
Figure 4
90<br />
6 Analysis of processes/activities<br />
In this analysis, the cost center becomes relevant as an intermediate step. All<br />
activities occurring in a cost center are listed in interviews with staff, and the total<br />
costs of the center can then be allocated to the separate activities. As staff costs are<br />
predominant, all other costs of the cost center can be allocated to an activity<br />
according to the percent of staff time spent on that activity.<br />
Staff fill out log sheets for 2 weeks. This of course has to be negotiated before with<br />
staff representatives, and it must be ensured that this is no measurement of a<br />
person's performance, but only of the time needed for each activity. The results of<br />
the log sheets are then extrapolated to a year with due consideration of holidays and<br />
absences due to illness.<br />
In our project we defined 442 separate processes or activities. In the circulation<br />
department the most important processes are:<br />
• recording loans<br />
• cancelling loans<br />
• issuing user cards<br />
• monitoring loan periods<br />
• account of fines<br />
• delivery in electronic form<br />
An example of the cost center "Subject librarians" shows the results for the process<br />
"subject cataloguing":<br />
• percentage of staff time spenton subject cataloguing 17.6 %<br />
• process time 3 man years or 4.467 hrs<br />
• process costs 477.221 DM<br />
• number of documents catalogued 14.635<br />
• unit costs 31,60 DM<br />
• time per unit 18 minutes<br />
What activities are chosen for separate analysis will, of course, depend on the<br />
library's needs for controlling and planning. Münster, for instance, wanted to assess<br />
the costs of its duties as regional library and, therefore, book processing for legal<br />
deposit documents was dealt with separately.<br />
Furthermore, it will always be worth-while to distinguish between those activities that<br />
are directly involved in a product (ordering, cataloguing) and activities like controlling<br />
or administration.<br />
7 Cost unit accounting (Costs of one product)<br />
Finally, the costs of a process are divided by the number of "cost <strong>dr</strong>ivers" for that<br />
special process, that is the number of units of the product or service, e.g.:<br />
• number of reference transactions<br />
• number of documents issued
<strong>Poll</strong>, R.: Analysing costs in libraries 91<br />
We defined 55 "products" of the library (see Annex B), that are here shown in<br />
comprehensive groups (figure 5):<br />
Figure 5<br />
The example of the undergraduate library shows nine different activities and their<br />
costs (figure 6). The costs for one book ready for lending (activities from ordering to<br />
final control) would be DM 26,39.<br />
Figure 6<br />
8 Cost management<br />
The cost analysis in our library resulted in 4.698 different data that can be combined<br />
and searched with the help of the software.
92<br />
The first comprehensive analysis, of course, gave us much better knowledge of<br />
where and why resources are spent. We know by now:<br />
• the total costs of the library in a year,<br />
• the costs originating in cost centers,<br />
• the costs of processes/activities,<br />
• the costs of each single product or service,<br />
• and, a by-product of the cost analysis, the time needed for the production of one<br />
unit (e.g. one book catalogued).<br />
How can we use all these data for the management of resources?<br />
The outcome of process optimization is that the same result can be obtained with<br />
less resources or a better result can be achieved with the same capacity input<br />
(figure 7).<br />
Figure 7<br />
Possible starting points for process optimization might be:<br />
• muddled responsibilities,<br />
• detours in processes,<br />
• waiting times,<br />
• unnecessary controls,<br />
• too complex processes,<br />
• duplication of processes,<br />
• error correction,<br />
• the use of different media in the same process.<br />
An example of the book processing department shows where we found disposable<br />
capacity: Controlling what had already been done went up to 13 % of the time spent<br />
on cataloguing (figure 8).
<strong>Poll</strong>, R.: Analysing costs in libraries 93<br />
Figure 8<br />
The principle of every person being responsible for his or her work ("first time right")<br />
gave us a disposable capacity of - theoretically - 0,66 man years. And though<br />
controlling could not be totally deleted, the result was 0,5 man years free for<br />
retrospective cataloguing.<br />
Optimizing processes can help to:<br />
• gain in productivity without higher costs,<br />
• or to reduce costs without loss in productivity.<br />
The results of a cost analysis can be used in various ways:<br />
• to justify claims for resources (e.g. service level agreements),<br />
• to estimate costs,<br />
- for new or enlarged services,<br />
- gained by reduction or deletion of services,<br />
- for taking fees,<br />
• benchmarking,<br />
• decision on outsourcing,<br />
• process optimization, especially to adapt capacity costs to output,<br />
• comparing cost-efficiency and quality.<br />
Assessing the costs of a library's services and single products will enable the library<br />
to manage resource allocation according to the topical goals and needs. It should<br />
always be seen in comparison to quality issues, comparing the costs caused by a<br />
service to its effectiveness and relevance for the clientele.<br />
When we reported about the results of our project to other libraries, one question<br />
occured again and again: Can a library afford the amount of time it surely takes to<br />
assess its costs, even when using a system and software that have already been<br />
tested? For our own library we can say that in spite of all measuring normal work<br />
was not impeded, and indeed it was well worth the effort: We have gained detailed
94<br />
knowledge about processes and the time spent on the different services and thus<br />
have been enabled to streamline processes, to set priorities, and to gain resources<br />
for products like user education or website services. And what is as important: In the<br />
negotiations for funding, we can now present reliable data and can assist the<br />
institution in its efforts for general cost transparency.<br />
References<br />
1. Ceynowa, K. & Coners, A. (1999). Kostenmanagement in<br />
Hochschulbibliotheken. Frankfurt: Klostermann.<br />
2. Cooper, R. & Kaplan, R. S. (1988). "Measure costs right: Make the right<br />
decision". Harvard Business Review, 66, 96-103.<br />
3. Johnson, H. T. & Kaplan, R. S (1987). Relevance lost: the rise and fall of<br />
management accounting. Boston: Harvard Business Press.<br />
4. <strong>Poll</strong>, R. & te Boekhorst, P (1996). Measuring quality: international guidelines for<br />
performance measurement in academic libraries. München: Saur.<br />
ANNEX A: Cost Types<br />
1 Staff Costs 2 Costs of Collection 3 Administrative Costs<br />
building and<br />
maintenance<br />
11 Professionals 21 Research literature 31 Communication<br />
12 Non-Professionals 211 Monographs 311 Telecommunications<br />
13 Students assistants 212 Periodicals 312 Postage<br />
14 Others 22 Electronic media 313 Data transmission<br />
15 Administrative<br />
overheads extra charge<br />
221 Acquisition 320 Costs of maintenance /<br />
repair<br />
222 Licenses 321 Technical equipment<br />
23 Other Media 322 IT equipment / software<br />
maintenance<br />
24 Preservation 323 Other equipment, machines,<br />
furniture<br />
241 Binding 330 Materials<br />
242 Restoration 331 Equipment (not IT)<br />
243 Filming 332 IT consumables incl. hard-<br />
& software<br />
244 Deacidification 333 Supplies (office stationery,<br />
sun<strong>dr</strong>y supplies etc.)<br />
340 Standard allowance<br />
copiers<br />
350 Travel expenses<br />
360 Continuing education<br />
370 Other current costs of<br />
materials
<strong>Poll</strong>, R.: Analysing costs in libraries 95<br />
4 Operating Costs 5 Depreciations<br />
41 Costs of energy 51 Depreciations building<br />
and technical equipment<br />
411 Heating<br />
52 Depreciations movable<br />
412 Power<br />
property<br />
413 Water and sewage 521 Depreciations<br />
IT equipment<br />
42 Cleaning expenses 522 Depreciations other<br />
equipment and<br />
machines<br />
43 Costs of waste 523 Depreciations office and<br />
disposal<br />
library furniture<br />
44 Costs of security 524 Depreciation service<br />
vehicle<br />
45 Building<br />
530 Depreciations software<br />
maintenance costs<br />
46 Other operating<br />
costs<br />
ANNEX B: Product Catalogue in Libraries<br />
• Product Group 1: Building of Media Collection<br />
(Acquisition, Indexing, Book Processing)<br />
o Textbooks<br />
o Monographs<br />
o Periodicals<br />
o Electronic media<br />
o Other non-book-materials<br />
• Product Group 2: Information Services<br />
o Reference service (general)<br />
o Reference service (subjects)<br />
o Online searches (online information service)<br />
o Internet-based information services<br />
o (e.g. access to networked databases, electronic documents, Web-Opac)<br />
o Support of inhouse-use<br />
• Product Group 3: Circulation of Media<br />
o Lending of books from open stacks (self-service)<br />
o Lending of books from closed stacks<br />
• Product Group 4: Inter-Library Loan<br />
o Supplying monographs/articles (conventional lending function in ILL)<br />
o Demanding and providing monographs/articles (conventional interlibrary<br />
borrowing)<br />
o Electronic document delivery<br />
• Product Group 5: User Education<br />
o Introductions to library use<br />
o Instructions in using electronic media
96<br />
• Product Group 6: Archival and Restoration Services<br />
o Production of microfilms and -fiches<br />
o Digitization<br />
o Conservational treatment<br />
o Restoration<br />
o Mass deacidification<br />
• Product Group 7: Providing Valuable / Historical / Rare Collections<br />
(Collection processing and providing for use, advising users)<br />
• Product Group 8: Exhibitions and Events<br />
• Product Group 9: Special Services as e.g.<br />
o Special subject collection in a cooperative collection plan<br />
o Tasks of a deposit and regional library<br />
o Services for departmental libraries<br />
• Product Group 10: Internal Services<br />
o Library management and administration<br />
o Computer services<br />
o Public relations