dr. Roswitha Poll ANALYSING COSTS IN LIBRARIES Abstract ANALIZA STROŠKOV V KNJIŽNICAH Izvleček 1 Introduction

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1 Poll, R.: Analysing costs in libraries 83 dr. Roswitha Poll Universitäts- und Landesbibliothek Münster ANALYSING COSTS IN LIBRARIES Abstract UDK 021.9:657 Libraries today are included in 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. Keywords: libraries, cost analysis, Germany ANALIZA STROŠKOV V KNJIŽNICAH Izvleček Danes se tudi knjižnice srečujejo z zahtevami po čim boljši preglednosti stroškov poslovanja in učinkovitem zmanjševanju le-teh. Tradicionalno so knjižnice zbirale v glavnem podatke o stroških izgradnje knjižnične zbirke, sedaj pa vedno bolj potrebujejo tudi zanesljive podatke o stroških drugih dejavnosti in storitev. V članku je predstavljen projekt analize stroškov knjižnice, ki so ga ob podpori Nemške znanstvene fondacije v letih izvedle tri univerzitetne in deželne knjižnice iz Münstra, Düsseldorfa in Paderborna. Rezultat projekta je bil priročnik in računalniški program za podporo analiziranja stroškov delovanja knjižnice. Predstavljeni so potrebni podatki in metoda ovrednotenja stroškov poslovanja ter učinki, ki jih ima analiza stroškov na učinkovitejše upravljanje in odločanje v knjižnicah. Ključne besede: knjižnice, analiza stroškov, Nemčija 1 Introduction Why should we know the costs of our services? And what exactly should we know about them? Imagine some situations that recently occured in our library - and might have happened everywhere.

2 84 Case 1: A newly founded polytechnic wants to rely with its library and information services on 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 with 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. Case 2: A group of libraries has joined in an online delivery service. In order to determine on fees, they want data about: The costs of one 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. 2 The project The University and Regional Library Münster had for a couple of years been involved in topics of performance measurement and quality management in libraries (Poll, te Boekhorst, 1996). We had developed a system of mission statement and 3- year-goals, adequate performance indicators and regular user surveys. There was a background of 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 as well for the library's politics 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 University and Regional Library Düsseldorf and the University Library Paderborn, both in the same region, so that contacts were easy. The project started in April 1997 and finished with the handbook (including the necessary software) in July 1999 (Ceynowa, 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 for activity based costing as best adapted for evaluating library products. Activity based costing was developed in the eighties in the USA (Cooper, Kaplan, 1988; Johnson, Kaplan, 1987). The method was tested in the three project libraries and other

3 Poll, R.: Analysing costs in libraries 85 interested libraries. The results of the project stages were widely published and got nearly too much recall. While the handbook was still being written, the team in Münster was already involved in supporting cost analysis projects in different libraries. Since 2000, the project is succeeded by a second one that will result in an allround controlling system for academic libraries, using the balanced scorecard. This time, the partners are the Bavarian State Library and Bremen State and University Library. 3 Cost analysis What most libraries assess by now are the yearly data concerning income and expenditure of the library: Income (from different sources) Expenditure: - on collection building and maintenance - on automation - on the operating of the library - on staff Very often these data are incomplete, because data like 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 means "expenses", not "costs" and that means sums that appear on bills or payrolls. Costs, on the other side, 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 Costs need cause Activities consume Resources Cost analysis in public service institutions like libraries is affected by several problems: - The products of libraries are non-material Libraries 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.

86 - Capacity costs are predominant Libraries must build up and maintain a huge potential for the delivery of services: Qualified staff, collections, reading-rooms, etc.

4 86 - Capacity costs are predominant Libraries 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 fixed If circulation goes back, 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 center accounting and cost unit accounting. The model of cost analysis can be summarized in one question: Which resources are consumed where by which activities with what result? (cost type accounting) (cost center accounting) (activity based analysis) (cost unit accounting) The different steps can be defined thus: Cost type accounting: the ascertainment and calculation of all relevant cost factors of a library within an accounting period Cost center accounting: the calculation of the costs of the various sections or depart - ments of the library Cost unit accounting: the calculation of a single unit or performance of the library's products/services The following overview shows the way of assigning cost types to cost centers, then to processes or activities occuring in the cost centers, and lastly to the products or services (figure 1): Figure 1

5 Poll, R.: Analysing costs in libraries 87 One example may demonstrate, how the costs for one product (electronic document delivery) are composed of process costs originating in different cost centers or departments (figure 2): Figure 2 4 Cost type accounting The first step - cost type accounting - will prove difficult when realized for the first time: 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 the obligation to generate profits for financing replacements beforehand, an orientation by 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 building, - 10 years for equipment, - 4 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

88 cataloguing department with persons over 40 and each with several children would appear as more cost-expensive than one with young unmarried employees - though the job ranking is the same.

6 88 cataloguing department with persons over 40 and each with several children would appear as more cost-expensive than one with young unmarried employees - though the job ranking is the same. Therefore, we propose that standardized average rates should be taken as a basis. Such standardized 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 Annex A) was tested with other libraries and proved rather comprehensive. 5 Cost center accounting Because of practical reasons, cost center accounting will best follow the existing organizational structure of the library: departments, working groups, etc. This facilitates the assignment of costs. Cost center accounting is most important, if the centers are budgeted and are responsible as well for their resources as for 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 centers in the production of services do not allow much space for

7 Poll, R.: Analysing costs in libraries 89 cost management in a cost center. But the step of assigning costs to cost centers 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 centers: some costs can be registered exactly per cost center, e.g. staff costs, telecommunication, travelling expenses, others must be allocated by keys, e.g. depreciation or cleaning (per m²), 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 centers, 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 neither allocated to cost centers nor to processes. The collection is regarded as the external factor by the help of which 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 centers were defined. The following table shows broad groups of cost centers and their yearly costs (figure 4): Figure 4

8 90 6 Analysis of processes/activities In this analysis, the cost center becomes relevant as an intermediate step. All activities occurring in a cost center are listed in interviews with staff, and the total costs of the center can then be allocated to the separate activities. As staff costs are predominant, all other costs of the cost center can be allocated to an activity according to the percent of staff time spent on that activity. Staff fill out log sheets for 2 weeks. This of course has to be negotiated before with staff representatives, and it must be ensured that this is no measurement of a person's performance, but 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 delivery in electronic form An example of the cost center "Subject librarians" shows the results for the process "subject cataloguing": percentage of staff time spenton subject cataloguing 17.6 % process time 3 man years or hrs process costs DM number of documents catalogued unit costs 31,60 DM time per unit 18 minutes What 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 regional library and, therefore, book processing for legal deposit documents was dealt with separately. Furthermore, it will always be worth-while to distinguish between those activities that are directly involved in a product (ordering, cataloguing) and activities like controlling or administration. 7 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

groups (figure 5): Figure 5 The example of the undergraduate library shows nine different activities and their costs (figure 6).

9 Poll, R.: Analysing costs in libraries 91 We defined 55 "products" of the library (see Annex B), that are here shown in comprehensive groups (figure 5): Figure 5 The example of the undergraduate library shows nine different activities and their costs (figure 6). The costs for one book ready for lending (activities from ordering to final control) would be DM 26,39. Figure 6 8 Cost management The cost analysis in our library resulted in different data that can be combined and searched with the help of the software.

10 92 The first comprehensive analysis, of course, gave us much better knowledge of where and why resources are spent. We know by now: the total costs of the library in a year, the costs originating in cost centers, 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 optimization 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 optimization might be: muddled responsibilities, detours in processes, waiting times, unnecessary controls, too complex processes, duplication of processes, error correction, the use of different media in the same process. An example of the book processing department shows where we found disposable capacity: Controlling what had already been done went up to 13 % of the time spent on cataloguing (figure 8).

11 Poll, R.: Analysing costs in libraries 93 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 though controlling could not be totally deleted, the result was 0,5 man years free for retrospective cataloguing. Optimizing 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: to justify claims for resources (e.g. service level agreements), to estimate costs, - for new or enlarged services, - gained by reduction or deletion of services, - for taking fees, benchmarking, decision on outsourcing, process optimization, especially to adapt capacity costs to output, 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 the 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 about the results of our project to other libraries, one question occured 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

12 94 knowledge about processes and the time spent on the different services and thus have been enabled to streamline processes, to set priorities, and to gain resources for products like user education or website services. And what is as important: In the negotiations for funding, we can now present reliable data and can assist the institution in its efforts for general cost transparency. References 1. Ceynowa, K. & Coners, A. (1999). Kostenmanagement in Hochschulbibliotheken. Frankfurt: Klostermann. 2. Cooper, R. & Kaplan, R. S. (1988). "Measure costs right: Make the right decision". Harvard Business Review, 66, Johnson, H. T. & Kaplan, R. S (1987). Relevance lost: the rise and fall of management accounting. Boston: Harvard Business Press. 4. Poll, R. & te Boekhorst, P (1996). Measuring quality: international guidelines for performance measurement in academic libraries. München: Saur. ANNEX A: Cost Types 1 Staff Costs 2 Costs of Collection 3 Administrative Costs building and maintenance 11 Professionals 21 Research literature 31 Communication 12 Non-Professionals 211 Monographs 311 Telecommunications 13 Students assistants 212 Periodicals 312 Postage 14 Others 22 Electronic media 313 Data transmission 15 Administrative overheads extra charge 221 Acquisition 320 Costs of maintenance / repair 222 Licenses 321 Technical equipment 23 Other Media 322 IT equipment / software maintenance 24 Preservation 323 Other equipment, machines, furniture 241 Binding 330 Materials 242 Restoration 331 Equipment (not IT) 243 Filming 332 IT consumables incl. hard- & software 244 Deacidification 333 Supplies (office stationery, sundry supplies etc.) 340 Standard allowance copiers 350 Travel expenses 360 Continuing education 370 Other current costs of materials

13 Poll, R.: Analysing costs in libraries 95 4 Operating Costs 5 Depreciations 41 Costs of energy 51 Depreciations building and technical equipment 411 Heating 52 Depreciations movable 412 Power property 413 Water and sewage 521 Depreciations IT equipment 42 Cleaning expenses 522 Depreciations other equipment and machines 43 Costs of waste 523 Depreciations office and disposal library furniture 44 Costs of security 524 Depreciation service vehicle 45 Building 530 Depreciations software maintenance costs 46 Other operating costs ANNEX B: Product Catalogue in Libraries Product Group 1: Building of Media Collection (Acquisition, Indexing, Book Processing) o Textbooks o Monographs o Periodicals o Electronic media o Other non-book-materials Product Group 2: Information Services o Reference service (general) o Reference service (subjects) o Online searches (online information service) o Internet-based information services o (e.g. access to networked databases, electronic documents, Web-Opac) o Support of inhouse-use Product Group 3: Circulation of Media o Lending of books from open stacks (self-service) o Lending of books from closed stacks Product Group 4: Inter-Library Loan o Supplying monographs/articles (conventional lending function in ILL) o Demanding and providing monographs/articles (conventional interlibrary borrowing) o Electronic document delivery Product Group 5: User Education o Introductions to library use o Instructions in using electronic media

14 96 Product Group 6: Archival and Restoration Services o Production of microfilms and -fiches o Digitization o Conservational treatment o Restoration o 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 as e.g. o Special subject collection in a cooperative collection plan o Tasks of a deposit and regional library o Services for departmental libraries Product Group 10: Internal Services o Library management and administration o Computer services o Public relations

Jasmine Cameron National Library of Australia Canberra, Australia

Date : 09/06/2008 Measuring performance through financial information: a case study Jasmine Cameron National Library of Australia Canberra, Australia Meeting: Simultaneous Interpretation: 160. National