CHARGE BACKS, USE FEES, AND OTHER
APPROACHES TO COST RECOVERY IN SPECIAL LIBRARIES
by Deborah Hayba
May 1, 2002
TABLE OF CONTENTS
Cost recovery is an important issue in special libraries and information centers today. Many top-level executives of for-profit organizations pressure the staff of their information centers to help with the "bottom line." "Show me where you put one more dollar on the income statement" (Hirschheim). Cost recovery efforts may be used to reduce the amount of money the company needs to spend on knowledge management and information delivery or to turn the information center into a profit center within the corporation itself. Any type of charge back requires planning and careful implementation, especially if it is being instituted for a service that was formerly "free."
This paper will provide some statistics on the current use of charge back, offer some reasons for implementing a charge back system, show different approaches to cost recovery, advantages and disadvantages of implementing cost recovery, and offer some guidelines to follow as one moves through the stages of implementation. It will also offer some additional reading opportunities for further study.
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CURRENT CHARGE BACK SCENE
A survey conducted in 2000 of Association of Research Libraries member libraries showed that fee-based services were established in ARL libraries as early as 1955 and revealed that 61% currently offer fee-based services with a large portion of those, 87%, offering those services to external users (Jenda). The data shows that the late 1970s to the early 1990s was the period with the most increase in fee-based services. Fifty-one percent of fee-based services are conducted in large cities with the major user groups being law firms and local residents. Sixty-two percent are institutional or corporate users, as opposed to individuals. The services users pay for in order of frequency are interlibrary loan / document delivery, circulation, reference, and on-line searching.
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WHY RECOVER COSTS?
In the Jenda survey of ARL libraries the top three reasons given for those libraries to establish fee-based services were:
1) to respond to demand from external users;
2) to provide coordinated library service to external users;
3) to generate revenue for the library.
If the special library in question is a unit of a for-profit corporation, charge back may be a matter of survival. In tough economic times heads of corporations must look for ways to cut back on spending. Laying off employees and eliminating departments that are not producing a profit are often the first steps taken. An alternative to an in-house information center is outsourcing knowledge management and information needs. Often, when corporate management begins to explore outsourcing, the information center management begins to look for ways to be competitive with outside vendors. At this point, charge back and user fees become important tools of cost recovery. The information center may make its own bid for service and save itself by "getting the contract." Implementing either outsourcing or insourcing helps to focus users' attention on the cost and service of an information center (Hirschheim).
An Info-Tech Advisor Newsletter from January 2002 lists three reasons for implementing a fee-for-service system:
1) Reduce costs by making end users more aware of, and pay for, the services they are consuming;
2) Terminate failing outsourcing agreements and restore service levels by bringing service in-house once again;
3) Confirm the value of IT to the rest of the organization.
Driving forces behind the fee-based operation in use at Ashland Chemical Company were:
1) User departments, especially operating groups, wanted to have direct control over their current library expenses;
2) Any allocation system in which all departments in the corporation are required to support the library is inherently "unfair" to non-user departments;
3) Previous allocation systems had been arbitrary or based on historical usage of library services;
4) Establishing priorities for services had been extremely difficult for library staff;
5) Other support departments in the corporation were also directly charging for their services. (Ratliff)
Ross, et. al. have identified two other trends that have recently renewed managerial interest in charge back systems:
1) Many organizations, even those which are mostly decentralized, are expanding their central IT infrastructures to support global processes and knowledge sharing and these investment costs need to be shared across business units.
2) An external market for IT services has emerged as a viable alternative to internal IT provisioning.
Te Grotenhuis provides another group of goals to be reached by recovering costs:
1) make a profit;
2) achieve a certain market share;
3) encourage the generation of information;
4) encourage more selective information use.
Much can be accomplished through cost recovery. In many instances it can even lead to a strategic end rather than a financial one by bringing information center management and corporate management into a closer partnership. Whatever the goals of your specific special library, examine carefully the reasons you want to charge and make sure that charging will address the issue(s) you're trying to solve.
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APPROACHES TO COST RECOVERY
In most cases the more expensive services are billed while lower cost services are provided free. An information center may become a profit center for the corporation, but this is not the norm. Most corporate executives are happy to see all or most information center costs recovered. In fact, forcing the information center to make a profit changes its focus from serving the other business units to earning a profit no matter what.
There are various methods to recover costs. Among them are:
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ADVANTAGES OF COST RECOVERY
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DISADVANTAGES OF COST RECOVERY
Most information center librarians who use a charge back system say that the advantages far outweigh the disadvantages.
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STEPS FOR IMPLEMENTING A COST RECOVERY SYSTEM
Follow these steps provided in the January 22, 2002 Info-Tech Advisor Newsletter for implementing a cost recovery program in a special library or information center:
1) Study Industry Benchmarks.
See what other special libraries are charging for their services and how they're treating their clients. Evaluate your clients' options for information service just as a business evaluates its competitors.
2) Market Your Information Center's Value.
You may be competing with other information service providers. Sell yourself to your company. Let your users know your strengths, such as knowing the business, accessibility, lower marketing costs, strong and unique collections, fast turnaround time, etc.
3) Set Expectations.
Management wants low cost; users want excellent service. You must find an appropriate middle ground and document the service levels clients can expect. It may help to let users know that management's bottom line is cost despite what you would personally like to be able to do to help them.
4) Create an Information Services Catalog.
The catalog should explicitly state services, descriptions, costs per unit, and service levels. Stick to basic services so costs can be spread over as many users as possible.
5) Get Empowered.
Full executive support is necessary to successfully carry out a cost recovery program. Library staff may need to be trained in accounting, invoicing, reporting, etc. Management must allow you to spend money initially in order to make money later.
Other steps to consider:
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Prices may be based on cost (including or excluding staff time and overhead), market prices, the demand for service, time savings for users, financial savings for users, specific information yields, number of users, or some dual pricing basis (where different prices are recorded for the selling and the buying units within the corporation). Rates do not necessarily have to reflect costs; some libraries charge more for services utilizing older technology and less for services utilizing newer technology in order to encourage a shift to newer methods. Rates may also be based on whether or not information services will be sold outside the corporation. Often, external users are charged a higher rate. It is a good idea to communicate to potential users how rates are determined and even allow some negotiation. Business units gain a better understanding of information center issues, which usually results in a higher evaluation of information services. These exchanges also help information center staff to gain a better understanding of units' business, which may also contribute to more positive evaluations by users. According to a study conducted in 2000, the average rate for hourly charge backs was $105. The average rate in high tech industries may be 15% to 25% higher. Generally, the larger the library budget, the higher the charge back rate. Rates also increase with the size of the company (Stratigos).
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1) Firms that have special libraries must decide if business units will be able to choose between utilizing the in-house service or outsourcing. Mandated internal sourcing keeps the money within the corporation, but might allow the information center not to charge competitive rates.
2) Keep it simple. Don't enumerate in your service catalog every variation of a cost that could occur. Stick to general types of costs and rates.
3) Whenever possible, value-add to your services. This will take the sting out of paying for them.
4) "Unless you have previously committed to provide a specific set of sources, it is reasonable to periodically reevaluate what sources you provide. This is likely to show some overlap, or sources that are marginally used and should be eliminated. Once you have done this evaluation and established a new plan, it is then reasonable to ask for funding (chargeback) from any users who require a specific service that is not fully justified and is slated to be discontinued in your new plan" (Stratigos).
5) Whenever a charge back system is in place, te Grotenhuis recommends four rules:
- Response times must be short;
- Services must be reliable;
- Prices must be competitive;
- Services must represent value for money.
6) Be prepared for library usage to drop when charge backs are first applied. Demand will increase once again when users become accustomed to the idea of paying for services.
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Though not a component of traditional library service, a cost recovery system is necessary in some settings. Special libraries, for which the public is not the primary user group, seem more justified in applying charges for services, especially since many are part of profit-seeking organizations. During difficult economic times, some special libraries are faced with closure if they cannot recover at least some of their cost of operation. Not charging for services can sometimes lead to the belief that libraries are only marginally cost-effective for the organization instead of a vital and necessary component of it. While implementing a cost recovery program has more advantages than disadvantages, it is not something that should be decided without much forethought and analysis. This paper provides a preliminary overview. A list of further recommended reading follows.
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The author can be reached for questions at DebHayba@yahoo.com
Koenig, Michael and Johanna Goforth. Libraries and the Cost-Recovery Imperative. IFLA Journal v.19 n.3 p.261-79.
Kraft, Ned. Adventures in Librarianship: Fee for Service. Against the Grain v.13 n.1 (Feb. 2001): 40.
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Daehn, Ralph. Launching a Public Printing Program with Built-In Cost Recovery. Computers in Libraries v.20 n.9 (Oct. 2000): 50-5.
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Jenda, Claudine. Fee-Based Services. SPEC Kit 259 of the Association of Research Libraries Aug. 2000. Available at http://www.arl.org/spec/259sum.html
Ratliff, Priscilla and Thomas J. Weeks. Three Years Experience with Fee-Based Services in a Corporate Library. Special Libraries winter 1995: 21-7.
Ross, Jeanne W., Michael R. Vitale, and Cynthia Mathis Beath. The Untapped Potential of IT Chargeback. MIS Quarterly v.23 n.2 (June 1999): 215-7.
Stratigos, Anthea and Dick Curtis. Chargebacks: Solution or Setback? Online v.24 n.3 (May-June 2000): 81-3.
Te Grotenhuis, Albert J. and Selma J. Heijnekamp. The User Pays: Cost Billing in a Company Library. Special Libraries spring 1995: 110-6.
Vavrek, Bernard. The Best Things in Life Have Fees. American Libraries v.31 n.5 (May 2000): 75-6.
Vidmar, Dale, Marshall A. Berger, and Connie J. Anderson. Fee or Free?: Printing from Public Workstations in the Library. Computers in Libraries v. 18 n.5 (May 1998): 26-31.
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