Costing Library Services

Dean W. Dibling
Spring 2007

Table of Contents


      While all librarians must be concerned about the cost of services they provide to patrons, special librarians must be particularly mindful of the bottom line. Special libraries are frequently part of a for-profit enterprises and experience extra pressure to reduce costs and contribute to the organization's profits. In addition, careful monitoring of the costs of library services is a critical part of the decision making process for allocating library resources.
      As early as 1936, Louis R. Wilson declared that methods would be adopted to determine the cost of library services within ten years (Gross, 2006). Unfortunately, there is still no single generally-accepted method for calculating the cost of library services. This paper will briefly examine five major costing models: the Input/Output Model, Functional Cost Analysis, the Library Costing Model, the Equivalent Valuation Approach, and the Cost Minimization Model.

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Why Bother with Costing?

      A natural starting point in the discussion of costing library services is "Why bother with costing in the first place? Libraries seldom have an unlimited budget and those libraries that function as part of a for-profit organization must be especially mindful of keeping costs under control. Costing data is, at the very least, useful and in some cases critical to other library functions. These include:
      Matthews reminds us that "librarians have long searched to find some performance measure that will indicate the "goodness" of the library and its services...Intelligent use of measures can guide our decisions and help us make meaningful comparisons" (Matthews, 2003).

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The Input/Ouput Model

      Sayre and Thielen(1989) presented this somewhat simplistic costing model, primarily for use in small public libraries. In this model, all inputs needed to support the various library services are determined and used to calculate the per unit cost of said services, based on the actual utilization. In other words, the cost is determined based on the number of items circulated, the number of times an item is circulated, the number of attendees for a particular program, or number of hits to the library web site. This method has proven to be less than satisfactory for larger operations.

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Functional Cost Analysis

      According to Abels, Kantor, and Saracevic (1996), "Library managers must respond to institutional demands for the justification of maintaining or supplementing resources and services. The difficulty of assigning costs and values to library and information services and resources is magnified by the advent of a broad variety of computerized and electronic modes of library service." In an attempt to more accurately assess costs, they use Functional Cost Analysis to attempt to address one of the major weak point of the Input/Output Model -- that of the difficulty in isolating certain costs.
      The Input/Output Model assumes that all costs can be isolated and assigned to one specific resource or service. In reality, this is not the case. For example, the cost of the building must be taken into account, but how does one decide how much of that cost is to be assigned to the reference department? How much is assigned to the serials collection? When a reference librarian takes time to provide a patron with instruction on using the OPAC, is that considered a reference activity or does the library keep a separate accounting for library instruction? Obviously, some of these questions are more difficult than others. Frequently there is no "right" answer and, just as frequently, the method of handling these nebulous costs varies from library to library. Abels, Kantor, and Saracevic, therefore, attempt to calculate fractional costs, i.e., this workstation is utilized 20% of the time to provide patron access to the OPAC, 80% of the time the provide patron access to the internet. Costs for that workstation are then distribute to those two services along those same percentages.

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The Library Costing Model

      Robert M. Hayes has developed the Library Costing Model to deal with the complexities of electronic resources (Hayes, 1996). He posits that costs, as they apply to any specific operation or service, can be grouped into four major categories: acquisition purchases for materials used in providing it, staff salaries for performance of it, direct expenses associated with it, and indirect costs allocated to it.
      Like Functional Cost Analysis, the Library Costing Model attempts to separate fractional costs using "workload factors," which are then expressed as percentages of FTE (yearly full-time equivalent) staff for the performance of 1,000 units. For example, a transaction which takes one minute to accomplish would be expressed as .01 FTE per 1,000 transactions. The Library Costing Model also takes into account direct expenses and "overhead," such as training and meeting times, other unallocated work or vacations, and salary related expenses, such as the employer's contribution to social security, workman's compensation, etc.

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The Equivalent Valuation Approach

      Ryan and McClure (2003) made improvements to the Equivalent Valuation Approach. This system takes its cost from an equivalent service being provided by a commercial service as the cost of the library service being costed. For example, if a commercial firm charges $X for a answering a simple reference question then the value of the library answering a simple reference question is also held to be $X. This method is more applicable in determining the value added to the organization than determining the "true" cost of a service.

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The Cost Minimization Model

      Barbara Hegenbart (1998) attempts to apply the economic concept of the cost-minimization model to provide a framework for analyzing the economic basis of an operation. The model relies on first defining output and input factors and then calculating the marginal and average fixed costs. If these figures can be accurately ascertained, then one can calculate the minimum price the organization can charge and the minimum volume of business that must be conducted in order for the organization to remain economically viable. This model involves the use of rather sophisticated calculations that, of course, will be useless if the underlying costs are not properly assessed.

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      The costing of library services is a complicated and sometimes confusing activity about which there is little uniform consensus regarding method. A survey of six libraries will likely show as many different methods for calculating costs. The ongoing trend of increasing electronic resources is only adding to this complication. Nevertheless, the costing of library services is an area of librarianship that cannot be ignored by the special librarian.

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        Abels, Eileen G., and Kantor, Paul B. "Studying the Cost and Value of Library and Information Services: Applying Functional
               Cost Analysis to the Library in Transition." The Journal of the American Society for Information Science, 47(3) (1996): 217-227.

        Buttross, Thomas, and Schmelzle, George. Activity-Based Costing in the Public Sector New York, NY:
               Encyclopdeia of Public Administration and Public Policy, 2003.

        Gross, Melissa, and McClure, Charles. "Costing Reference: Issues, Approaches, and Directions for Research." The Reference                Librarian, 46 (2006): 173-186.

        Hayes, Robert M. "Cost of Electronic Reference Resources and LCM: The Library Costing Model." The Journal of the
               American Society for Information Science,
47(3) (1996): 228-234.

        Hegenbart, Barbara. "The Economics of the Internet Public Library." Library Hi Tech, 62 (1998): 69-83.

        Luzius, Jeff, and King, Pambanisha. "Fee-based Document Delivery: Who's Buying?" The Journal of Interlibrary Loan,
               Document Delivery, and Electronic Reserve,
16(3) (2006): 67-73.

        Matthews, Joseph R. "Determining and communicating the value of the special library." Information Outlook, 7(3) (2003): 26-31.

        Murfin, Marilyn, and Bunge, Charles. A Cost Effectiveness Formula for Reference Service in Academic Libraries. Washington, DC:
               Council on Library Resources, 1989.

        Rodman, Ruey L., and Prior, John A. "Cost analysis and student surve results of library support for distance education."
               The Journal of the Medical Library Association, 91(1) (2003): 72-78.

        Ryan, Joe, and McClure, Charles R. Economic Impact of the Hawaii State Public Library System on the Business And Tourism                Industries. Honolulu, HI: Hawaii State Public Library System, 2003.

        Sayre, Ed, and Thielen, Lee. "Cost Accounting: A Model for the Small Public Lirary." The Bottom Line, 3 (1989): 15-19.

        Slight-Gibney, Nancy, and Grenci, Mary. "Starting with an Empty Map: Benchmarking Time and Costs for Serials Operations."
               The Serials Librarian, 46(3-4) (2004): 287-293.

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