Cost Analysis, Cost Recovery, Marketing and Fee-Based Services

A Guide for the Health Sciences Librarian

M Sandra Wood

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781317951292
• Edition: 1
• Topic: Languages & Linguistics
• Subtopic: Library & Information Science
• Index: Languages & Linguistics

This outstanding volume won the 1986 Ida and George Eliot Prize--awarded by the Medical Library Association for the work judged most effective in furthering medical librarianship. Library professionals review the controversy behind fee-for-service programs and provide a rationale for incorporating them into contemporary library philosophies of service. Some fee-based services are necessary for survival in a society that treats information as a marketable commodity; this comprehensive book gives practical advice on cost analysis, cost recovery and marketing of reference services, and presents information on establishing a fee-based information service, as well as examples of successful information service programs.

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I. COST ANALYSIS OF REFERENCE SERVICES

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Cost analysis is useful for the evaluation and quantification of reference services. The ability to assign costs to specific services through the use of cost centers facilitates both managerial decision making and pricing strategy. Ultimately, it results in improved allocation of library resources. The overview of cost analysis by Wood emphasizes the management uses of cost analysis and provides basic techniques for performing cost analysis, using online search services as the example. Alligood and Russo-Martin detail their experience with methodology for cost analysis and establishing a pricing structure. Circuit librarian programs are normally operated on a cost recovery basis. Levine explains that a detailed cost analysis is a necessary prerequisite for a circuit program. Partin and Wood describe the use of cost analysis as a managerial decision-making tool to reassess a library's document delivery service.

Cost Analysis of Reference Services: An Overview

M. Sandra Wood

ABSTRACT. Both profit-making and not-for-profit organizations are concerned with cost accounting for management purposes and pricing decisions. Libraries have been slow to adopt cost accounting and cost analysis procedures for routine use in evaluating reference services. This article reviews the literature of cost accounting for reference services, focusing on health sciences libraries; provides definitions of cost accounting terminology; illustrates the use of cost analysis for online search services; identifies uses for cost analysis in libraries; and discusses cost-benefit analysis. The article is intended as an overview for reference librarians.

Businesses usually operate within “generally accepted accounting principles,” which consist of practices which have evolved and become standardized over many years. Both profit-making and not-for-profit corporations and organizations are concerned with cost accounting for a variety of administrative purposes ranging from cost control to budgeting to long range planning. Despite the importance of cost accounting and analysis to crucial managerial functions, libraries have been slow not only to adopt cost analysis, but consistent application of cost accounting principles among libraries simply is not practiced. There are several reasons for these inconsistencies. First is that the library, frequently a service department of a larger organization, such as an academic health sciences center, hospital or university, may not have been called upon in past years to detail all of its costs or justify specific programs based on cost-benefit analysis or other similar techniques. Second, the method for deriving the library's budget in one institution will not be the same as in another institution. As a result, cross-institutional comparisons are difficult if not impossible. Library budgets in academic settings have traditionally been based either on subjective judgement or oversimplified formulas.¹ Cost analysis in libraries has been oriented more toward budgeting along organizational lines for the library as a whole rather than gathering cost information for specific services.²

Two major forces during the 1970s resulted in a more conscious application of cost accounting to library services. The financial cutbacks in library budgets during the past decade forced the need for financial reassessment and retrenchment. Library budgeting became more important as costs of library materials rose faster than funding; concepts such as zero-based budgeting and cost recovery, traditionally viewed as more appropriate for profit-making corporations, took on new meaning for libraries. Additionally, the controversy over fees for service was fueled with the introduction of online search services, which were introduced from the beginning in many libraries as fee-based services. While vendor costs are similar for all libraries, the choice of what costs to pass on to the patron still is highly dependent on individual library policies and philosophies.

With the exception of online searching, cost analysis of reference services generally has been avoided by libraries. The difficulty of accurately measuring and quantifying reference services is well known,³,⁴ and the reluctance of many libraries to approach such cost analysis is understandable. Reference librarians have not thought in terms of the utility of cost accounting. Many don't know how much their services really cost and are frequently intimidated by cost accounting procedures.⁵ Cost analysis for a service is more complicated than for a product, and this problem is compounded for reference services where it is exceptionally difficult to quantify data.

This article is intended to provide reference librarians with an overview of cost analysis. It begins with a literature review, emphasizing both health sciences libraries and reference services. Formal definitions of cost accounting terminology will be provided, and uses for cost accounting within libraries will be summarized. Online search services will be used as an example for performing cost analysis, and price setting strategy will be discussed in relation to cost analysis. Only basic techniques will be presented; sources will be suggested for information on more advanced techniques. The article will emphasize cost analysis for decision-making purposes.

REVIEW OF THE LITERATURE

Information about cost analysis in libraries, while still not extensive, has become more prevalent over the past decade. As late as 1983, however, Boyce states that “the literature of cost accounting in libraries can only be characterized as sparse.”⁶ The literature remains inconsistent in its approach to cost accounting principles and is scattered throughout a variety of sources. With the exception of cost analysis of online services, literature on cost accounting of reference services is almost non-existent; Lopez briefly introduced the topic in 1973 as part of an article on reference measurement.⁵

Academic Studies

A good overview of cost accounting and analysis in university libraries was done at the University of California, Berkeley.² At that time (1971), the authors remarked on the inconsistencies among libraries with regard to internal cost accounting. Two other notable cost accounting studies on universities were published by Mount and Fasana in 1972⁷ and by Drake in 1977.⁸ More recently, Mitchell et al. have published a book that describes a model for cost accounting and details the overall system approach used at the California State University, Northridge.⁹ These studies attempted to allocate costs of overall library use to various user segments, but did not approach cost analysis of individual services. The above studies illustrate a primary problem which has been associated with the approach that academic libraries have taken to cost accounting. The difficulty is that the costs associated with library services are viewed as joint or indirect costs for all other departments in the institution,⁸ whereas the services themselves should be the object of the cost analysis.

Online Search Services

Online searching has become a major focus for cost analysis because the costs of this service can easily be separated from other library functions. The majority of this literature focuses on the comparison of manual and online literature searching,^10–16 or analyzes online search costs for a specific situation.¹⁷ Unfortunately, many of these studies are based on individualized situations which would not be applicable to other libraries. The literature on cost-effectiveness in online searching was reviewed by Koch in 1982.¹⁸ A variety of sources have identified what costs to include in a cost analysis of online searching,^19–22 but in a more technical and philosophical approach, Boyce suggests a model of cost elements to include for online searching that would allow comparisons between libraries.⁶

From a practical standpoint the most useful article on cost analysis is Drinan's “Financial Management of Online Services—A How-to-Guide.”²³ The article discusses the methodology for budgeting and pricing online services, presents formulas for cost analysis, and describes how to calculate fees based on the costs that libraries decide they wish to recover. A detailed cost inventory provides a practical guide for the reference librarian faced with deciding what costs to include in a pricing structure.

Several unique, specialized studies have appeared on cost analysis for online searching. For example, Wish et al. used fixed and variable costs to select the optimal computer terminal,²⁴ Boyce analyzed the cost-effectiveness of on and offline printing,²⁵ and Cooper and DeWath analyzed costs when searches were free versus when a fee was charged.²⁶ These studies can be used as models for libraries wishing to design individual cost analyses.

Health Sciences Libraries

Special libraries, including corporate, specialized academic, and health sciences libraries, have developed solid literature relating to cost accounting. Cost analysis studies have appeared regularly since 1970 in the Bulletin of the Medical Library Association. The recent emphasis by the National Library of Medicine on cost recovery both within the Regional Medical Library Network and for the MEDLARS system, and the introduction by the government of diagnosis related groups, have made librarians in health sciences institutions much more aware of the need to recover costs.

One of the greatest difficulties in gathering information for cost analysis is determing labor costs. Generally, salaries and fringe benefits are known and can easily be converted into hourly rates. The difficulty lies in determining the appropriate amount of time that is used to perform work...

Table of contents

• Cover
• Half Title
• About the Editor
• Title Page
• Copyright Page
• Table of Contents
• Acknowledgements
• Introduction
• I. Cost Analysis of Reference Services
• II. Cost Recovery for Reference Services
• III. Marketing Reference Services
• IV. Fee-For-Service
• V. Annotated Bibliography
• Index