The Return on Investment of

Collaborative Virtual Reference ServiceJeffrey Pomerantz

Lorraine EakinSchool of Information & Library

ScienceUNC Chapel Hill

<pomerantz, eak>@unc.edu

Recent library ROI studies

Florida: $6.54 returned for every $1.00 invested (Griffiths et al., 2004)

South Carolina: $4.48 returned for every $1.00 invested (Barron et al., 2005)

Southwestern Ohio: $3.81 returned for every $1.00 invested (Levin, Driscoll & Fleeter, 2006)

Florida & Pennsylvania: numerous economic and social benefits (McClure et al., 1998, 2000)

Older reference ROI studies

Murfin (1993) reviews several from late 1960s – early 1980s

Cost-per-transaction range from $2.20 – $10.80

Some issues in identifying costs:

Length of a transaction, “idle” time → % librarian’s salary

Librarians’ task analysis, reference collection usage

Portion of a reference collection to charge to the reference desk

Rationale for Model

These ROI studies focus on benefits (the return)Cost provides essential determinant of ROI (the investment)Few libraries know the true costs of their virtual reference service:

Accounting practices make accurate costing of individual services difficult to achieveFocus tends to be on costing library’s structure rather than services provided to patronStaff resistance (Marsteller, 2003)

Trajectory: from vertical integration …

Collaboratively sourced

Third party

… to collaborative and third party sourcing around shared processes and data

Sourced

“Typical” Reference Expenditure Categories:

Accounting Practices

Operating Budget Equipment Budget Materials Budget

SuppliesLeased Copier ChargesSupply Room/Computer

SuppliesDepartmental Supplies

Current ServicesTravelPostagePhone/InfrastructurePrintingComputer ServicesBibliographic ChargesFacilitiy/Equip/FurnitureTransit/Parking Fees

Fixed ChargesAnnual Recurring ChargesMemberships

Equip/Facility ContingencyEquip/Facility RequestsEDP EquipmentSpecial Purchases/Projects

ContentDMCredit Card Equipment

SerialsStanding OrdersNew SubscriptionsMonographsGeneral (Special Orders)BindingProcessingElectronicManuscriptsPreservationResearch

“Typical” System Level Expenditure Reporting:

Structure vs Service Costing

Books and Serials Publications

Academic Affairs LibraryHealth Sciences LibraryLaw Library

BindingAcademic Affairs LibraryHealth Sciences LibraryLaw Library

SalariesAcademic Affairs LibraryHealth Sciences LibraryLaw Library

Fringe BenefitsAcademic Affairs LibraryHealth Sciences LibraryLaw Library

WagesAcademic Affairs LibraryHealth Sciences LibraryLaw Library

Accounting Approach

To provide the most value to the patrons requires being able to tie the costs of service provision to the benefits received

Approaches that have been taken:

Traditional Functional Costing:Focuses upon the internal administrative structures of operationsDifficult to tie activities to the value provided

Activity-Based CostingFocuses on cost “drivers,” those goods or services that provide value to the patron and are costly to produceMore detailed attempt to tie value provided to cost of providing that value

Activity-Based Costing

Steps to engage in ABC Costing:

Identify operational activities

Assign Resource costs to activities

Identify service/good/output

Assign activity costs to output

Breakdown of costs

Individual libraries / Entire collaborative

Capital / Operational

Start-up / Ongoing

Individual/Collaborative

“Micro” approach: how an individual library can begin to cost the virtual reference services provided

Line item approach: detailed line item activities that lead to overall costs

Costs of collaboration to be determined in future studies

Capital/Operational

Capital: expenditures on resources like equipment, buildings and land

Typically long-term costs that can be depreciated

Associated with resources that have a long-term (e.g., >1 year) useful life

Operational: expenditures on resources that have a shorter-term lifespan

Will not be depreciated

Associated with the relatively short-term resources used to engage in creating the organization’s goods or services

Start-up/Ongoing

Start-up: The upfront costs associated with implementation of the service

May be fully or partially funded from a “project budget,” external agency or grant that will not be continued after the implementation is complete

Ongoing: The ongoing operational costs associated with the service after it “goes live”

Usually comes directly from the library’s operational, materials, and equipment budgets

Costs Over Time - NPV

Net Present Value

The value in terms of today’s dollar of cash flows that extend over a period of time, such as months or years

Uses the idea that getting a dollar today is more valuable than receiving that same dollar next year

Inflation would reduce the dollar’s value over time so next year’s dollar is worth less than this year’sInterest rates would allow you to take that dollar and invest it, making today’s dollar worth more than next year’s

Evaluating costs over time require you to take into account that future dollars spent “cost less” in terms of today’s dollar

Licensing costs

Outsourcing costs

Staff salaries & benefits

New hardware purchases

Telecommunication costs

Print materials costs

Electronic materials costs

Training

Facilities costs

Program planning & management

Cost Categories

Example: large urban libraryExcel file of model

Use of this model

Cost-Benefit Analysis

Cost Effectiveness Analysis

Budgeting and Budget Planning

Controlling Operations

Additional information

Project report:oclc.org/research/grants/awarded.htm

Cost model Excel file: www.ils.unc.edu/~jpom/costmodel/