LIS 770 03 Fall Semester Management of Libraries and Information Centers Final Paper Management Issues Return on Investment,

Cost Benefit Analysis, and How to Fund Libraries

Lisa West December 16, 2010

Introduction
The recession has required local governments and schools to cut budgets of services such as libraries. As libraries face budgetary scrutiny, librarians must prove the value of libraries. Increasingly, the return on investment, or ROI, is a tool used to do so. Is ROI the right tool and does it truly show the value of a library? If not, what is it good for? What other tools are available? If ROI does not help keep libraries funded, what does?

Return on investment ROI

ROI is a basic marketing tool. The simplest ROI formulas are (Rutkaukas 2010, 2): ROI = Return Investment ROI = (Revenue Cost of Goods Sold) Investment Investment A positive ROI indicates that the benefit is greater than the cost. A negative ROI indicates that less benefit has been received for the cost. ROIs have been used as a library assessment tool since the late 1980s (White 2007, 6). ROI is one method of cost benefit analysis used in the business world. Other methods include pay-back period, hurdle rate or minimum acceptable rate of return, internal rate of return (IRR), and net present value (NPV). A survey of 392 CFOs showed a 75.6% preference for IRR, 74.9% for NPV, 56.9% for hurdle rate, and 56.7% for payback period. ROI is not popular among CFOs (Mott 2010, 2). One reason is that

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ROI does not include the time value of money. The formula is also not consistent among users and users of ROI do not include the same data (Mott 2010, 4). Libraries use a variety of methods to calculate their value, including ROI. They also include different factors and values. There are no standards and no coordinating body that maintains consistency among libraries. This makes it difficult to compare results among libraries, lessening the impact of ROI evaluation (Imholz 2007, 22). ROI calculators of libraries yield an average of $3 to $6 for every dollar spent (Sidorko 2010, 3-4). At the University of Illinois, over 39% of faculty awarded grants used citations obtained through the library in his or her proposal. This placed a ROI of $4.38 for every $1 in grant receipt alone for the library (Tenopir 2010, 4). The Suffolk Cooperative Library System (SCLS) of New York calculated their ROI at $3.87 for every $1 spent (Imholz 2010, 22). The director of SCLS felt that though this did not influence patrons, it resulted in the librarys most successful funding year due to its impact on senators and local legislators (Imholz 2010,24). However, the Mastic-Moriches-Shirley Community Library on Long Island found that though their ROI showed a $3 to $1 positive ratio, 75% of those that voted on a library bond voted no. This shows that a positive ROI does not necessarily equate more funding (Imholz 2010,26). Though the ROI cannot accurately gauge the complete value of a library, it can be useful in other ways. ROI can be used to assess the value of capital investments such as a photocopier (Linn 2009, 83). It can also be used to assess outside vendor services such as computer support services or maintenance (White 2007, 7).

Cost-benefit analysis CBA, other methods

Another drawback of ROI is that it cannot measure a librarys intangible benefits. Other methods of cost-benefit analysis attempt to do this. These include willingness-to-

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pay (WTP), willingness-to-accept (WTA), cost of time, consumer surplus, contingent valuation, and surveys. WTP is how much patrons would be willing to pay for a library service. WTA is how much, or what service, they are willing to give up instead of increasing funding or in order to lower taxes. The cost of time valuation is calculated by equating the value of a patrons time to the time they chose to spend in the library. The downside of these CBA calculators is that they are hypothetical and therefore cannot accurately assess the value of a library service. Consumer surplus is how much a comparable service that a library offers costs. Contingent valuation is how much a consumer would pay for a service if it were not offered by the library (Cignoli 2010, 4). However, these services are not valued consistently among libraries and that makes it difficult to compare library to library (Imholz 2010, 18). Surveys can measure satisfaction, show intent, and show outcomes of library use. Repeating similar surveys over the years can show the changes in patron usage and attitudes (Tenopir 2010, 12). However, surveys are expensive and take time (Levin 2006, 8). These additional CBA tools are as incapable of attaching value to the intangible assets of a library as ROI. They cannot accurately gauge the impact of the library on its community.

Library funding
In 2008, OCLC published From awareness to funding: A study of library support in America. The purpose of this report is to apply marketing and advocacy towards libraries in order to increase funding by increasing the rate of support for library

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referendums. This report shows that there are other factors, besides CBA, that contribute to the positive attitude of the community towards library funding (OCLC 2008, viii). Sixty percent of elected officials who participated in the OCLC survey said they would support a ballot to fund libraries. However, 73% said that they felt libraries had enough money to maintain operations. They also felt that library funding priority was below that of public safety services. Though elected officials will rarely instigate an increase for library funding, they will support it if pressured by the community. The library also has a broad appeal that officials can support without worry. Officials suggest highlighting the value of the library as a community space with access to technology and programs for young adults. Combining efforts with other public services can also increase support. Referendums that coincide with general, as opposed to local, elections and that support a new building, not operating funds, are more successful (OCLC 2008, 3-12 3-14). The OCLC report has identified nine types of library users and their level of possible library funding support. These groups are the Financially Strapped, Detached, Web Wins, Just for Fun, Kid Driven, Library as Office, Look to Librarians, Greater Good, and Super Supporters. These participants were asked what concepts would make them support a library levy (OCLC 2008, xiii). The Financially Strapped, Detached, and Web Wins are three segments that do not support an increase in library funding. The Financially Strapped library patron will most likely oppose a library levy. They believe that the library is sufficiently funded and any additional funding, if necessary, should be for community safety. They also feel they pay enough in taxes and cannot afford to pay any more (OCLC 2008, 2-18). The

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Detached community member uses the library the least and does not see the relevance of the library (OCLC 2008, 2-22). The Web Wins feels that information on the Internet is as good as that provided by the library and that librarian assistance does not add value to information (OCLC 2008, 2-31). Probable supporters include Just for Fun, Kid Driven, and Library as Office (OCLC 2008, 2-39). Although Just for Fun patrons account for 23.9% of library users, only 9.7% would definitely support an increase in library funding (OCLC 2008, 2-47). Fortyeight percent of Kid Driven would support library funding. Their support is due to their emotional connection to the library and their belief that the library is important to the community (OCLC 2008, 2-52). Library as Office use library tools such as computers, Internet access, photocopier, and fax machines to assist in conducting business. They work locally and are involved in the local community. They value librarians as a research resource but only 31% of Library as Office would definitely support library funding (OCLC 2008, 2-60). The community segments that would definitely support an increase in taxes to support libraries are Look to Librarians, Greater Good, and Super Supporters. The Look to Librarians segment visits the library twice as much as the average survey respondent. They have a strong emotional connection to the library and feel a sense of belonging there. They believe the library is current and that it contributes to their continuing education. They seek the assistance of librarians for advice and research and believe that the librarian is the librarys most valuable resource. They are also the only segment that places the library as a funding priority above schools, fire, and police departments. Fifty percent of Look to Librarians would vote to increase library funding (OCLC 2008, 269).

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Fifty percent of the Greater Good segment would also favor library funding. They do not use the librarys resources, other than its meeting rooms, very often, but support the library as it contributes to the greater good of society (OCLC 2008, 2-79). Super Supporters have a strong emotional connection to the library and the librarian. Eighty percent of Super Supporters would vote in favor of a library referendum (OCLC 2008, 2-88). The OCLC report finds that communities that have a passionate librarian have increased levels of financial support. These librarians traits include being a true advocate for lifelong learning, passionate about making the library relevant again, knowledgeable about every aspect of the library, well-educated, and knowledgeable about the community. Approximately 50% of Look to Librarians and Greater Good and 80% of Super Supporters rate their librarian as a passionate librarian (OCLC 2008, 48). Strong library supporters feel that the library is a place of transformation. They feel that the library helps create who you are, makes you feel good about yourself, allows you to appreciate the beauty in life. It also makes you come away feeling like you really learned something, fills you with hope and optimism, empowers you, helps you seek truth, [and] serves a serious purpose (OCLC 2008, 4-12). Early memories assist in forming the belief that the library is a transformative place. Family and friends with special significance accompanied the supporter to the library as a child. The librarian was also remembered as a guide as well as someone who fostered independent decision making. Having a library card, being quiet, and taking responsibility for books borrowed from the library marked the first steps towards adulthood (OCLC 2008, 5-4).

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Library supporters also have strong current connection to the library. They feel that the library assists in achieving personal and community goals and potential. It fosters independence and is a safe sanctuary. It is a neutral venue where the community can meet. The library has unlimited resources for learning and opens up windows to the world (OCLC 2008, 5-6). Among those that definitely and probably would financially support the library have similar past and present library experiences, there is a large difference in how they feel about life without the library. Some supporters felt that the library was losing relevance both in their lives as well as the lives of children due to the availability of more information and entertainment in digital formats (OCLC 2008, 5-9). The second group felt that a loss of libraries would adversely affect their community. They believed that not only the next generation, but the community as a whole would become less educated and have lower IQs. Their community would lose a safe, neutral and open meeting place if the library were closed. The loss would lead to a reduction in the communitys moral and social valueswould result in an increase in crime. The loss of a library would also increase the digital divide of the haves and have-nots (OCLC 2008, 5-10 5-11). Community members that could not afford their own resources would have fewer opportunities and be less educated. The probable supporter felt that if the library closed, it would deny many people access to basic information and Internet, as well as shutting down a valuable tool for intensive research. The Super Supporter felt that to live in a community without a library would be similar to living in a community without air (OCLC 2008, 5-2).

Conclusion
ROI and other CBA methods can assist in bringing some aspects of a librarys

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value to the attention of the community and politicians. They do not, however, necessarily translate into an increase in funding for libraries. The OCLC report has identified the different community supporters, and how they feel about libraries, and how they would vote on a library referendum. The question is, what can be done with this information to increase library funding? The OCLC report showed that some communities assumed that even if they voted no to a library referendum, the funds would come from somewhere. This is true even in Medford, Oregon, where the libraries had already closed. This indicates a need for librarians to ensure the community is aware of how libraries are funded. Communities need to be aware that without funding and support from the community, the libraries will shrink and may eventually close (OCLC 2008, 7-2). OCLC focus groups pointed to four community benefits that only the library can provide. They suggested that advocating these services could increase awareness and funding. These services are equal access, shared community values (or teaches values), a sacred place, and community stature. Equal access meant that the library was a catalyst and caretaker for equality across all parts of society, giving anyone the opportunity for self- improvement or conversely, giving them no excuse not to improve. Without the free public library, access to information, history, perspectives, technology and self- improvement would be limited to only certain members of society. Shared community values means that the library fosters sharing community assets, respect for the community, and self-reliance. The library is seen and can be promoted as a quiet, orderly, free, safe place where one can participate in social bonding. The library builds community stature as a symbol of curiosity and learning. A community that allows its library to close may turn away

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potential residents because its sends a message that the community does not care about education and community. The impact of the library on the community is not merely its collection, but its impact on the individual and community (OCLC 2008, 6-5 6-6). The report also shows that if librarians make the library a relevant and crucial community service, funding will be supported. It needs to be showcased as a transformative place that is a necessary part of the community infrastructure and its future. Personal ROI showing the actual economic return for the individual, family, as well as the community is also necessary. Library funding support is an attitude, not a demographic. Those that support funding are those with strong positive feelings towards their library and librarian (OCLC 2008, 4-1).

References
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Barron, Daniel D., Robert V. Williams, Stephen Bajjaly, Jennifer Arns, and Steven Wilson. 2005. The economic impact of public libraries on South Carolina. http://www.libsci.sc.edu/SCEIS/acknowledgements.pdf [accessed October 26, 2010]. Cignoli, Nicole B. 2010. Evaluation of services and programs of the Trumbull Library System through cost benefit analysis and patron perception. http://www.trumbullct-library.org/PDF/Special%20Project%20Executive %20Summary.pdf [accessed November 18, 2010]. Fonesca, Anthony. 2010. Speaking in the ROI-al we: On the need to create a return-oninvestment calculator for academic libraries of community colleges and regional/undergraduate four-year institutions. Codex: the Journal of the Louisiana Chapter of the ACRL 1 no. 2 : 80-99. http://journal.acrlla.org/index.php/codex/article/viewFile/23/40 [accessed November 15, 2010]. Holt, Glen. 2007. Communicating the value of your libraries. The Bottom Line 20, no. 3: 119-124. http://www.emeraldinsight.com.ezproxy.dom.edu/journals.htm?issn=0888045x&volume=20&issue=3&articleid=1626419&show=html [accessed November 15, 2010]. Imholz, Susan and Jennifer Weil. 2007. Worth their weight: An assessment of the evolving field of library valuation. www.bibliotheksportal.de/fileadmin/.../WorthTheirWeight.pdf [accessed November 15, 2010]. Kaufman, Paula and Sarah Barbara Watstein. 2008. Library value (return on investment, ROI) and the challenge of placing a value on public services. Reference Services Review 36 no. 3: 226-231. http://www.emeraldinsight.com.ezproxy.dom.edu/journals.htm?issn=00907324&volume=36&issue=3&articleid=1740525&show=html [accessed November 15, 2010]. Levin, Driscoll, and Fleeter. 2006. Value for money: Southwestern Ohios return from investment in public libraries. http://9libraries.info/docs/EconomicBenefitsStudy.pdf [accessed November 18, 2010]. Likely, Fraser, David Rockland, and Mark Weiner. 2006. Perspectives on the ROI of media relations publicity efforts. http://www.instituteforpr.org/files/uploads/2006_ROI_LRW.pdf [accessed November 15, 2010]. Linn Jr., Mott. 2009. Cost-benefit analysis: a disparagement of it misuse and misexplanation. The Bottom Line: Managing Library Finances 22, no. 3: 82-85. http://www.emeraldinsight.com.ezproxy.dom.edu/journals.htm?issn=0888-

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045x&volume=22&issue=3&articleid=1821852&show=html [accessed November 15, 2010]. ---. 2010. Cost-benefit analysis: a primer. The Bottom Line: Managing Library Finances 23, no. 1 31-36. http://www.emeraldinsight.com.ezproxy.dom.edu/journals.htm? issn=0888-045x&volume=23&issue=1&articleid=1864130&show=html [accessed November 15, 2010]. Massachusetts Library Association. Value of library service calculator. http://69.36.174.204/value-new/calculator.html [accessed December 7, 2010]. OCLC. 2008. From awareness to funding: A study of library support in America. http://www.oclc.org/reports/funding/fullreport.pdf [accessed November 16, 2010]. ---. 2010. How libraries stack up: 2010. http://www.oclc.org/reports/pdfs/214109usf_how_libraries_stack_up.pdf [accessed November 15, 2010]. Rutkauskas, Aleksandras Vytautas, and Indre Lapinskaite-Vvohlfahrt. 2010. Marketing finance strategy based on effective risk management. http://www.vgtu.lt/leidiniai/leidykla/BUS_AND_MANA_2010/Finance_Engineering /162-169_Rutkauskas_Lapinskaite_Wohlfart.pdf [accessed November 15, 2010]. Sidorko, Peter Edward. 2010. Demonstrating ROI in the library: The Holy Grail search continues. Library Management 31, No. 8-9: 1-12. http://www.emeraldinsight.com.ezproxy.dom.edu/journals.htm?issn=01435124&volume=31&issue=8&articleid=1891440&show=html [accessed November 15, 2010]. Tenopir, Carol. 2010. Measuring the value and return on investment of academic libraries. Serials Librarian 58, no. 1-4: 9-12. [January]. http://www.informaworld.com.ezproxy.dom.edu/smpp/section? content=a921089027&fulltext=713240928 [accessed November 15, 2010]. White, Larry Nash. 2007. An old tool with potential new uses: return on investment. The Bottom Line: Managing Library Finances 20, no. 1: 5-9. http://www.emeraldinsight.com.ezproxy.dom.edu/journals.htm?issn=0888045x&volume=20&issue=1&articleid=1599307&show=html [accessed November 15, 2010].

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