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THE BUDGET AN IMPRECISE DOCUMENT FOR COST ANALYSIS

THE BUDGET AN IMPRECISE DOCUMENT FOR COST ANALYSIS CUTTIN G COSTS JOSEPH EISNER THE BUDGET: AN IMPRECISE DOCUMENT FOR COST ANALYSIS In a previous column in the Winter 1990 issue (volume portunity-cost equation. Should the librarian decide not to order the hardbound volume, the opportunity cost to the 4, number 4, page 37), it was pointed out that the budget library is $10.10. Theoretically this saved an expenditure document usually reflects out-of-pocket costs and not true of $34.95 and could be considered a worthwhile invest­ costs. Here are some further examples. ment, since the $34.95 represents the value of a foregone ACQUIRING A BOOK alternative action. In this case, the $10.10 outlay in staff time could also be deemed the overhead cost of not ac­ A flyer is received promoting a hardbound volume of quiring the hardbound volume. If the volume were ac­ professional interest at a net price of $34.95. Closer ex­ quired, the $10.10 plus the processing and cataloging costs amination reveals that the volume's contents previously would be the overhead costs of acquiring the volume. appeared in a periodical not subscribed to by the library. A check of the local union catalog reveals that no other ACQUIRING A SUBSCRIPTION ON institution currently owns the book. So, before buying it, MICROFILM the acquisition librarian decides to try to borrow the issue of the periodical in which the book's contents appeared. A library administrator asks the reference department This requires checking the local regional union list of se­ to evaluate the cost of subscribing to biweekly updates of rials. It indicates that the periodical is subscribed to by magazines on microfilm. The cost of a "current" subscrip­ three libraries, only one of which will make it available on tion is $10,354, which will include backfiles to 1988, as interlibrary loan. Assuming that the decision on the part well as a subscription to a CD ROM index. The continu­ of the librarian took 15 minutes (including checking the ance of the current subscription to this index generates union catalog and the regional union list of serials), and an additional discount which brings the price of the mi­ that the clerical time involved in arranging not only to crofilm subscription service under consideration to $96 borro w but to return the monograph took 20 minutes, less than if the latter were subscribed to alone. However, would the library have been ahead financially if a decision the library already has standing orders for periodicals on had been made to purchase the book relying solely on the microfilm which duplicate many of the titles in the pro­ information in the flyer? posed new service. The estimated cost of these standing orders for 1990-91 is $1,770, and many have already been In analyzing this, the concept of "opportunity cost" is received. If the library subscribes to the new service, what considered. While accountants and economists may have is the additional cost, and what will the opportunity cost different definitions for this term, the economist defines be? "opportunity cost" as the value of a foregone alternative action. In this example, the $28,000-a-year, salaried librar­ Subtracting the current costs of the CD ROM index ian is paid $15.33 an hour (out-of-pocket cost). Yet when and the microfilm standing orders of $3,150 and $1,770, the value of fringe benefits, holidays, sick time, breaks, etc. respectively, for a current cost of $4,920 indicates that the (estimated at 60 percent of hourly wage) is factored in, additional cost of the new service will be $3,664. The the actual hourly wage is $24.41. Fifteen minutes of the opportunity cost will be at least $1,770 for the duplicate librarian's time is wort h $6.10. Similarly, a $14,000 a year, subscriptions on microfilm including the standing order salaried clerk's hourly wage is actually wort h $11.99. Twenty for 1990-91, as well as the previous amounts spent in minutes of that person's time to assist the librarian is val­ 1988-89 and 1989-90 for the microfilm standing orders ued at $4.00. Thus, the cost to the institution is $10.10 for already received (assuming that these materials will not the librarian to receive the interloan monograph in order be used). Thus the total opportunity cost is at least $5,200. to decide whether to spend $34.95 for a hardbound vol­ Clearly, in these examples the budget document does ume. Should the librarian decide to order the volume, then not reflect the tradeoffs and writeoffs of past expenditures the cost of writing the order, processing, and then cata­ which must be evaluated in order to arrive at a true indi­ loging it after receipt must be added to complete the op­ cation of the actual costs of conducting library operations o r instituting library services. However, they are helpful in reminding us to consider all the costs before making a Joseph Eisner is Director, Plainedge Public Library, Massapequa, New decision. York. 36 The Bottom Lin e Volume 5, Number 2 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Bottom Line: Managing Library Finances Emerald Publishing

THE BUDGET AN IMPRECISE DOCUMENT FOR COST ANALYSIS

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0888-045X
DOI
10.1108/eb025331
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Abstract

CUTTIN G COSTS JOSEPH EISNER THE BUDGET: AN IMPRECISE DOCUMENT FOR COST ANALYSIS In a previous column in the Winter 1990 issue (volume portunity-cost equation. Should the librarian decide not to order the hardbound volume, the opportunity cost to the 4, number 4, page 37), it was pointed out that the budget library is $10.10. Theoretically this saved an expenditure document usually reflects out-of-pocket costs and not true of $34.95 and could be considered a worthwhile invest­ costs. Here are some further examples. ment, since the $34.95 represents the value of a foregone ACQUIRING A BOOK alternative action. In this case, the $10.10 outlay in staff time could also be deemed the overhead cost of not ac­ A flyer is received promoting a hardbound volume of quiring the hardbound volume. If the volume were ac­ professional interest at a net price of $34.95. Closer ex­ quired, the $10.10 plus the processing and cataloging costs amination reveals that the volume's contents previously would be the overhead costs of acquiring the volume. appeared in a periodical not subscribed to by the library. A check of the local union catalog reveals that no other ACQUIRING A SUBSCRIPTION ON institution currently owns the book. So, before buying it, MICROFILM the acquisition librarian decides to try to borrow the issue of the periodical in which the book's contents appeared. A library administrator asks the reference department This requires checking the local regional union list of se­ to evaluate the cost of subscribing to biweekly updates of rials. It indicates that the periodical is subscribed to by magazines on microfilm. The cost of a "current" subscrip­ three libraries, only one of which will make it available on tion is $10,354, which will include backfiles to 1988, as interlibrary loan. Assuming that the decision on the part well as a subscription to a CD ROM index. The continu­ of the librarian took 15 minutes (including checking the ance of the current subscription to this index generates union catalog and the regional union list of serials), and an additional discount which brings the price of the mi­ that the clerical time involved in arranging not only to crofilm subscription service under consideration to $96 borro w but to return the monograph took 20 minutes, less than if the latter were subscribed to alone. However, would the library have been ahead financially if a decision the library already has standing orders for periodicals on had been made to purchase the book relying solely on the microfilm which duplicate many of the titles in the pro­ information in the flyer? posed new service. The estimated cost of these standing orders for 1990-91 is $1,770, and many have already been In analyzing this, the concept of "opportunity cost" is received. If the library subscribes to the new service, what considered. While accountants and economists may have is the additional cost, and what will the opportunity cost different definitions for this term, the economist defines be? "opportunity cost" as the value of a foregone alternative action. In this example, the $28,000-a-year, salaried librar­ Subtracting the current costs of the CD ROM index ian is paid $15.33 an hour (out-of-pocket cost). Yet when and the microfilm standing orders of $3,150 and $1,770, the value of fringe benefits, holidays, sick time, breaks, etc. respectively, for a current cost of $4,920 indicates that the (estimated at 60 percent of hourly wage) is factored in, additional cost of the new service will be $3,664. The the actual hourly wage is $24.41. Fifteen minutes of the opportunity cost will be at least $1,770 for the duplicate librarian's time is wort h $6.10. Similarly, a $14,000 a year, subscriptions on microfilm including the standing order salaried clerk's hourly wage is actually wort h $11.99. Twenty for 1990-91, as well as the previous amounts spent in minutes of that person's time to assist the librarian is val­ 1988-89 and 1989-90 for the microfilm standing orders ued at $4.00. Thus, the cost to the institution is $10.10 for already received (assuming that these materials will not the librarian to receive the interloan monograph in order be used). Thus the total opportunity cost is at least $5,200. to decide whether to spend $34.95 for a hardbound vol­ Clearly, in these examples the budget document does ume. Should the librarian decide to order the volume, then not reflect the tradeoffs and writeoffs of past expenditures the cost of writing the order, processing, and then cata­ which must be evaluated in order to arrive at a true indi­ loging it after receipt must be added to complete the op­ cation of the actual costs of conducting library operations o r instituting library services. However, they are helpful in reminding us to consider all the costs before making a Joseph Eisner is Director, Plainedge Public Library, Massapequa, New decision. York. 36 The Bottom Lin e Volume 5, Number 2

Journal

The Bottom Line: Managing Library Finances – Emerald Publishing

Published: Feb 1, 1992

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