Information Outlook, Vol. 6, No. 6, June 2002
A Librarian's Guide to Speaking the Business Language
Building A Budget: A Librarian's Guide to Speaking the Business Language
by Lisl Zach
Lisl Zach has an MBA and an MSLS; she is currently completing a Ph.D. in Information Studies. She has worked for over 20 years in administration and financial management for both profit and nonprofit organizations. She can be reached at lzach@wam.umd.edu.
Tools of Budgeting
When Marion went back to school 10 years ago to get her MLS, she imagined working in a large, oak-paneled library like the one in the university where she had studied for her MA in history. She envisioned her job would involve answering reference questions and providing other services to users. Nothing in her experience up to that point had prepared her to manage the operations of a small, single-person library in a busy consulting firm; but after finishing her degree, that was where she found herself when she answered an ad for a research specialist.
Now her boss' boss was asking her to explain why she needed more money to meet the increasing demands of the consulting staff for information, and she had heard rumors that her boss' was even asking why the company needed to have a library when everybody could get all the information he/she wanted right off the Internet! Marion knew she was going to have to make a convincing presentation at this week's department heads' meeting when they were going to discuss next year's budget, but she had never had to compete with other departments for resources before. Up until now, her boss had always given her a sum of money to spend during the yearthis time she was going to have to justify why she needed the money and what she was going to do with it. Finally, after looking through all the books she had on her shelves, she found notes from a management class she took during her MLS program, and began to read:
Budgeting is the basic tool of financial management. A budget can be used to:
· provide a plan stated in monetary terms;
· identify costs associated with accomplishing specific goals;
· supply a basis for negotiation and subsequent authorization; and
· monitor progress toward goals.
While the scenario described above is fictitious, the situation facing Marion is familiar to librarians and information professionals everywhere. Many of these people are managers at some point in their careers. In some instances, primarily in small special libraries, librarians are managers in their first jobs immediately after graduating. Alternatively, librarians who go to work in large libraries and information centers will generally make their way up the ladder to become department heads or library managers. As managers, librarians and information professionals are faced with decisions similar to those facing managers of other units within an organization. Many of these decisions require the use of basic financial management techniques. For example, library managers are typically responsible for a broad range of activities that rely on financial data, including:
· managing day-to-day operations;
· maintaining expenditures in accordance with their budgets;
· selecting optimum approaches for offering a service;
· determining prices to charge for services;
· requesting funds for a capital project;
· justifying projects and/or staff; and
· justifying the existence of the library or information center.
One of the key issues facing librarians in their roles as managers is developing a common language with their counterparts in the business environment. Because of their training and orientation, librarians often avoid active participation in the budget process, even when the opportunity is offered to them. In order to compete effectively for resources, it is important for librarians and information professionals to incorporate the underlying notions of financial management into their day-to-day operations and become comfortable with the vocabulary and techniques of budgeting.
Budgeting is essential to the financial management process. It is the most basic tool in a manager's repertoire for communicating about his/her plans and goals in financial terms. Up until now, Marion had been dealing with a "lump sum budget," in which the library's budget appeared as a single line item in a larger divisional budget. She kept track of what she spent during the year and each year asked for a little more money to cover increased costs due to inflation. After several years of doing this, Marion has a good idea of all of the different categories that she spends money in, and has developed an overall line item budget that she updates each year. However, this approach to budgeting only provides information about how the money has been spent overallMarion does not have a good basis for projecting the cost of the individual services the library offers or of evaluating how she should be allocating her resources. It is important for Marion to turn her current budget document into a "program budget" a much more compelling and useful management tool.
Budgets can be developed at almost any organizational level, from that of a particular product or service to the master budget for the company as a whole. Most librarians and information professionals will be dealing at the level of a departmental budget, made up of the costs for one or more specific services or activities. When developing a program budget, the following basic steps are involved:
Step 1: Think About the Goals of the Library/Information Center
The goals may come directly from the organizational mission statement or there may be a specific mission statement for the library. They will usually be defined in terms such as how they:
· meet the information needs of the organization;
· provide easy and convenient access to information resources;
· disseminate or communicate relevant information about recent developments; and
· support informed and timely decision-making.
These goals are helpful as a way of presenting the library or information center's services and/or activities in terms of the contribution they provide to the organization as a whole. When developing and presenting a budget, it is important to link the money that will be spent on a specific service and/or activity with the benefit the organization will receive from that particular service and/or activity. With more specific goals for each service, the library or information center's role in supporting it can be defined. For example, if "Meet information needs of organization" is stated as a goal instead of "Meet the information needs of [specific user group] by providing [specific types of services]," then criteria for successful accomplishment are already implicit in the definition. Also, by making goals more specific, it is possible to prioritize them in terms of how resources should be allocated.
Step 2: Develop a List or Matrix of all Major Services and/or Activities
Most library or information center operations can be broken down into general categories of services and/or activities such as:
· access to materials (including ILL and document delivery);
· access to remote databases;
· reference and consultation services;
· training and education services;
· current awareness services; and
· other support services.
| GOALS | LIBRARY AND INFORMATION SERVICES | |||||
| Access to Remote Databases | Access to Materials | Reference/Consultation Services | Training & Education | Current Awareness Services | Support Services | |
| Meet information needs of organization (or specific user groups) | ||||||
| Provide easy and convenient access to information resources | ||||||
| Disseminate or communicate relevant information about recent developments | ||||||
| Support informed and timely decision-making | ||||||
When developing a program budget, the first step is to identify all of the services and/or activities provided, and link them to specific goals. In the case of this example, most of the services listed would support all of the goals identified for the library. In the case of more specific goals, only a few of the services may support any one goal. If the goals have been prioritized, then the list can be used to help identify which services and/or activities should receive more resources. As part of the budgeting process, it is useful to identify the most important services and/or activities provided by the library and use them to justify the requested expenditures. Linking services and/or activities to specific goals also provides a basis for reducing or eliminating items that are no longer priorities and/or have a disproportioned amount of resources allocated to them.
Step 3: Think About the Resources Needed to Provide Each Service and/or Activity
Almost all services and/or activities require a mix of resources. These can include the labor (salary and benefits) to perform the services, the subscriptions and equipment to access remote databases, the collection itself, and any other materials, equipment and supplies that are used in the day-to-day operations of the library or resource center. However, the costs of these resources are usually not divided equally among the various servicessome services may require a very high proportion of labor to materials (such as a consultation service) and some may be very equipment-intensive. As part of the process of developing a program budget, it is important to identify the amount of different resources that are required to provide each of the various services. This process also helps to identify services and/or activities for which the library does not currently have the appropriate resources available.
Any item or resource that is used specifically to provide an individual service is called a "direct cost" of that service; examples of direct costs include the actual time spent by a librarian on a single database search as well as the connect time to the subscription service. Direct costs for individual services can often be captured electronically or by keeping manual records of the amount of time spent performing specific tasks. Other sources for cost information can include:
| LABOR COSTS: | MATERIAL COSTS: |
| actual time sheets | past experience (internal accounting information) |
| staff estimates | on-going contracts / subscription services |
| pro-rated annual salary | vendors (estimates / RFP responses) |
| salary surveys | catalogs |
Colleagues in the field are also useful sources of information about costs. Asking others in similar organizations how they have accomplished certain tasks is a way of obtaining valuable input for the budgeting process.
Step 4: Identify Any Shared Costs and Determine How They Should Be Allocated
So far the process of identifying costs associated with individual services and/or activities is the same as that used to develop a traditional line item budget. Since a line item budget can be compiled at any level, what really differentiates it from a program budget is the purpose to which it is put, that is, a line item budget merely reflects categories of costs associated with an accounting unita program budget links those costs to meeting specific organizational goals. However, in practice, a program budget is often made up of a number of activities that share some common costs, which must be allocated across the different services.
While direct costs should be identifiable, relatively few records are kept that track labor (the largest cost component) by individual service requests. While techniques exist to do this accurately (compare, for example, the approach used by software helpdesks), the record keeping requirement is often considered to be too burdensome to be implemented, especially in small libraries or resource centers. One less intrusive way of recording labor costs for a reference service has been to rely on schedules of reference desk assignments or other indirect measures such as staff estimates or pro-rated salary figures. Although these measures provide less accurate information, they are at least a place to start when allocating salary costs to specific services.
In addition to the problems associated with capturing accurate direct labor costs, other challenges exist in terms of allocating shared costs. For example, the increased use of subscription-based services is making it more difficult to capture the direct costs of online searching. In the past, this service was easily differentiated from other library functions and costs were primarily on a per usage basis so that the direct costs were easy to identify. However, with the proliferation of end-user desktop access to electronic resources, there has been a dramatic drop in intermediated online searching. Furthermore, many commercial online services are converting from a "pay-as-you-go" pricing scheme to subscription-based pricing, which is more difficult to attribute across individual searches.
If possible, shared costs should be allocated based on the actual percentages used by each service. In practice, it is often necessary to develop alternative approaches for allocating such costs to individual services. As a result of the difficulties inherent in keeping detailed records of shared costs in libraries and information centers, a surrogate such as the percentage of identifiable direct
| Total Cost Allocation | Salary Allocation | Difference | ||
| Program #1 | Material costs Labor costs Allocated O/H Program subtotal | $31,350 $25,875 $11,445 $68,670 | $31,350 $25,875 $8,145 $65,370 | $ (3,300) |
| Program #2 | Material costs Labor costs Allocated O/H Program subtotal | $32,400 $34,500 $13,380 $80,280 | $32,400 $34,500 $10,860 $77,760 | $ (2,520) |
| Program #3 | Material costs Labor costs Allocated O/H Program subtotal | $2,250 $54,625 $11,375 $68,250 | $2,250 $54,625 $17,195 $74,070 | $ 5,820 |
| Total Resource Center | $217,200 | $217,200 | ||
material and/or labor costs associated with each service can be used as the basis for allocating costs. Whatever allocation method is adopted should be applied consistently from program to program and from year to year in order to ensure comparable cost data for tracking and planning purposes.
Once all the shared costs have been allocated, it is time to add up the combined costs of all of the services and/or activities and check to make sure that nothing has been left out or counted twice. This is also the time to check the allocation of shared costs and make sure that the approach used presents the most "accurate" picture of your organization. It can be useful to try more than one allocation approach before finalizing the budget presentation.
| Program | ||||
| Expense | Totals | #1 | #2 | #3 |
| Fax | $ 1,500 | $ 1,500 | ||
| Fed Ex | $ 50 | $ 50 | ||
| Photocopies | $ 3,500 | $ 3,500 | ||
| Postage/USPS | $ 750 | $ 750 | ||
| Subs/Dues/Bks. | $ 56,000 | $ 26,600 | $ 29,400 | |
| Supplies | $ 2,000 | $ 1,000 | $ 500 | $ 500 |
| Telephone | $ 1000 | $ 250 | $ 250 | $ 500 |
| Travel - Staff | $ 1,200 | $ 1,200 | ||
| Subtotal | $ 66,000 | $ 31,350 | $ 32,400 | $ 2,250 |
| Salaries | $ 100,000 | $ 22,500 | $ 30,000 | $ 47,500 |
| Benefits @ 15% | $ 15,000 | $ 3,375 | $ 4,500 | $ 7,125 |
| Subtotal | $ 181,000 | $ 57,225 | $ 66,900 | $ 56,875 |
| O/H @ 20% | $ 36,200 | $ 11,445 | $ 13,380 | $ 11,375 |
| Total | $ 217,200 | $ 68,670 | $ 80,280 | $ 68,250 |
After completing the process of identifying costs associated with individual services and/or activities and linking these to specific organizational goals, it is time to present the budget. The program budget provides a basis for negotiation with management since it demonstrates in financial terms how the library or resource center intends to use the resources it is requesting to meet defined organizational goals. The priority of these goals can be discussed and adjustments can be made to the level of resources allocated to meeting each one. Once the budget has been approved, it becomes the formal authorization for action in accordance with the plan that has been presented. By using the budget to monitor progress toward accomplishing the goals set out in the plan, the financial management cycle is completed and the information collected during the cycle can be used to provide input into the next budgeting process. 
Types of Budgets
Operating budget
· Total annual expenses incurred in the course of accomplishing an organization's (or sub-unit's) main line(s) of business
· May include both recurring expenses and one-time expenses (unless capitalized)
Capital budget
· Expenses typically exceed a certain dollar amount
· Supports major activity
· Not limited to one fiscal year Cash budget
· Projects actual timing of revenue and expenditures
Approaches to Budgeting
Incremental budgeting
· Uses previous year(s) as starting point
· Assumes that most activities remain unchanged
· Requires justification for new programs
Zero-based budgeting
· Each program is built "from scratch"
· Programs ranked by cost/importance to organizational goals
· Identifies and eliminates obsolete programs |
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