Hernias and budget blowouts
Professor G.E. Gorman, Victoria University of Wellington, New Zealand
The budgeting process in information organizations
The classic management texts present a remarkably neat and tidy picture of the budgeting process in information organizations. Looking through the alarmingly large array of such texts on my shelves – all published in the last five years – it seems that most writers see something like a four-step process as the norm.
Step one – forward-planning goals
First, we are told, look at your institution's forward-planning goals. What do you hope to accomplish in the next 12 months?
Step two – what are the financial resources needed?
Having reviewed the plan and objectives, the management team is then in a position to answer the second question: what are the financial resources needed to accomplish the objectives for the next 12 months? Generally this means looking at budget increases to cope with the increased cost of resources and staffing, greater usage ("a good thing") and therefore greater costs ("a bad thing"), perhaps new or revamped services requiring an injection of funds, etc.
Step three – compromise and agreement
After the question answering has finished, the team is then in a good position to draft the budget and then submit it to the required review process of the particular institution. In this third step there may be much discussion, argument, soul searching, acrimony and finally compromise and agreement. In the end one has what is deemed a workable, finished budget for the next year.
Step four – secure your funds
The fourth and final step? Easy – just secure the necessary funds through whatever advocacy process works within your organization!
Anticipating budget blow-outs
Oh, and there is usually a caveat that goes something like this: it often happens that some expenditures during the year are higher than estimated, so the careful manager must be prepared to adjust a budget accordingly. And there's the rub – even if we assumed that the four steps were as simple as they appear on paper, how do we plan for increased costs, how do we know what to expect, and where to anticipate budget blow-outs? This is not easy, just as it is never possible to know exactly where a hernia will erupt; in fact, budgets and hernias have much in common: they can occur at the most inopportune moments, they are painful, repair can be costly and is never foolproof.
However, an experienced diagnostician often can anticipate rather accurately where a hernia might occur, and a deft laproscopic surgeon can do a pretty good repair job with minimal discomfort. If a budget blow-out can be likened to a hernia, is an information manager like a surgeon? It seems an appropriate simile. The problem is that, until recently at least, information managers have not enjoyed the benefit of recorded experience about budget blow-outs to the same degree as surgeons have been able to rely on hernia case studies. This is beginning to change, and there is increasing literature available on guidance on what to expect in terms of budget blow-outs. Here we focus on three areas where experience shows that budget forecasts may be particularly unreliable:
- information systems maintenance,
- copyright compliance, and
- bibliographic standards.
In "The hidden costs of implementing and maintaining information systems" Deborah Barreau (2001) warns us that even a careful budgeting process often misses many of the costs associated with information systems. Sometimes, Barreau says, "...costs are hidden from budget planners by vendors who promise everything, but fail to differentiate which features are standard and which require modification at the customer's expense". In addition, costs may be hidden by budget planners when they "...underestimate the resources required to implement a system and assume that implementation can occur without detriment to other work".
In fact there may be hidden costs associated with all aspects of information systems management, from acquisition and implementation to long-term operation. While it is within the realm of possibility to forecast adequately all of the likely costs associated with acquisition and implementation, especially if one is working with an experienced team of systems managers and a trustworthy vendor, this is much less likely when one looks at the longer term. "More difficult than anticipating problems and costs associated with implementing a system is assessing how the system will be used over time and what it will cost to maintain it." This is especially true with regard to the "secondary effects" of the technology. Unanticipated secondary effects often include: new and unexpected uses for the system that require additional training or system modification; the restructuring of positions and resulting staff turnover; the emergence of previously unneeded tasks or services.
Minimizing the financial impact
While it is impossible to anticipate every problem that may occur in system implementation or every consequence associated with system use over time, it is possible to minimize the financial impact with realistic expectations and careful planning. In particular Barreau recommends work-centred analysis when assessing the impact costs of a new system. "This methodology evaluates an information system within the framework of the organization and considers who will use it (patrons and staff), how it will be used (the technology to be employed), the structure and variety of the information going into and coming out of the system, and the processes that the system will support." In theory work-centred analysis should help to identify areas of potential concern for the operational budget: salaries and overheads, disruption to work flows during implementation, costs of site modifications, training, conversion of existing processes, etc.
Barreau also discusses how to minimize the impact of hidden costs and offers four strategies that may help:
- analysis of the fit between a system and the organization's processes,
- managerial commitment to the project,
- consultation with other users,
- contingency plans for worst case scenarios.
It sounds pretty simple, and in some sense it may be very much a matter of common sense, but one doubts that any of this can help anticipate those secondary costs alluded to above, because we simply do not know how we are likely to evolve once a system is in place and its true potential becomes known. Then it is always a matter of biting the budgetary bullet and hoping it doesn't backfire.
The cost of copyright compliance
The second topic, copyright compliance, is discussed only briefly in a review by Maurice Line (2002) of the LISU report, The Cost of Copyright Compliance in Further Education and Higher Education Institutions. In Britain as elsewhere, libraries make use of a considerable amount of copyright material, and gradually, as copyright compliance becomes more effective, even in countries which traditionally have ignored international conventions in this area, the costs are increasing. Licensing and related payments are beginning to cut into budgets more than many had imagined –- another of those hidden costs that, taken together, can make a considerable hole in one's budget. As the LISU report indicates, it is estimated that copyright compliance costs British higher education institutions in the region of £5.5 million annually – perhaps not a princely sum over all, but rising.
The LISU report suggests that the financial cost of copyright compliance to institutions in Britain is on average about 0.1 per cent of their expenditure. But what of the additional, hidden costs? How much does it cost an institution to keep up with the legislation, how much does it cost to interpret the legislation, how much does it cost to put in place and manage compliance procedures, how much does it cost to coordinate these activities with other institutions? These questions are indicative of the kinds of hidden costs that exist, and the answers may well show that the real cost of compliance is rather more than 0.1 per cent of an institution's expenditure.
The third and most interesting area for hidden costs lies in bibliographic standards and their relationship with service provision – what Wayne Pedersen (2001) refers to as the "Economics of the bad cite". In this insightful "Dollars with sense column" in The Bottom Line, Pedersen indicates that "little has been mentioned ... about the adverse effects of these [incorrect references to the published literature], especially on interlibrary loan transactions". His study indicates that incorrect references range from 7 to as high as 50 per cent of listed citations, depending on the field of enquiry. On the basis of these and other figures, he estimates that the true cost of servicing a bad citation is a staggering – wait for it – US$72.90 per citation! This is because it involves staff in both reference services and ILL. Impossible, you say? Well, Pedersen's presentation is entirely convincing, and based on real situations. Even more chilling, "...this does not include the costs borne by the individual researcher, academic department, and profit or non-profit organization. Considering that a single, published bad cite may be referenced and searched by hundreds, or even thousands, of people around the world for years to come, the scope of the economic problem goes far beyond $72.90".
How often does your institution receive a request to procure a document with an incorrect reference? How do you handle copyright compliance in your library? What are the real costs of maintaining your information system? Does your budget regularly allow for these hidden costs? Perhaps now is the time to begin factoring in these, and other, elements during the annual budgeting process.
References and further reading
Barreau, D. (2001), "The hidden costs of implementing and maintaining information systems", The Bottom Line: Managing Library Finances, Vol. 14 No. 4, pp. 207-213.
Line, M. (2002), "Review of The Cost of Copyright Compliance in Further Education and Higher Education Institutions, by Sally Maynard and J. Eric Davies", Library Management, Vol. 23 No. 4/5, pp. 261-262.
Pedersen, W.A. (2002), "Economics of the bad cite", The Bottom Line: Managing Library Finances, Vol. 14 No. 4, pp. 234-236.