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Roi perpun


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PERPUN Conference in Malaysia 2012
The Value of Libraries focusing on Return on Investment (ROI)

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Roi perpun

  1. 1. Return on Investment (ROI) in Libraries Afternoon Session Universiti Malaysia Sarawak Joe Matthews September 28, 2012
  2. 2. AgendaFinancial impacts Return on Investment (ROI) Cost-Benefit Methodologies Direct Use Benefits  Economic Impact Benefits Indirect Use Benefits  Consumer Surplus Method  Contingent Valuation Method
  3. 3. AgendaROI in Libraries  Special  Academic  Public  National What to do? Communicate Value Orr’s Fundamental Questions
  4. 4. Financial
  5. 5. Library BudgetsCompetition for scarce resources
  6. 6. At the table orOn the menu?
  7. 7. Perspectives on Value Impacts Direct Personal Organizational Use Indirect FinancialBenefits Option – Preservation of option for future use by me Nonuse Existence – Perceived value and significance to the community Legacy – Value of preservation for future generations
  8. 8. Financial Impacts• Direct use benefits – Cost savings – Access to other resources – Access to trained professionals• Indirect use benefits – Estimated value• Non-use benefits – Benefits that arise to you in the future – Benefits that arise to others in the future
  9. 9. What is ROI?
  10. 10. ROI Applications • Projects • Services • Organization
  11. 11. ROI in Library Contexts• Demonstrating the value of libraries• Evaluating existing services, collections, etc.• Making the case for additional services or resources• Recruiting support for a program or initiative
  12. 12. ROI Terminology• Cost-Benefit Analysis (CBA) – Compares cost or purchase price with estimated value of variables that are difficult to measure• Consumer Surplus – Value that consumers place on the consumption of a good or service in excess of what they paid for it• Cost of Time and Effort – Measures time and effort expended by users• Contingent Valuation
  13. 13. Cost/Benefit Methodologies• Maximize the benefits for given costs• Minimize the costs for a given level of benefits• Maximize the ratio of benefits over costs• Maximize the net benefits (present value of benefits minus the present value of costs)• Maximize the internal rate of return
  14. 14. Ratio of Benefits to Costs Value of benefits divided by Costs ROI = Benefit – Cost Cost
  15. 15. Challenge Estimating thevalue of the benefits
  16. 16. Direct Use Benefits• Cost savings – the “free” stuff• Free or low-cost access to equipment, programs, meeting rooms, etc.• Access to trained professional librarians
  17. 17. Identify a Competing Service• Establish price of competing service• Identify library’s annual volume or use• Multiply to establish value of annual benefits
  18. 18. ROI 2.80:1
  19. 19. ChallengeWhat is the value of an item in a collection?• Purchase price• Purchase price + processing costs• Discount the purchase price to 20 – 25 %
  20. 20. Challenge• Difficult to identify all services• Difficult to establish a value for some services
  21. 21. Generate RevenueAsk the library user to:• Estimate revenue generated• Estimate costs savedLibrary then calculates totals
  22. 22. Estimate Time SavedAsk library customer to:• Estimate time saved• Multiple by hourly salary (plus benefits)Library then calculates savings
  23. 23. Economic Impact AnalysisCompares local/regional economic activity of the library to the local/regional economic activity without the library
  24. 24. Economic Impact Analysis• Salaries for library employees plus supplies/services purchased locally• PLUS the multiplier or ripple effect• The resulting data is entered into a input-output econometric model
  25. 25. A DestinationMajor libraries and museums will attractvisitors from out-of-town. These visitorsspend money on: – Car rentals – Hotels – Restaurants – Tours – Etc.
  26. 26. Seattle Public Library$16 Million Dollars Annually
  27. 27. Carnegie Library of Pittsburgh $9.8 to $15.6 Million Annually
  28. 28. Ripple Effect
  29. 29. Return on Capital Investment Valuing the physical assets of the library, including – Land – Buildings – Furniture – Equipment – Collections
  30. 30. $193.4 million ROI =
  31. 31. Indirect Use Benefits
  32. 32. Nonmarket Valuation• Stated preference methods – Consumer surplus – Contingent valuation – Attribute-based methods – Paired choice comparisons• Revealed preference methods – Travel cost models (Environmental quality) – Hedonic models (Property values) – Defensive behavior models (Offset effect of exposure)
  33. 33. Consumer SurplusMonetary value consumers associate with a good or service in excess of any costs they incur to get it Data collected using a survey
  34. 34. Contingent Valuation• Economic method of evaluation for non- priced goods and services• Looks at the implications of not having the goods/services• Identifies the cost to use alternative sources of information, should people choose to do so
  35. 35. Contingent Valuation Exercise Willingness-to-Pay (WTP)Willingness-to-Accept (WTA)
  36. 36. Willingness-to-Pay (WTP)Suppose that no libraries had ever existedand taxes for libraries had never existed.How many tax dollars or fees would your household be willing to pay annually to create and maintain your library as it exists today? $ __________
  37. 37. Willingness-to-Accept (WTA) Suppose that in the next election the ballot contained an option for closing all public libraries. The budget savings would be used to lower taxes. How much should the yearly tax saving bein order for you to vote to close the libraries? $ _____________
  38. 38. Contingent Valuation Questions• If there were no library, what would you do to obtain the information on this visit?• How much time and money do you think it would take to find & use an alternative source?• How far would you have had to travel to use this other source?• Please estimate the additional costs of using this other source.
  39. 39. Contingent Valuation Challenges• Depends on ability to pay• Whose money? Yours or mine• Immaterial goods (info) are undervalued• Values influenced by the “warm glow” effect• Are values suggested (multiple choice)• WTP & WTA produce different results• Telephone survey is long, costly
  40. 40. ROI in Libraries • Special • Public • Academic • National
  41. 41. Library Valuation Studies Country National State Regional Individual TotalAustralia 1 1 2Germany 1 1New Zealand 1 1Norway 1 1South Korea 2 2UK 2 2USA 7 8 19 34 Totals 5 7 8 23 43
  42. 42. Special Libraries Library viewed as a:• Asset that adds value for the organization• Cost “sink hole” - so let’s get rid of it!
  43. 43. ROI in Special Libraries• Time aspects – Manning, Texas Instruments 5.15:1 – Griffiths & King 7.8:1 to 14.2:1 – Harris & Marshall 9:1 – Strouse $35 per library use
  44. 44. ROI in Special Libraries• Cost aspects – Relative value • Griffiths & King – savings that resulted from the application of the information attained in reading 17:1 to 26:1 • Estabrook – 2:1 to 48:1 • Koenig – 2.5:1 to 26:1 − Consequential value – revenue increase, cost reduction − Strouse – Money saved: $42 per library use. Revenue: $777 per library use
  45. 45. ROI in Medical Libraries• Assist in preventing patient deaths• Avoid surgery• Avoid additional tests• Reduce length of hospital stay• Avoid hospital admission• Change patient diagnosis• Change tests requested• Change prescriptions for medications
  46. 46. ROI in Banking• Reduce risk of decisions• Exploiting new business opportunities• Saving time• Avoiding loss of funds
  47. 47. US Dept. of Transportation • Reduces costs • Saves time • Improves decision making • Improves customer satisfaction (the drivers on the road)
  48. 48. ROI in Academic Libraries
  49. 49. Drexel University
  50. 50. University of Pittsburgh ROI• If the library’s journal collection (print & electronic) were not available, faculty would use 250,000 hours and $2.1 million to find alternative sources for the articles• It would cost the university 4.38 times the cost of the current library journal collections for the same amount of information gathering to be carried out
  51. 51. University of Illinois, Urbana- Champaign Connected citations to resources in the library’s collection to successful grant proposals, and the income the grants generated
  52. 52. ROI may provide us with calculations thatseek to document a financial relationshipbetween action and benefit, but too oftenin the library community these studies arepoorly constructed, ineffectivelyexecuted, and naïvely communicated.And in the final analysis, do not respondto the legitimate questions being raisedby our administrators and funders, and donot advance the academic library as acritical factor in institutional success. James Neal
  53. 53. • Comprehensive assessment of the library• ROI of the journal collection & readership• ROI for support of teaching & learning• ROI of digitized special collections• ROI of eBooks• Value of library commons• Bibliography
  54. 54. Bryant University – Faculty AccessBook ROI = 3.5:1Article ROI = 3.2:1Other publications ROI = 3.2:1
  55. 55. Syracuse University – ROI 4.49:1 (Millions of Dollars) Faculty StudentsEconomic In Person $13.6 $23.1 Remote 19.0 14.5 TOTAL $32.6 $37.6Environmental Remote access $1.6 $3.7 Read not-printed 0.1 0.7 Social ? ? TOTAL $34.3 $42.0
  56. 56. Journal Collections & Reading
  57. 57. ROI for Support of Teaching & Learning Perceived Benefits – • Savings … – Of own time – Of own money – Of other resources – printing, copier • Improvements … – Teaching – Course-related materials – Student performance
  58. 58. ROI of Digitized Special Collections User • What is the value to a user in terms of time and money spent? Prestige • What is the prestige to the institution for high visibility digital special collection? Development • What value accrues to the
  59. 59. ROI of Digitized Special CollectionsEnvironmental• What is the value of the environmental savings from limited physical access to unique and often fragile material?Scholars• What value accrues from the role of special collections in attracting graduate students?Collections• What is the value of digital collection in attracting additional special collections?
  60. 60. ROI of eBooks
  61. 61. The Commons
  62. 62. ROI = 26:1
  63. 63. ROI in PublicLibraries
  64. 64. ROI in Public Libraries• Value of direct use benefits usually determined by consumer surplus method• Value of indirect use benefits determined by contingent valuation estimates• Value of nonuse benefits determined by contingent valuation estimates
  65. 65. State of FloridaTotal annual investment in Florida’s public libraries was $449 millionTotal economic returns (direct and indirect) was $2.9 billion For every $1 invested the library returned $6.54 in direct benefitsUsing input-output model called REMI to measure indirect benefits:• For every $6,448 spent on public libraries, 1 Job was created• For every dollar spent on public libraries, Gross Regional Product increased by $9.08
  66. 66. Suffolk Cooperative Library SystemBenefit-to-cost-ratio methods to measure direct benefits: Total Value of library services Tax dollars supporting service: $509,415,038 $131,647,566 = $3.87 : 1 benefit/cost ratioFor every $1 invested the library returned $3.87 in direct benefitsUsing input-output model called RIMS II to measure indirect benefits: • Library generated $26 million in goods and services • Library enabled local earnings to increase by more than $50 million • Created more than 1,200 jobs for the local economy • Total multiplier effect of SCLS spending = $232 million. •
  67. 67. Carnegie Library of PittsburghConsumer surplus method used to estimated direct benefits.Library is the most visited regional destination For every $1 invested the library returned $3.00 in direct benefits $5.50 of benefits if only local tax dollars are considered.Indirect benefit estimates suggested that:• Library provides some 700 jobs• $63 million in economic output is attributable to the library• $75 of benefits for every resident of the County
  68. 68. Philadelphia Free Library Economic value of library services that help Philadelphians:LiteracyLearn to read and acquire working skills totals $21.8 millionWorkforce DevelopmentLocate job opportunities and develop career skills totals $6 million979 people found jobs in one year ($30.4 million in earned income) generating $1.2 million annually in wage tax revenue for the cityBusiness DevelopmentDevelop or enhance their own businesses total $3.8 millionValue to Homes and NeighborhoodsHomes within ¼ mile of a library are worth $9,630 more than other homesThese homes produce an additional $18.5 million in property taxes
  69. 69. Charlotte Mecklenburg Library
  70. 70. Library Use Valuation Calculator
  71. 71. Priceless
  72. 72. Victoria PublicLibraries ROI = 3.56:1
  73. 73. Economic value= 36% higher than budgetEconomic benefit= $ 4.24:1Economic activity= $ 2.82:1
  74. 74. New Zealand V+LM • Market price proxy • Replacement cost • Opportunity cost
  75. 75. ROI in Public Libraries• Largest number of ROI studies• Single library study, libraries with branches, & group of public libraries, state studies• ROI ranges from a low of 1.02:1 to 31.07:1
  76. 76. Social Return on Investment Models Expected Return =Benefit X Probability of success Cost
  77. 77. Social Return on Investment Models• How are outcomes or benefits estimated? Over what timeframe?• How are outcomes or benefits monetized?• How are costs calculated?• How are risks and uncertainties accounted for?
  78. 78. SROI Challenges• The inconsistent use of language• The lack of common measures in the social sector• The lack of quality data on social impacts, outcomes, outposts, and cost• The lack of incentives for transparency• Unintended consequences• Inadequate utilization• The cost of measurement.
  79. 79. ROI in National Libraries
  80. 80. British LibraryROI = 4.4:1
  81. 81. Australian National Library ROI = 2.0:1
  82. 82. New Zealand National Library ROI = 3.50:1
  83. 83. National Library of Norway ROI = 4.0:1
  84. 84. New Zealand Parliamentary Library ROI ranges from
  85. 85. Latvia National Library WTP 3.88:1 WTA 9.96:1
  86. 86. ROI ChallengesLack of consistency in methodologieslimits the ability to replicate research, compare valuation results, and apply the research findings
  87. 87. Value of Benefits• Materials for adults 35%• Staff interactions 30%• Materials for children 20%• Information technology 15%
  88. 88. Library Valuation Frameworks • Marketing – promote communication between libraries and their stakeholders to affect the future state of a library • Evaluation – Describe the current state of the library and predict its future state
  89. 89. ROIStrengths – Average ROI of $4:1 to $6:1 – Wide variation in establishing a service value – Different user groups receive different levels of benefits – The value of a library will vary over time, as users and uses change – The consumer surplus method (or the shortcut method) has been used successfully by a number of libraries – Multiple methods lead to increased confidence in the results
  90. 90. ROIWeaknesses – Assigning value for indirect (intangible) benefits is problematical – Comparing ROI studies is impossible – Variety of methodologies leads to variation in results – Policy-makers are uncertain of how to use the results – May involve large surveys (and costs) – ROI for small libraries may not be so good
  91. 91. Not only must a ROI study consider dollars and cents but it must alsomake dollars and sense
  92. 92. A great resource
  93. 93. What to do?
  94. 94. Good Assessment is Good Research• An important question• An approach to answer the question• Data collection• Analysis• Report
  95. 95. Problems with Library Assessment• Some studies correlate library use and retention, but no causative links• Strength of correlations is weak – at best• Problem with almost all existing library research are the small sample size• Only a handful of research has been
  96. 96. “While satisfaction and service qualitymeasures like LibQUAL+ demonstratelibrarians commitment to user feedback,they do not focus on the outcomes ofinteraction with library services andresources.” Megan Oakleaf
  97. 97. Library Assessment• Inward looking• Focuses on collections and services This needs to change ….
  98. 98. Collaboration
  99. 99. Layers of Data Other University-wide DataStudent Surveys, Faculty Surveys, Alumni Surveys, … Performance Data Cumulative GPA, ACT score, CLA score, …. Demographic Data College, Level, Major, Gender, Ethnicity, Age, … Library Data Circulation, Logins, Downloads, Reference, Instruction, …
  100. 100. Privacy Use student IDs to match records from one data set to another and then Strip the student ID number from the combined record Work with Office of Institutional Research& Institutional Review Board
  101. 101. • WCET project – data mining• 6 institutions + 10 more (Phase 2)• Analyzing 640,000 student records & more than 3 million course records
  102. 102. Next Steps• Clearly understand the goals and concerns of top campus stakeholders• Become engaged with the assessment process at your institution• Partner with your campus Office of Institutional Research• Create a library assessment plan• Conduct “big picture” research
  103. 103. Next Steps• Collect new data (individual students)• Find “new” (& existing) data sets• Combine existing data sets (library data & student information systems – registrar’s office)• Use assessment management systems or a metric management system (LibPAS)
  104. 104. Past Future Building & Focus Engaging students & maintaining faculty collections Internal silos Structure University priorities Incremental Change Transformational Periodic Outreach Deliberative Top down Decision Shared making Traditional Measures of Impact Success
  105. 105. Library Value• How integral it is to the community• How well it supports learning and teaching• How well it supports research
  106. 106. Communicating Value
  107. 107. Value PropositionWhat your What yourlibrary customersdoes well value
  108. 108. The Value Proposition• An offer, not a demand• Not what you value• Only valuable perspective is the customer’s• Valuable in a competitive environment
  109. 109. OrThe that a library makes to its promisecustomers about what they can expect to receive in return for their time, their effort, their loyalty, and especially their dollars.
  110. 110. The library needs to … Focus on customersand what they want and need as well as how they want and need it.
  111. 111. Economi Valuec DirectValue IndirectBenefit Nonuse
  112. 112. Stories + Stats =
  113. 113. Is the value in the glass, the wine or the savoring?
  114. 114. The financial crisis is looking even worse, but you will pleased to know that thedirector reports that the library performance went up a half a point on the “library goodness scale” last week. Michael Buckland
  115. 115. Joe@JoeMatthews.Org Joe Matthews Library Consultant
  116. 116. Cornell University Library Value
  117. 117. The value is in the worth,not in the number..