The Value & Economic Measures of Libraries - Economic Perspective


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A half-day workshop at the 10th Northumbria International
Library Conference, York England July 25, 2013. Topics discussed include return on investment (ROI), Direct use benefits, indirect use benefits, ROI in libraries, What to do, how to communicate value, and Orr's fundamental questions

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The Value & Economic Measures of Libraries - Economic Perspective

  1. 1. The Value & Economic Measures of Libraries 10th Northumbria International Library Conference Joe Matthews July 25, 2013 Afternoon Session – Economic Perspective
  2. 2. Agenda  Return on Investment (ROI)  Cost-Benefit Methodologies  Direct Use Benefits  Economic Impact Benefits  Indirect Use Benefits  Consumer Surplus Method  Contingent Valuation Method
  3. 3. Agenda ROI in Libraries What to do? Communicate Value Orr’s Fundamental Questions
  4. 4. Financia l
  5. 5. Library Budgets Competition for scarce resources
  6. 6. At the table or On the menu?
  7. 7. Perspectives on Value Benefits Use Nonuse Direct Indirect Option – Preservation of option for future use by me Existence – Perceived value and significance to the community Legacy – Value of preservation for future generations Personal Organizational Financial Impacts
  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 the value 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. Challenge What 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 Revenue Ask the library user to: • Estimate revenue generated • Estimate costs saved Library then calculates totals
  22. 22. Estimate Time Saved Ask library customer to: • Estimate time saved • Multiple by hourly salary (plus benefits) Library then calculates savings
  23. 23. Economic Impact Analysis Compares 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 Destination Major libraries and museums will attract visitors from out-of-town. These visitors spend 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 Surplus Monetary 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 existed and 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 be in 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. Library Valuation Studies Country National State Regional Individual Total Australia 1 1 2 Germany 1 1 New Zealand 1 1 Norway 1 1 South Korea 2 2 UK 2 2 USA 7 8 19 34 Totals 5 7 8 23 43
  41. 41. ROI in Academic Libraries
  42. 42. Drexel University
  43. 43. 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
  44. 44. University of Illinois, Urbana- Champaign Connected citations to resources in the library’s collection to successful grant proposals, and the income the grants generated
  45. 45. ROI may provide us with calculations that seek to document a financial relationship between action and benefit, but too often in the library community these studies are poorly constructed, ineffectively executed, and naïvely communicated. And in the final analysis, do not respond to the legitimate questions being raised by our administrators and funders, and do not advance the academic library as a critical factor in institutional success. James Neal
  46. 46. • 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
  47. 47. Bryant University – Faculty Access Article ROI = 3.2:1 Book ROI = 3.5:1 Other publications ROI = 3.2:1
  48. 48. Syracuse University – ROI 4.49:1 Faculty Students Economic In Person $13.6 $23.1 Remote 19.0 14.5 TOTAL $32.6 $37.6 Environmental Remote access $1.6 $3.7 Read not-printed 0.1 0.7 Social ? ? TOTAL $34.3 $42.0 (Millions of Dollars)
  49. 49. Journal Collections & Reading
  50. 50. 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
  51. 51. 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
  52. 52. ROI of Digitized Special Collections Environmental • 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?
  53. 53. ROI of eBooks
  54. 54. The Commons
  55. 55. ROI = 26:1
  56. 56. ROI in Public Libraries
  57. 57. 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
  58. 58. State of Florida Total annual investment in Florida’s public libraries was $449 million Total economic returns (direct and indirect) was $2.9 billion For every $1 invested the library returned $6.54 in direct benefits Using 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
  59. 59. Suffolk Cooperative Library System Benefit-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 ratio For every $1 invested the library returned $3.87 in direct benefits Using 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. •
  60. 60. Carnegie Library of Pittsburgh Consumer surplus method used to estimated direct benefits. Library is the most visited regional destination 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 For every $1 invested the library returned $3.00 in direct benefits $5.50 of benefits if only local tax dollars are considered.
  61. 61. Philadelphia Free Library Literacy Learn to read and acquire working skills totals $21.8 million Workforce Development Locate job opportunities and develop career skills totals $6 million 979 people found jobs in one year ($30.4 million in earned income) generating $1.2 million annually in wage tax revenue for the city Business Development Develop or enhance their own businesses total $3.8 million Value to Homes and Neighborhoods Homes within ¼ mile of a library are worth $9,630 more than other homes These homes produce an additional $18.5 million in property taxes Economic value of library services that help Philadelphians:
  62. 62. Charlotte Mecklenburg Library
  63. 63. Library Use Valuation Calculator
  64. 64. Priceless
  65. 65. Victoria Public Libraries ROI = 3.56:1
  66. 66. Economic value = 36% higher than budget Economic benefit = $ 4.24:1 Economic activity = $ 2.82:1
  67. 67. New Zealand V+LM • Market price proxy • Replacement cost • Opportunity cost
  68. 68. 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
  69. 69. Social Return on Investment Models Expected Return = Benefit X Probability of success Cost
  70. 70. • 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? Social Return on Investment Models
  71. 71. • 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. SROI Challenges
  72. 72. ROI in National Libraries
  73. 73. British Library ROI = 4.4:1
  74. 74. Australian National Library ROI = 2.0:1
  75. 75. New Zealand National Library ROI = 3.50:1
  76. 76. National Library of Norway ROI = 4.0:1
  77. 77. New Zealand Parliamentary Library ROI ranges from
  78. 78. Latvia National Library WTP 3.88:1 WTA 9.96:1
  79. 79. ROI Challenges Lack of consistency in methodologies limits the ability to replicate research, compare valuation results, and apply the research findings
  80. 80. Value of Benefits • Materials for adults 35% • Staff interactions 30% • Materials for children 20% • Information technology 15%
  81. 81. 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
  82. 82. ROI Strengths – 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
  83. 83. ROI Weaknesses – 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
  84. 84. Not only must a ROI study consider dollars and cents but it must also make dollars and sense
  85. 85. A great resource
  86. 86. What to do?
  87. 87. Good Assessment is Good Research • An important question • An approach to answer the question • Data collection • Analysis • Report
  88. 88. 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
  89. 89. “While satisfaction and service quality measures like LibQUAL+ demonstrate librarians commitment to user feedback, they do not focus on the outcomes of interaction with library services and resources.” Megan Oakleaf
  90. 90. Library Assessment • Inward looking • Focuses on collections and services This needs to change ….
  91. 91. Collaboration
  92. 92. Layers of Data Library Data Circulation, Logins, Downloads, Reference, Instruction, … Demographic Data College, Level, Major, Gender, Ethnicity, Age, … Performance Data Cumulative GPA, ACT score, CLA score, …. Other University-wide Data Student Surveys, Faculty Surveys, Alumni Surveys, …
  93. 93. 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
  94. 94. • WCET project – data mining • 6 institutions + 10 more (Phase 2) • Analyzing 640,000 student records & more than 3 million course records
  95. 95. 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
  96. 96. 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)
  97. 97. Past Future Focus Structure Change Outreach Decision making Measures of Success Building & maintaining collections Engaging students & faculty Internal silos University priorities Incremental Transformational Top down Periodic Shared Deliberative Traditional Impact
  98. 98. Library Value • How integral it is to the community • How well it supports learning and teaching • How well it supports research
  99. 99. Communicating Value
  100. 100. What your library does well What your customers value Value Proposition
  101. 101. • An offer, not a demand • Not what you value • Only valuable perspective is the customer’s • Valuable in a competitive environment The Value Proposition
  102. 102. Or The promise that a library makes to its customers about what they can expect to receive in return for their time, their effort, their loyalty, and especially their dollars.
  103. 103. The library needs to … Focus on customers and whatthey want and need as well as how they want and need it.
  104. 104. Economi c Value Benefit Value Direct Indirect Nonuse
  105. 105. Stories + Stats =
  106. 106. Is the value in the glass, the wine or the savoring?
  107. 107. The financial crisis is looking even worse, but you will pleased to know that the director reports that the library performance went up a half a point on the “library goodness scale” last week. Michael Buckland
  108. 108. Joe@JoeMatthews.Org Joe Matthews Library Consultant
  109. 109. Cornell University Library Value
  110. 110. The value is in the worth, not in the number..