The Value & Economic

Measures of Libraries

10th Northumbria InternationalLibrary Conference

Joe MatthewsJuly 25, 2013

Afternoon Session – Economic Perspective

Agenda

Return on Investment (ROI) Cost-Benefit Methodologies Direct Use Benefits

Economic Impact Benefits Indirect Use Benefits

Consumer Surplus Method Contingent Valuation Method

Agenda

ROI in Libraries

What to do? Communicate Value

Orr’s Fundamental Questions

Financial

Library Budgets

Competition for scarce resources

At the table or

On the menu?

Perspectives on Value

Benefits

Use

Nonuse

Direct

Indirect

Option – Preservation of option for

future use by meExistence – Perceived value and significance

to the communityLegacy – Value of preservation for

future generations

Personal

Organizational

Financial

Impacts

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

What is ROI?

ROI Applications

• Projects

• Services

• Organization

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

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–Measures value of use and non-use of non-

priced goods and services, e.g., a library

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

Ratio of Benefits to Costs

Value of benefitsdivided by

Costs

ROI = Benefit – CostCost

Challenge

Estimating the value of the benefits

Direct Use Benefits

• Cost savings – the “free” stuff

• Free or low-cost access to equipment, programs, meeting rooms, etc.

• Access to trained professional librarians

Identify a Competing Service

• Establish price of competing service

• Identify library’s annual volume or use

• Multiply to establish value of annual benefits

ROI 2.80:1

Challenge

What is the value of an item in a collection?

• Purchase price

• Purchase price + processing costs

• Discount the purchase price to 20 – 25 %

Challenge

• Difficult to identify all services

• Difficult to establish a value for some services

Generate Revenue

Ask the library user to:

• Estimate revenue generated

• Estimate costs saved

Library then calculates totals

Estimate Time Saved

Ask library customer to:

• Estimate time saved

• Multiple by hourly salary (plus benefits)

Library then calculates savings

Economic Impact Analysis

Compares local/regional economic activity

of the library to the local/regional economic activity

without the library

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

A Destination

Major libraries and museums will attract visitors from out-of-town. These visitors spend money on:– Car rentals– Hotels– Restaurants– Tours– Etc.

Seattle Public Library

$16 Million Dollars Annually

Carnegie Library of Pittsburgh

$9.8 to $15.6 Million Annually

Ripple Effect

Return on Capital Investment

Valuing the physical assets of the library, including

– Land– Buildings– Furniture– Equipment– Collections

Cost

Savi

ngs

$193.4 million ROI = 49.6:1

Indirect Use Benefits

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)– Damage cost models (Environmental

contamination)

Consumer Surplus

Monetary value consumers associate with a good or service in

excessof any costs they incur to get it

Data collected using a survey

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

Contingent Valuation

Exercise

Willingness-to-Pay (WTP)

Willingness-to-Accept (WTA)

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?$ __________

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?

$ _____________

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.

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

Library Valuation StudiesCountry 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

ROI in Academic Libraries

Drexel University

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

University of Illinois, Urbana-Champaign

Connected citations to resources in the library’s collection to successful grant proposals, and the income the grants generated

ROI = 4.38:1Other studies – 0.27:1 to 15.54:1

ROI may provide us with calculations thatseek 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

15:1 ROI

• 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

Bryant University – Faculty Access

Article ROI = 3.2:1Book ROI = 3.5:1

Other publications ROI = 3.2:1

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)

Journal Collections & Reading

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

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

development effort of the institution?

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?

ROI of eBooks

The Commons

ROI = 26:1

ROI inPublic

Libraries

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

State of FloridaTotal 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

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.•

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.

Philadelphia Free Library

Literacy

Learn to read and acquire working skills totals $21.8 millionWorkforce Development

Locate 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 city

Business 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 homes

These homes produce an additional $18.5 million in property taxes

Economic value of library services that help Philadelphians:

Charlotte Mecklenburg Library

Library Use Valuation Calculator

Priceless

Victoria Public Libraries ROI = 3.56:1

Economic value= 36% higher than budget

Economic benefit = $ 4.24:1

Economic activity= $ 2.82:1

New Zealand V+LM

• Market price proxy

• Replacement cost

• Opportunity cost

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

• Location and size of library influences the results

Social Return on Investment Models

Expected Return =

Benefit X Probability of success ÷ Cost

• 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

• 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

ROI in National Libraries

British Library

ROI = 4.4:1

Australian National Library

ROI = 2.0:1

New Zealand National Library

ROI = 3.50:1

National Library of Norway

ROI = 4.0:1

New Zealand Parliamentary Library

ROI ranges from 2:1 to 20:1

Latvia National Library

WTP 3.88:1WTA 9.96:1

ROI Challenges

Lack of consistency in methodologieslimits the ability to replicate research,

compare valuation results, and apply the research findings

Value of Benefits

• Materials for adults35%

• Staff interactions30%

• Materials for children20%

• Information technology15%

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

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

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

Not only must a ROI study consider dollars and cents

but it must also

make dollars and sense

A great resource http://microsites.oii.ox.ac.uk/tidsr/welcome

What to do?

Good Assessment is Good Research

• An important question

• An approach to answer the question

• Data collection

• Analysis

• Report

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 done and a lot of it is old

“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

Library Assessment

• Inward looking

• Focuses on collections and services

This needs to change ….

Collaboration

Layers of Data

Library DataCirculation, Logins, Downloads, Reference,

Instruction, …

Demographic DataCollege, Level, Major, Gender, Ethnicity, Age,

…

Performance DataCumulative GPA, ACT score, CLA score, ….

Other University-wide DataStudent Surveys, Faculty Surveys, Alumni

Surveys, …

PrivacyUse student IDs to match records

from one data set to another and then

Strip the student ID number from thecombined record

Work with Office of Institutional Research &

Institutional Review Board

• WCET project – data mining

• 6 institutions + 10 more (Phase 2)

• Analyzing 640,000 student records & more than 3 million course records

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

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)

Past Future

Focus

Structure

Change

Outreach

Decision making

Measures of Success

Building & maintainingcollections

Engaging students &

faculty

Internal silos University priorities

Incremental Transformational

Top down

Periodic

Shared

Deliberative

Traditional Impact

Library Value

• How integral it is to the community

• How well it supports learning and teaching

• How well it supports research

Communicating Value

What your library does well

What your customers value

Value Proposition

• An offer, not a demand

• Not what you value

• Only valuable perspective is the customer’s

• Valuable in a competitive environment

The Value Proposition

Or

The promise that a library makes to its

customers about what they can

expectto receive in return for their time,

their effort, their loyalty, and especially their dollars.

The library needs to …

Focus on customers

and what they want and need

as well as

how they want and need it.

Economic

ValueBenefitActivity

Value

DirectIndirectNonuse

Stories + Stats = Success

Is the value in the glass, the wine or the savoring?

The financial crisis is looking even worse,

but you will pleased to know that the director reports that the library

performancewent up a half a point on the

“library goodness scale” last week.

Michael Buckland

Joe@JoeMatthews.Org

www.joematthews.org

Joe MatthewsLibrary Consultant

Cornell University Library Value

http://research.library.cornell.edu/value

The value is in the worth,

not in the number..