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IllCost Justification:A Practical Approach

“ClteK%?z la loot? or Whose money is at lisk?”

Paul Tate, the international editor of Datamation, said:“The industrial world in the late ~l%Os, busily pioneeringa global Information Economy, still hasn’t worked outhow to quantify and value the basic commodity of thefuture--information.“1

Cost just$cation means different things to differentpeople in the organization.

To some, information is valued by the technologywhich delivers the product. The cost and book value ofdiscs, printers, and software are measured on theorganization’s balance sheet. But most informationprofessionals know that the value of information cannotbe read from the ledger book. Information, in Tate’swords, is a hidden asset.

It’s no secret that libraries will be facing budget cutsin the coming years--some predict by as much as 10 to 15

39

Managing the New Electronic Information Products

percent. Investments in equipment to support new tech-nologies become real considerations in the face of thesespending restraints. The library cannot easily demonstratecost reductions, especially those resulting from the use ofCD-ROMS.

Our approach to this dilemma is to prepare a briefreport designed for key decision makers in the organiza-tion. It includes both qualitative (human factor) informa-tion and quantitative data (numbers or statistics). Thecost-justification document is based on information col-lected throughout the initial usage period of the CD-ROMinstallation. This post-CD-ROM information is comparedwith historical usage patters for online sources, the pur-chase of sources in other media, and allocation and costof staff time.

In our experience, success most often comes fromhaving complete and accurate information that clearlyexplains what money will be spent and what money will besaved. The biggest problem in justifying the cost of theCD-ROM product is getting a complete picture of majorcosts and associated costs. Obtain a working knowledgeabout the components of the CD-ROM system. This willhelp contribute to the accuracy of the cost summary andanalysis.

One can pull together direct, payroll, and administra-tive expenses for a department. It’s easy to provide roughestimates of the cost of one new piece of equipment. Butaccurate costs for a large amount of hardware may bedifficult to obtain.

Some specific guidelines for developing realistic timeand cost estimates for CD-ROMs are provided in the pages

40

Ill Cost Justification: A Practical Approach

which follow. Don’t misunderstand us: there are real andsignificant cost benefits associated with CD-ROMS. Theproblem comes from overestimating the savings and un-derestimating the expenses. The point is to have a firmgrasp of costs and sensitivity to tricky areas.

Weighing Cost and Time Factors

Assessing the costs of the CD-ROM installation andstaff time is the logical starting point. You will need toassemble the costs or estimated costs for these items:

l The personal computer.

l The peripherals (CD-ROM drives, cables, printer).

l The CD-ROM product(s).

l Supplies (paper, ribbons, floppy discs, toner).

l Furniture.

l Space allocation for workstation(s).The second step is to assemble costs associated with

staff:

l Training or practice time.

l Maintenance.

l Administration (ordering, follow-ups with ven-dors, accounting for missing or lost discs, usagetracking).

l Ongoing technology awareness (staff involvementin keeping current with trends, new products,product enhancements or upgrades, technology).

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As you might expect, there are several cost areaswhere errors multiply; for example:

l Incorrectly estimating hardware costs. The buyer’stechnical knowledge is not sufficiently detailed,making it difficult to know what questions to askand hard to analyze the vendor’s answers. Thesafeguard is to ask specific questions; for example,“Does the purchase price of the computer includethe CD-ROM controller card and cable?” or “Whatis the cost of the text-retrieval software upgradeand installation?”

l Overlooking upgrade costs. The vendor may not befully forthright about the costs for upgrading andmaintaining the system. Ask, “What is the expectedlifetime of the configuration I am purchasing?” and“What trade-in provisions are included if I buy thisconfiguration and it is unsatisfactory for my ap-plication?”

l Ignoring the costs of’ future technological innova-tions. A third-party action may occur which catchesboth the buyer and the vendor by surprise. Ask,“What is the cost of modifying this system to acceptthe next generation of read-only optical drives?”and “What is the cost of the extended service con-tract and what additional, specific services does itoffer?”

Most buyers assume that having the CD-ROM productwill significantly reduce their variable online expendi-tures. Online is a pay-as-you-go service. On the surface, afixed-price CD-ROM eliminates variable online charges for

42

111 Cost Justification: A Practical Amroach

a particular database.One final point: be aware of the fourcommon CD-ROM cost-benefit myths. Accepting them astruth can skew the accuracy of your numbers.

l CD-ROMS will lower online search costs.

l CD-ROMS will eliminate or lessen the need for printsources.

l CD-ROMS will decrease staff involvement.

l Equipment costs will remain constant or decrease.

Current Cost Analysis

Current cost analysis is developed from thedepartment’s budget. Attaching a copy of thedepartment’s total budget to the cost justification is aworkable way to give the reader of your cost-justificationdocument a point of reference for current expenditures.

You may want to consider revising the completebudget and reformatting the information to make thebefore-and-after comparisons easier to understand. Theimportant line items to break out are:

0 Staff time.

l Equipment expenses.

l Maintenance.

l Online expenditures.

l Information products providing the same data asthe proposed CD-ROM product.

0 Supplies.

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l Furniture.

l Miscellaneous.You can make these items as detailed as appropriate.

If possible, compress the current costs, the proposed costs,and the savings or increased expenditures as one tablewith three columns. You can provide detailed explanatorynotes in an appendix.

Current Costs Affected by CD-ROMs

CD-ROM provides savings in some areas, but inothers, costs may increase. For example, online searchcosts may rise because the CDROM pulls more people toelectronic research. These individuals may want to getmore current information from online sources or requestmaterial not in the library’s collection.

CD-ROMS do not alter the organization’s informationhabits overnight. If the CD-ROM introduction is not stagedproperly, the buyer may be faced with paying for an instal-lation which is not fully utilized while online expendituresare unchanged.

These are the typical factors upon which the CD-ROMworkstation will have an impact:

l Online search costs (may rise or fall dependingupon the particular circumstances in an organiza-tion).

0 Staff time for online searching.

l Hardcopy costs for books, journals, and othermedia.

44

III Cost Justification: A Practical Approach

l Microform costs.

l Photocopying costs and time.

0 Cost of supplies.

l Interlibrary loans.

l Document-delivery costs.It is critically important, therefore, that the cost-jus-

tification analysis be as thorough and complete as thetechnical preparation. It is not a case of one factor beingmore important than the other. Both are equally impor-tant, and your credibility as well as the success of theCD-ROM implementation depend on your management ofthe financial and technical aspects of the product.

It is worth repeating that each organization is uniqueand has individual requirements, so that these factors maybe affected in a positive or negative way by the CD-ROM.The influence of the CD-ROM will depend on a variety offactors. It is important to be aware of the conditions inyour organization and to assess the changes that the CD-ROM will bring.

Steps in Cost Justification

Unfortunately there is no cook-book approach tocost justification. For this discussion of the subject, theauthors have pooled the experiences of a number oflibrarians and information professionals and developed aprofile of the most common steps required in completinga cost-justification document for acquiring a CD-ROMproduct. Let’s look at the components of the CD-ROM

45


cost-justification process. (A complete cost-justification :memorandum appears in Appendix C to this chapter.)

1. Create a Strategic Plan for Information

In Chapters I and II we dealt with the strategic plan-ning process and management issues that library ;managers must address. The first step in cost justificationrelies on the information needs assessment conducted aspart of your strategic plan.

Based on the identified needs articulated in yourplan, you begin to research and analyze the CD-ROMproduct that meets these needs. The important questionis, “Will the patrons and clients of the library benefit bythe acquisition of the CD-ROM‘?"

This type of analytic process offers specific, uniquetechniques to aid effective purchasing. The approach re-quires you to focus on what is required and then to useknowledge, initiative, and creativity to propose an op-timum value information product.

A need-based, analytic approach will help you to cutyour purchasing costs, and ultimately reduce the cost ofupgrading and maintaining CD-ROM products. You areasking “What are we trying to do?” and “What’s the mostcost-effective way to achieve this goal?” You then applycreative thinking to determine the most appropriate solu-tion.

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2. Study the Source Material’s Content

Price is not value. A thorough investigation of thevarious products providing the information necessary tomeet the needs you have identified is essential. MostCD-ROM products are also available in other formats; forexample, print or online. Your professional judgment iscritical to the proper product selection. Among the ques-tions to answer are:

l In what other format is the information available?What’s the cost of the other formats?

l If you access the databases online, take a look atyour expenditures on that particular database,preferably over at least a three-month period.Compare the money you spend plus the benefitsderived were the information budget spent for anin-house CD-ROM. Would this be a cost-effectivemove? Realize that the use of a CD-ROM productthat has an online counterpart may impact onlinesearch costs. These impacts may be both positiveand negative.

l How do you currently access the information andhow will having the information in-house changethis? Will its usage increase by key groups if theyno longer have to worry about a search surchargeat the end of each month? Are there groups thatare not using your services but now might becauseit is free or less expensive?

l Are there what if types of searches you wouldperform for your clients if it were possible and didnot involve incremental costs?

47


l What databases on CD-ROM are the most accurateand appropriate for your clients or patrons? Arethey updated frequently enough to be useful?

3. Look at the Technology

Chapters IV and VII provide specific informationabout CD-ROM technology. Bear in mind that you mustanswer these fundamental questions:

l What does the CD-ROM technology enable you andyour patrons to do that you could not do usingpaper, fiche, or online?

l What is the CD-ROM’S impact on end users? Will itpromote greater understanding of the informationavailable and increasing their technological exper-tise in such activities as downloading andmanipulating data?

l Is the library able to serve all of its clients orpatrons? The CD-ROM will, in general, improveyour organization’s productivity. In addition to enduser searching, your paraprofessional staff canshoulder more of the searching load. Work chan-ges can free professionals for other informationactivities in line with the goals of your organization.

4. Prepare a CD-ROM Benefit Analysis

State clearly how identified needs are positively af-fected by the proposed CD-ROM acquisition:

l Focus on specifics. Get the details in writing.

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l Debunk myths about CD-ROM usage.

l Cite examples of other installations that are similarto yours.

l Associate costs with each factor.

l Eliminate false assumptions by being realistic inyour forecasts.

l Use industry specialists to extend your knowledgeas well as the experience of your peers.

5. Take a Longer-Term View

The focus of your Needs Identification and BenefitAnalysis must address a one- to three-year interval. Howwill you maximize the use of the product and deliverbenefits over the long term?

As you process the information about technology,products, and costs, place this information on a sufficientlybroad matrix for planning and analyzing. Examine thesignificant components at least one and, preferably, twoyears in the future. Apply such criteria as:

l Is this a function that my customer wants today andtomorrow?

l How does this cost relate to groups of functionsand to individual functions? Where does the sig-nificant cost benefit reside?

l Do I have sufficient information about today andwhat’s likely to happen tomorrow with this tech-nology?

49


l Is the information solution 1 am recommendingaccomplishing something essential or non-essen-tial?

6. Make a Commitment

The job of preparing the cost justification is challeng-ing, but it is a short-term project. The average cost jus-tification will require about three weeks to complete.However, a total commitment to the long-range goalsarticulated in your strategic plan is necessary in order toimplement successfully the technology and benefit fullyfrom its advantages. CD-ROM is not likely to replace per-sonnel but will help to maximize their efficiency andproductivity.

Senior management and information professionalsmust jointly resolve the inevitable cost-justification issues.Therefore, it is important to discuss openly with yourmanagement the effect that CD-ROM will have oncosts andservices provided.

The buyer of a CD-ROM product must secure thecommitment of all employees involved in and affected bythe CD-ROM. The key question is, “What is the cost ofobtaining such commitment?” It may be necessary tospend more money for training, extend the pre-decisioninterval or restructure the department. You may have toconsider other steps which may have an impact on the finalprice of the CD-ROM implementation.

7. Complete the Financial Analysis

The appendices to this chapter provide models ofbudget worksheets which you can use in their present

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form, or you can modify them to meet the requirementsof your organization.

The cost-justification evaluation combines financialanalysis and market research. The evaluation should in-clude measurement ofproformu working capital balances,cash flow, and residual balance sheets. The evaluationshould provide its reader with an objective assessment ofthe value of the CD-ROM in the current marketplace. Thebasics of the financial analysis include:

l An analysis of the current service/cost ratio andestimate of what ratio would result from the intro-duction of the CD-ROM product.

l A comparison of the value of the CD-ROM to thecurrent costs of equivalent sources.

l A projection of the effect that the CD-ROM willhave on your budget.

Beware of cost masquerading as quality. Your costjustification is a demonstration of the value of the productand its impact on service to the organization. The priceyou pay for the product should have a relationship to thevalue your clients and patrons will receive from theproduct’s use.

In this context, value in an electronic informationservice or product means appropriate cost and perfor-mance. An effective cost justification pivots upon provingthat the product or service will have two desirable out-comes:

l Yield lower costs.

l Provide higher quality of service.


Appropriate cost is a cost that is as low, or lower, thanthe alternative source’s cost. Appropriate quality is moredifficult to define, since it depends on the customers’needs and wants and can have many variations. Librarystaff can improve quality by learning what the customerwants. We want to reiterate the importance of surveyingcustomers to better understand the customers’ definitionsof higher quality and the customers’ needed functions.Again this is acdomplished by the Needs Assessment.

The currently-popular buzzword for this approach tocost justification is value analysis. The cost-justificationdocumentation you prepare is a key determinant of value.

Cost Categories

Let’s look at each of the major cost categories as-sociated with a complete CD-ROM workstation and pin-point those which can return unreliable numbers:

Hardware

Vendors take different approaches to pricing thehardware for the CD-ROM products they sell. There arethree general approaches in the marketplace today:

l The vendor sells everything for one price; that is,you purchase what is generally referred to as aturnkey operation or a O~ltdle. You buy everythingfrom one source; that is, PC:, CD-ROM drive, cables,and data disc. Chamcteristics: High-price, serviceorientation, reduced management and technicaldemands on the customer.

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l The vendor sells the data and a drive. The success-ful Ziff Communications Co.3 Computer LibraryCD-ROM product, which can be ordered with adrive is this type of approach. The buyer assumesresponsibility for making the CD-ROM function.Characteristics: Low price, telephone support,relatively high technical demands on the customer.

l The vendor can sell you the data plus any of thehardware or software you specify. You can pick andchoose from the inventory and shop around for thebest deal. Characteri.stic.s: Some high and some lowprices, some technical support provided but nosingle vendor is ultimately responsible for makingthe components work together; generally hightechnical demands on the customer.

Keep in mind that hardware may mean one thing tothe vendor and another to you. If a printer is required andnot included in your purchase agreement, you will have toacquire that peripheral yourself. Just a reminder: spell outexplicitly what you will purchase from a vendor. Includepart number, manufacturer, and price per component onthe purchase order and avoid phrases like “CD-ROMworkstation.” Another important tip is to make certainthat the specific computer processor and its operatingspeed are stated explicitly on the contract; for example,“an IBM-compatible 80286 CPU operating at 12megahertz.” Vendors can and do substitute CPUs depend-ing upon their inventory when they ship. Protect yourselfagainst an unwanted downgrade or an unnecessaryupgrade.

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Consider the incidentals--chairs, table, storagecabinets, and security devices. These costs can add up.Even mundane supplies can account for a surprisinglylarge part of the CD-ROM budget. Costs for paper, floppydiscs, and printer supplies add up quickly.

License Considerations

One important aspect of the pricing equation is thecost of adding additional units or upgrading to a sitelicense for a network application. It is helpful to attach toyour contract or purchase agreement either a statementof the prices for upgrades or extra equipment. Havingprices in the contract can help protect you from priceincreases. In some cases, this is the only way to make thesalesperson’s reassurances have any meaning. Even then,some vendors will forget that you anticipated growth andlocked in the prices.

One useful tip: sign contracts and purchase agree-ment after consulting the purchasing or contractspecialists in your organization. Vendors have beenknown to include provisions in the contract for deliveringless than the buyer thinks was purchased, particularlywhen referring to equipment which is described as “anindustry-standard equivalent.”

What is “an industry-stanclard equivalent?” Thephrase lets the vendor substitute whatever is in stock andworks with his application. Spell out what you are buyingand assume control of the purchase’s attributes.

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111 Cost Justification: A Practical Approach

The Software

In most cases, software of some type is included in theCD-ROM purchase. This can range from helpful utilities forsearching, downloading, and statistics tracking to an un-helpful manual and flawed installation disc. In general youwant to receive as part of your subscription or purchaseprice:

l Microsoft CD-ROM extensions for the CD-ROMdrive.

l Retrieval software.

l Graphics software (if required).

l Remote diagnostic software (if required for ser-vice).

l Utilities and local diagnostic software.

l Network software if you are investing in that typeof configuration.

Spell out exactly what software and the version num-ber the library is purchasing. Attach a cost to each item.Often upgrades to new versions of the software carry fees,some nominal, some equivalent to purchasing thesoftware another time. Attempt to get an estimate of thecost and frequency of upgrades. Include that figure in youranalysis of the total cost of the CD-ROM product.

The Service and Maintenance Costs

The trend in the CD-ROM business is to charge fortelephone and on-site service and support. What are thesefees? To protect yourself against price increases during

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the term of your contract with the vendor, spell out thefees.

One of the most costly components of service is thecost of rush or after-working hours support. Check care-fully what the vendor or third-party service organizationscharge for evening, weekend, and holiday support. Includeseveral of these calls in your pricing analysis. Do this witheach vendor from whom you are purchasing equipment.

In your pricing analysis be aware of vendors whoprovide free service during the first 90 days or six monthsof the contract but charge for travel time. If the companydoes not have a local service operation, you will be billedfor airfare, car rentals, and travel time. Purchasers of theNEC Silent Writer 890’ laser printer find themselves sad-dled with this type of deal. Thefvee service call can reach$200. Do your homework and specify what the library willpay for in the purchase contract.

The In-House Staff Costs

In an ideal world, the CD-ROM product arrives, isplugged in, turned on, and used immediately. In the realworld, it rarely works this way.

Make an assessment of the amount of time your staffwill invest in the installation, maintenance, and manage-ment of the CD-ROM product. Conversations with thosewho own a CD-ROM product provide you with the bestsource of reliable information about these costs.

One important factor to include is the time requiredto train your staff to operate, update, maintain, and teachothers to use the CD-ROM product. In general, computer-literate users require less instructional time.

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III Cost Justification: A Practical Amroach

Investing a small amount of time in the training ofnew users will result in savings in the long run. Make surethat staff is familiar with the administrative tasks as-sociated with the CD-ROM, replacing printer paper, chang-ing discs, and resetting the computer. Effective grouptraining pays dividends again and again. One reminder:establish a procedure to account for theft or misplacementof discs.

The Miscellaneous Costs

The next-generation optical information productsare arriving. University Microfilms (UMI) unveiled a com-bination abstract-and-index CD-ROM product which al-lows access to facsimile images of the full-text sourcedocuments stored on a collection of two dozen CD-ROMS.These second-generation products--see the description ofLaser Disclosure in Chapter V--take full advantage of thepowerful microprocessors available today. But they alsobring costs to the CD-ROM equation:

l Dedicated telephone line for online connections.

l Technical manuals for operating systems andprogramming languages.

l User documentation for CD-ROM products.

l Training fees per sessioll.

0 Special security requirements; for example, secur-ing a laser printer in a public access facility. Thelaser’s toner cartridge can easily be removed andtaken just as easily as the cables unplugged and theunit carried off.

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The financial section of your cost-justificationmemorandum consists of a brief analysis and review ofyour budget and source of funding. Should you not havethe money for this acquisition, review alternative sourcesof funding such as grants to not-for-profit institutions. Ifthe library is in a corporate setting and a key departmenthas been identified with an immediate information needwhich can be satisfied by the installation of a CD-ROM,perhaps you can negotiate a subsidy for the acquisition?Create partnerships with your clients. (Appendix A to thischapter shows a typical budget worksheet for gatheringfinancial information about the CD-ROM.)

Marketing the Idea

Since many libraries already have CD-ROMS, find outhow your peers convinced their management that acquir-ing a CD-ROM is necessary. Point to the fact that yourcolleagues or competition are already using the technol-ogy*

Begin your memorandum highlighting the need youidentified as a result of the Needs Assessment. The argu-ment for buying a CD-ROM should not be built on the needto understand or acquire the technology for its sake alone.The CD-ROM should be a response to needs expressed byyour key users. Suggested arguments to link the purchasewith the value of the CD-ROM appear in Appendix B to thischapter.

The memorandum should include a review of yoursearch for the best product to answer user needs and whyyou recommend this step be taken at this time. Since therequest for funding is probably being directed to an in-

58


dividual outside the library, you may want to include anoverview of the technology and how other organizationsare making use of it.

Tell others what the library expects to accomplish byinstalling the CD-ROM and, should it prove to be success-ful, how it plans to capitalize on that success; for example,acquiring additional titles.

Evaluating to Respond to Change

Cost justification demands that you continually needto evaluate the success or lack of success of the CD-ROM.

There are four distinct ways to evaluate your library’sproducts and services and the effectiveness of its market-ing plans. You need not limit yourself to one particularmethodology. Choose one with which you are most com-fortable but remember that, in any given instance, one maybe more appropriate than another. In fact, you may electto combine several methods in your evaluation of yourCD-ROM acquisition.

A clearly articulated evaluation process that suggestsaction steps to correct potential problems provides tan-gible evidence of the value the library provides to in-dividual customers and user groups as well as the or-ganization as a whole.

Appendix B to this chapter provides a Usage StatisticsTracking Form that you can adapt for your organization.We have learned that several CD-ROM vendors are con-sidering adding an electronic usage tracking componentto their products.

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Managing the New Electronic Information Products-

Four Evaluation Techniques

1. Top-Down Approach

The top-down approach to product evaluation seeksthe support and approval of your efforts from above.Those to whom you have a direct or indirect reportingrelationship, can be called upon to evaluate the decisionto purchase the CD-ROM and who are familiar with yoursituation.

Follow up to get feedback and suggestions. It is notadvisable to wait for your annual budget review to seek anevaluation of the CD-ROM service provided throughoutthe year. By then, it is too late l’or any correction to havean effect on your department’s budget. Instead decide onan appropriate interval in which 10 collect data to presentabout the CD-ROM service and then request an evaluation.

Those who are responsible for approving your budgetmay not be aware of all of the services you provide and theextent to which they are used, Keep senior managementor administration informed by sending them memoranda,samples of output from the CD-ROM, and copies of lettersof commendation you receive from users. Do this on aregular basis.

Solicit suggestions for improving the CD-ROM serviceyou offer. This sparks management to think about youroperation and evaluate it on a product-by-product or ser-vice-by-service basis. These evaluations will be crucialshould you seek to expand your CD-ROM collection.

When soliciting suggestions, make certain that theevaluators understand what you expected to accomplishwhen you first discussed acquiring the CD-ROM. They

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should be informed of the original target audience and thecurrent customers. Only when they are familiar with theCD-ROM service will they be able to evaluate it properly.

2. Bottom-Up Approach

The bottom-up approach to evaluation requires feed-back from those who use the CD-ROM. The more you knowabout your customers and how they are using the CD-ROM,the easier it will be to ascertain how the CD-ROM collec-tion service might be expanded.

Try to elicit constructive criticism from your clientbase and share these comments with your peers and thosefrom whom you have purchased your CD-ROM products.Perhaps they will suggest ways to resolve any problemsthat surfaced during the CD-ROM trial. Remember, theobjective of any evaluation process is to determine howyou might improve your CD-ROM product library, theservice you provide, or the way you promote the CD-ROMservice.

Avoid the How do you like it? question because itelicits the automatic response It’s fine, which tells younothing about how effective the CD-ROM has been andwhat you might do to improve the service. Customers aremore likely to respond to your requests for evaluation ifyou explain why the feedback is essential to fine tuning theCD-ROM program.

3. Interactive Approach

The interactive or negotiated approach seeks evalua-tion from a wider range of people than any of the otherapproaches. Comments about CII rren t or future CD-ROM

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Managing the New Electronic Information Products--_

products are elicited from current users, potential users,superiors, and even outsiders, for example, database ven-dors, librarians in other companies or communities. Theusual method for obtaining feedback is through individualinterviews or focus groups.

Sometimes we are too close to the products andservices we develop. We may have a specific, narrow viewof how the CD-ROM will be used and who will be itsheaviest users. The interactive approach may uncoverinformation needs not being met or introduce you to a newmarket for your CD-ROM products.

4. Objective Approach

The objective approach requires a great deal of efforton the part of the library staff: keeping the records whichwill be used to support the case that the decision to acquirethe CD-ROM was a wise one. These statistics, includingbudget data and usage logs, should not be compiledretroactively but should be part of the initial CD-ROMprogram implementation. Reconstruction can be a time-consuming and futile effort; setting up the process correct-ly at the outset will avoid this problem.

Cost-Justification Tips

Here are a few suggestions for librarians working inthree different settings.

Academic Library Cost-Justification Tips

l Focus on departmental support.

l Stress expanded student and faculty access.

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111 Cost Justification: A Practical Approach

l Seek review of the cost-justification by the depart-ment heads whose students and faculty will makethe greatest use of the CD-ROM.

0 Allow your organization’s computer center staff toreview the document with particular attention tothe hardware, software, and maintenance figures.Their experience with suppliers in your area willprovide a validity check on your figures and theirimplications.

Public Library Cost-Justification Tips

l Link acquisition to patron service.

l Demonstrate for-fee application of product.

l Show curtailment of a class of online services.

l Use a technology-magnet approach to obtain freepublicity or greater patron support in fund raisingefforts.

l Start the cost-justification well ahead of the annualbudget cycle. The rush job is not likely to be athorough picture of the ongoing costs associatedwith CD-ROMs.

Special Library Cost-Justification Tips

l Focus on hot new product areas.

l Serve key departments which use external infor-mation; for example, marketing, not accounting,unless the CD-ROM is subject specific and directlyrelates to their day-to-day job.

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l Follow the financial analysis format used in yourorganization. Most companies have a specific for-mat for such analyses. Get one and use it as yourmodel.

l Seek review of your draft cost-justification by thedepartment which has been targeted as the chiefbeneficiary of the CD-ROM and by one of theorganization’s financial analysts. Both reviews willpoint out areas which need amplification orrepositioning for impact.

l Allow the organization’s computer center staff toreview the document with particular attention tothe hardware, software, and maintenance figures.Their experience with suppliers will give you avalidity check on your figures and their implica-tions.

Note’ Paul Tate, “A Badly Needed Sense of the Value of

Information,” Datamation, March 15, 1989, page 78.

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Appendix A: Sample Budget Worksheet

Current CD-ROM Change

StaffFull-timePart-timeBenefits

General B AdminEquipment

PCDrivesCablesPrintersModemUpgrade cost

SoftwarePackage 1Package 2Upgrade cost

SuppliesPaperTonerRibbonsFloppies

FurnitureTraining

CD-ROM specificOther

MaintenanceMonthlyContingencyReplacement discs

SecurityDevicesStaff

Direct online costsDatabase 1Database 2

PhotocopiesMicroformsSubscriptionsRoyalties

Estimate of savings

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Appendix B: Linking Acquisition and Value

Reason for AcquisitionCash in on the hot technol-WY.

Reduce online expenditures.

Provide more user access.

Offer unique capabilities.Introduce new services.

Obtain more equipment.

Expand the library budget.

Get smart about CD-ROMS.

Manage time more effectively.

Follow the crowd.

Link to ValueIncrease the stature of the libraryand its staffSpark excitement about the useOf CD-ROM

Increase the budgetCost of onl ine for speci f icdatabases reducedNew users are accessing the CD-

ROM

Increased patronage from exist-ing clienteleincrease downloading of data.Create quarterly bulletins.Introduce for-fee research ser-vices.Increase the population of 80386machines.CD-ROM acquisition approved andfunding obtained by manage-ment.Staff is comfortable using the CD-ROM and teaching others.Staff members at all levels aremore involved in the electronicresearch process.Other libraries cite your use of theCD-ROM to justify their purchases.

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Appendix C: Cost-Justification ReportMemorandum: March 29, 1989To: Marie WilsonFrom: Bill SmithSubject: Acquisition of ABVINFORM Ondisc

BackgroundThe recent expansion of the School of Business has placedadditional demands on the Library. Specifically, in the last 12months we have:

- Increased online expenditures for business databasesby 20 percent, from $3,800 a year to more than $4,500.

- Experienced a corresponding increase in our interlibraryloan activity.

- Accepted 33 percent more photocopying volume in thebusiness-related journals.

The emphasis on business and related disciplines will continuefor the foreseeable future, and the Library is responding to thisneed. As you know, our resources are stretched.

OptionsWe investigated thoroughly the options recommended by theLibrary Committee. These included expansion of our microfilmcollection, increasing our journal subscriptions, and exploringvarious electronic information capabilities.

That review of electronic options has been completed, and wehave determined that:Commercial tape leases for business information files are atpresent beyond the technological capabilities of our ComputerCenter. This option, however, must be reexamined when theComputer Center expansion is completed in 1991.Online access to commercial timesharing services can beaccomplished. The challenge with online is the variable cost ofinformation retrieval and the dedicated telephone line this ser-vice requires. At this time, the variable cost structure is almostimpossible to accommodate in the present budget climate.

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Managing the New Electronic information Products

CD-ROM technology. At this time, the CD-ROM option is the mostappealing.

The NeedThe need at this time is to respond to the increased demandsfor business and management information of an analytic andstrategic nature. Our present print resources, including thedailynewspapers, provide reasonably sound data about thefinancesof a company or an industry.Our collection is solid in the core business titles, but we aresomewhat limited by constraints on our journal subscriptionbudget. Frankly, we are quite weak in most functional manage-ment areas, although we have the basic titles like Forbes,Business Week, and the Harvard Business Review.Students and faculty alike are voicing concern over the lack ofinformation in such areas as marketing, insurance, accounting,and computers in business.

The RecommendationAfter investigating more than two dozen business and manage-ment CD-ROM information products at the most recent SLA, ALA,and National Online meetings, we narrowed our focus toproducts offered by UMI/Data Courier, H.W. Wilson, and Infor-mation Access Co. Each of these firms offers indexing orindexing and abstracting of the significant titles in the businessand management disciplines. (We have an analysis of thestrengths and weaknesses of each product which I can provideif you would like more detail than this memo offers.)We believe that at this time the ABVINFORM Ondisc product isa wise choice. The CD-ROM contains five years of information.The data consist of 150-word summaries of the significantarticles appearing in about 800 worldwide business andmanagement journals. The reputation of the database is excel-lent.We believe that this product will provide access to an informa-tion source which can make an immediate and direct contribu-tion to our business program.

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The CostsThe price for a one year’s subscription to the product is $5,000.We would have to acquire a CD-ROM drive and cables. Thepresent cost to the school with our discount is about $500. Wehave two computers now being used for online searching. Ourthought is to dedicate one of these to the ABVINFORM Ondiscapplication, track usage, and then decide on a next step.In short, we can provide this information source for less than$6,000.

ImplicationsWe’re not suggesting that this is the solution to the growingdemands on the library from the business school. It is aneffective way to expand service and gain valuable insights intohow the new electronic products can contribute to our serviceoffering.We’ve identified fourareas which will be directly affected by theCD-ROM, and each of these areas will reallocate budget dollarsto cover CD-ROM expenses. We’ll have to tighten our beltsthrough the first six to nine months until we get a handle on thefull financial impact of the CD-ROM. The four areas are:

- Demand for online. This is a cost area which is unlikelyto decrease. Our analysis suggests that the demand foronline research may increase. We have, however,developed an analysis that shows we can now chargefor rush or special service searches. The result is thatour online service will generate about $2,500 in newrevenue.

- Maintenance. Although we will have a one-year warrantyon the drive, the PC will get heavy use, if the experiencesof other ABVINFORM customers is correct. We’ll have toallocate $1,500 for repairs and possible equipment re-placements in the next nine monlhs.

- Staffing. We anticipate that sorne reference desk timewill be available. We will not be able to reduce staffexpenditures because the CD-ROM will require ourproviding some training to students and faculty. Over

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time, however, our hope is to reduce some of the part-time expenditures in our reference department.

- Photocopies. We know from conversations withUMI/Data Courier that photocopy demands will in-crease. It’s our thought that we will add a $1 servicecharge on all photocopies. We also will charge a $3premium on rush orders. The result of this fee will be anadditional $5,600 in revenue in the next 12 months.

Next StepWe’re confident that we can make the CD-ROM pay its own way.With your permission, we’d like to move ahead as quickly aspossible with the acquisition of the this product.

(The actual memorundum ~wuld have a one-pageexpense summary and a orw-page revenue summaryreiterating the points made it? the cover memorandum.)

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illcost justification: a practical approach · cost justification: a practical approach ... the...

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