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Allocating costs in shared systems

Library Systems Newsletter [March 1985]

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In LSN Vol. III, No. 4 (April 1983) we examined some of the factors to be considered by libraries faced with the choice of purchasing a standalone turnkey automated library system to serve the needs of a single library, or joining with other libraries in the purchase and operation of a multilibrary shared system. Some libraries enter into shared system arrangements to save money; others take this route because of the perceived benefits of resource sharing. Whatever the rationale, the number of systems shared by two or more libraries continues to increase.

Libraries which utilize shared systems face numerous decisions relating to form of organization, governance, and cost allocation. This article surveys the factors that need to be accommodated in the allocation of costs in a shared system, and some of the solutions that have been implemented. It is by no means an exhaustive survey, and we would welcome information on other options from readers.

Cost allocation formulae need to encompass three distinct phases of automated system development: the initial purchase of the system, ongoing operational costs, and system upgrade/replacement costs. The factors included in each element of cost vary in different situations. Libraries considering sharing a system first need to decide on the elements to be included in each category of cost.

System purchase and installation may include not only acquisition and installation, but also data base creation- retrospective conversion-and, possibly, data base reformatting and loading.

Ongoing operational costs will include hardware and software maintenance charges, and may also be extended to bibliographic utility charges, COM production costs, and the costs of telecommunications to link member libraries to the site at which the central processing unit is installed. Central site costs to be covered may include electricity and air conditioning, insurance, and notional or actual site rental charges. Depending on the organizational structure chosen by a group of libraries, the operational costs may encompass varying degrees of administrative overhead. Appointment of a multiperson administrative, operations and training staff will ensure that all libraries sharing a system have ready access to expert advice on how to use the system, but the cost of such personnel will have to be factored into the charges levied for its use.

There may also be some savings when the use of automated functions such as online inquiry enables the cessation of services, such as the production of monthly COM catalogs, previously supported by a central body. Monies previously applied to such services may be allocated to supporting a portion of the automated system costs.

Experience suggests that libraries installing automated systems frequently overlook the need to include system upgrade or replacement costs in their financial planning. Such expenditures may be incurred in a number of ways: the need to provide hardware for the later implementation of functions such as serial control; the desire for additional terminals in member libraries; the addition of new member libraries; growth in the size of the data base and, in a five to seven year time frame, the possibility that advances in technology will make it attractive to consider replacing major components of the system. In times of unstable telecommunications pricing, a reserve fund for telecommunications hardware upgrades is also wise.

Cost allocation in a shared multifunction automated library system can become particularly complicated when a group implements a function on the system but not all member libraries choose to use that function. It can also become confused when new libraries, outside the original group, seek to join an established system. The range of solutions adopted by library consortia is illustrated in the following examples.

In one public library consortium part of the central site costs and the charges for some terminals are absorbed by the cooperative in recognition of the system's contribution to reducing its costs by replacing a COM catalog with online inquiry capabilities. The remaining terminals and the central site support they require are charged back to the participants. The monthly charge is $530 per terminal for consortium supplied terminals; the fee is $415 per month if a library provides its own terminals. No other annual or joining fees are levied. The system supports circulation and patron access catalog functions. Another consortium charges its members $693 per month per terminal. Both of these consortia use CLSI systems. Several other shared CLSI systems cost their participants just under $700 per month. In a number of cases the systems are more than three years old and substantial sums of money are now having to be set aside for anticipated system upgrades.

Another consortium charges the following fees for a Geac system which provides only circulation support:

  • one-time joining fee: $35,000 per library.
  • annual costs:
    • assessment to cover central facility operating cost-personnel, utilities, supplies, support services, etc. Each library pays a percentage based on its share of use of the circulation system. For a library with 100,000 circulations this is approximately $4,000 per year.
    • telecommunications charges-equalized over the whole system-$320 per terminal per year.
    • terminal maintenance-$372 per terminal per year.
    • CPU maintenance-the total cost is divided equally among all libraries-$3,900 per library per year.
    • contingency fund-$75 per terminal per year up to a maximum of $500 per library.

All of these charges are assessments based on expectations of costs. If costs run lower, libraries get a refund; if higher, they pay the extra. Were a library with 50,000 circulations a year to join this consortium and install one terminal, the first year cost would be $35,000 to join and $6,667 per year-a total of $41,667.

Another consortium which also uses a Geac system, also provides support only for circulation control. The bulk of the initial hardware was financed by gifts from local companies. This consortium has, therefore, been able to limit its "buy-in" cost for new members to $6,000 per library plus $5,250 per terminal.

Operating expenses are recovered by levying three different assessments:

  1. Base fee. Half of the total budget is divided equally among all the members except the host institution which provides the central site facilities.
  2. Circulation fee. One-fourth of the budget is divided proportionally by circulation.
  3. Terminal fee. One-fourth of the budget is divided proportionately by the number of terminals. Remote printer maintenance is calculated separately.
Using this cost allocation formula, the first year cost of a library with 181,000 circulations per annum and three terminals would be:

joining fee $ 6,000
base fee 6,789
installation fee 15,750
circ fee 4,217
($23.20 per '000)
terminal fees 4,230
printer maintenance 378
  $37 .373

and, for a library with 50,000 circulations per annum and one terminal:

joining fee $ 6,000
base fee 6,789
installation fee 5,250
circ fee 1,165
terminal fee 1,410
printer maintenance 378

In order to make the budget for a shared automated system realistic, all costs should be shown, including the value of space, utilities, and personnel which may not actually be charged to the program. The income side of the ledger should show the value of the contribution made from other sources. It is important that this be done so that the participants will know what percentage of total cost they are contributing and so that realistic adjustments can be made if any subsidies should subsequently be lost.

View Citation
Publication Year:1985
Type of Material:Article
Language English
Published in: Library Systems Newsletter
Publication Info:Volume 5 Number 03
Issue:March 1985
Publisher:American Library Association
Place of Publication:Chicago, IL
Notes:Howard S. White, Editor-in-Chief; Richard W. Boss and Judy McQueen, Contributing Editors
Subject: Library automation -- cost issues
Record Number:4110
Last Update:2023-12-07 04:00:10
Date Created:0000-00-00 00:00:00