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Capitalizing operating expenses

Library Systems Newsletter [September 1986]

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Many libraries, having successfully raised funds to purchase an automated library system, face serious problems in fitting the ongoing expenses of the new system into their operating budgets. Typically, yearly hardware and software maintenance payments alone represent at least 12 percent of the initial purchase price. There are also supply and personnel expenses. Telecommunications charges are a significant factor for many libraries. The funding authorities that approved the capital appropriations for automation often resist increases in the operating budget.

The most common approach to reducing operating costs in the first year or two after purchase is to install the system in phases. The modules, most commonly acquisitions, serials control, circulation, and patron access catalog, can be brought up at three to six month intervals, with the hardware and software required for each module to be installed as required. This defers the cost of maintenance and some other recurring costs. However, when phasing extends over a period longer than two years, the purchase prices for hardware and software installed more than two years after the contract date may have to be renegotiated.

Libraries can further ease the transition to automation through "capitalizing" part of what are normally operating expenses by having the vendor include some recurring charges in the bid price. Eor example, a library can specify that there shall be no annual software license fees during the first five years after installation. Companies which have such fees will usually total the fees for five years and add the sum to the purchase price, less a 35 percent or greater discount for having received the money "up front." A library can also specify that the purchase price shall include a 12 month extended warranty, or alternatively, that no maintenance payments shall be payable during the first year (or two) after installation. In these cases, the normal vendor practice is to add the maintenance charges which would have been billed during the first year (or two) to the purchase price, again, less a discount of 8 to 12 percent (15 to 20 percent when two years are involved). It is also possible for libraries to reduce hardware maintenance charges by purchasing a spare parts inventory. By paying for additional terminals, side printers, light pens, and other remote peripherals which are easily replaced by staff, the repair of these items can be handled using less expensive "depot" maintenance. The devices needing repair are shipped by UPS to the company which has offered the lowest maintenance prices, subject to quality workmanship and appropriate guarantees. It is usually possible to purchase the spares at a discount by offering to remove the remote peripherals from the table of coefficients used to determine total system performance.

By using a combination of techniques it is usually possible to reduce the operating costs for the first year by one-third to one-half, and for the second year by one-fourth to one-third. That gives most libraries sufficient time to build up their operating budgets or make reallocations to accommodate the impact of the system's operation.

View Citation
Publication Year:1986
Type of Material:Article
Language English
Published in: Library Systems Newsletter
Publication Info:Volume 6 Number 09
Issue:September 1986
Publisher:American Library Association
Place of Publication:Chicago, IL
Notes:Howard S. White, Editor-in-Chief; Richard W. Boss Contributing Editor
Subject: Library automation -- cost issues
Record Number:4242
Last Update:2024-04-09 02:27:12
Date Created:0000-00-00 00:00:00