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6. Management of financial and physical resources


6.1 Budgeting
6.2 Security
6.3 The design of library and archive buildings


6.1 Budgeting

Principles and methods of costing

1. Why calculate costs?

Managers of documentation centres are confronted with costs in several ways. They have to:

Make decisions or have them made in full knowledge of the costs involved

The manager's role is to ensure that objectives are attained at the lowest possible cost. If each cost-item involved in processing the raw material (unprocessed data) Into an intermediate product (data bank or base) and then into a finished product (bibliographic or information retrieval, bulletins, magnetic tapes), is known, then action can be taken on those items of cost: selection of staff, choice of procedure for processing, purchasing or producing records or products, incorporation in a network, etc.

The solution chosen to attain the objectives will not necessarily be the least expensive, but the manager must know how much that chosen solution will cost.

Balance, or strive to balance, income and expenditure

With a view to the gradual establishment of a pricing policy and a fair price for goods and services, account must be taken of:

The cost of each operation must be known in order to determine the cost of generating a product or a service.

Draw up and manage a budget

The budget drawn up informs the administrative authority of the cost of the services offered by the documentation centre. Budget management implies monitoring throughout the year to ensure that successive stages match the initial objectives.

2. Why use a costing method?
Generally speaking, a costing method can be used to:

A. Prior to the establishment of the documentation centre

When the general management of a firm, the heads of a private or semipublic organization, senior civil servants, etc. decide to set up a documentation system (modest documentation unit, information or documentation centre, data bank etc.), such a decision implies at least very general objectives to be attained, such as:

The costing method may be of help in:

A1. Setting precise objectives

Who are the target customers?

Which field of information is covered?

In what form will the processed data be used:

What should the nature and volume of goods and services be?

A2. Determining the cost of attaining the objectives set

How should the time needed for each operation be calculated?

What staff should be used?

How should the share of the administrative department's overheads allocated to the documentation system be estimated?

What premises should be provided?

What should the annual budget be?

What processing methods should be selected?

Should the system be immediately linked to others engaged in a similar or complementary field to form a 'network'?

A preliminary reply to these questions is needed when a documentation centre is started up, but these answers will obviously be very theoretical and must be reviewed once the centre begins operating and over a period as it develops.

For example, it is up to each centre to make its own measurements of unit time. The examples given in the summary are merely preliminary indications.

In addition, some factors cannot be foreseen before the centre actually starts to function: the staff's attitude to certain items of equipment (in some cases, adverse reactions to computers, for example), user satisfaction or lack of satisfaction which may alter initial choices of processing methods, staff, provision of services and even initial objectives.

B. While a documentation centre is operating

One of our prime objectives is to facilitate comparisons between documentation centres by proposing a costing method that can be used for any documentation centre. Comparison is of interest to both documentalists and documentation managers.

Furthermore, in many other respects, the method is useful:

Each of these functions will be discussed in turn.

1. Use of the costing method by the head of the documentation system

Objectives must be set:

and it is the role of the head of the documentation system to ensure that these objectives are attained at the lowest possible cost.

Using the costing method makes it possible to monitor continuously the cost of each input operation and the cost of producing each product and to readjust resources in the light of the initial objectives. Here are a few examples:

To complete the 'Staff' column of the cost-item schedule, the head of the documentation centre must obtain the unit times for each operation. The entire staff must be requested to:

These measurements may reveal that one person is overworked while another is underworked, thus leading to a decline in the quality of the work done in one case and to an abnormal increase in the costs of an operation in the other.

When completing the table of cost-items, the head of the system will accordingly be able to pick up management errors and improve work distribution.

Overheads

The administrative department often attributes a portion of its overheads to the documentation unit. The head of the documentation unit may find it expedient to calculate that share personally, so as to be able to discuss the amount involved with the management if necessary.

Cost of a product-specific input or production operation

The schedule sets forth the cost-items of each operation; hence it is possible to find the cost of each input operation or production operation and to determine which can be influenced in order to bring about a variation in costs.

Examination of those cost-items may then prompt the head of the documentation centre to change:

in order to bring down the cost of an operation. This also enables him or her to monitor objectives continuously.

Are initial objectives adhered to?

By establishing ratios such as:

input costs
total cost of centre

cost of the current awareness publication
total cost of centre

cost of retrospective search
total cost of centre

it is possible to check whether the initial goals of the centre are being pursued (forming a 'pool' of data, producing the current awareness bulletin, servicing inquiries, directing users to sources of information, public service or centre within a firm, etc.).

Is it more profitable for work to be done in-house or contracted out?

Should all or part of the data base be purchased?

Should the preparation of index bulletins, for example, be subcontracted to a data processing service?

Should translations be contracted out or done by the unit?

The head of the documentation centre may raise all these questions and many others with a view to attaining the objectives set at the lowest cost.

The costing method makes it possible to enter all the foreseeable cost-items for each possible solution and thus to make comparisons and decisions.

When the costing method is used with a view to making a choice from a range of possible solutions, there is no need to work out highly accurate cost estimates, for the aim is Rot to determine exact costs but to arrive at a decision. Once the decision has been made, an attempt can then be made to work out the exact cost of each operation.

Are input costs (acquisition and the processing of raw materials) amortized?

The objective of the head of a documentation centre as far as management is concerned is generally to bring income and costs into balance. One question is of prime importance in this context, viz. how to amortize input costs, i.e. the cost of establishing the data base, which is an intermediate fixed product, against the cost of the products.

We suggest an amortization rule: to break down the input costs according to the products which match the stated objectives, in proportion to the cost of each product.

Another question follows logically from the foregoing: what is the profitability threshold of each product, taking into account:

How should the budget be prepared and presented?

Many documentation centres do not yet have any income, and their budget amounts to their total annual expenditure.

The costing method proposed makes it possible to calculate all the cost-items and thus the total annual cost of the documentation centre.

The breakdown of cost-items can be used in preparing and presenting the centre's budget.

Towards a pricing policy

Information is a product that must be paid for at the right price, since the price acts as:

A pricing policy obviously takes account of the existing market and not only of the cost price, but it is necessary to know the cost price before drawing up a price list.

In a documentation centre, price rates are worked out in two stages:

The cost of each product will then be considered as:

The costing method makes it possible to determine the cost of each operation and thus the cost price of a product or service, which is obviously a prerequisite for setting a charge, even if it is market based.

2. Use of the costing method by the management of the administrative department

The costing method makes it possible to:

3. Use of the costing method by 'grass-roots' documentalists

If the staff of documentation centres are to be motivated and efficient, they must:

In short, the aim is to give the documentalist a sense of profitability and a seller's attitude. This costing method can help towards that end.

3. What are the principles of costing?

Our first question was: why calculate costs? The second question was: why use a costing method? Let us now define the principles and methods of costing. The presentation and explanation of the schedule of cost-items will be the subject of the next question.

The principle is to provide a list of the operations involved in preparing the 'information' product and a table of the cost-items that correspond to those operations.

Table of the cost-items

The costing method consists of considering in turn all the operations listed, each broken down into three components:

This breakdown of costs is compatible with the principles of cost accounting: breakdown of costs by category (staff, equipment, non-re-usable materials) and purpose (operations are grouped together under the final product).

A double entry table will therefore be used with horizontal lines and vertical columns.

Input operations Staff Equipment Non-re-usable materials
1. Acquisition      
2. Processing of raw data      
3. Production operations      
4. Running operations      

The horizontal lines represent the schedule of operations involved in this sequence of documentary processing. The choice of these operations and the details of the breakdown of each operation must be determined for each documentation centre according to its characteristics. In particular, this schedule can be adapted according to whether the centre uses a computer or not: for all operations that can be automated, first 'manual processing' and then 'computerized processing' are listed.

The vertical columns correspond to the breakdown of costs by category, i.e. staff, equipment and non-re-usable materials.

The frame of reference is one year: certain operations such as the renewal of subscriptions are performed only once a year in most centres; it is therefore the minimum time-frame, which is also the same as the budget period.

When cost components are set out in a double entry table it is immediately apparent that, where necessary, items in a column can be added together to determine total costs in terms of staff, equipment or non-re-usable materials; alternatively, these three components can be totalled in order to obtain the cost of an operation or operations resulting in a product, or to compare staff costs for input, production, running and other operations.

(a) Staff

The calculation of staff costs covers, on the one hand, the time spent on a given operation, and, on the other, wages, inclusive of all welfare benefits, which will vary according to the qualifications of the staff. It will be useful to bear in mind the questions:

How should unit time be measured? and

What should the staff qualifications for each post be?

when completing this column.

Breakdown of the 'Staff' cost-item
C11 Production staff
C12 Lower-level management staff
C13 External collaborators
C14 Consultants
C15 Others (including temporary staff)

(b) Equipment

This covers the annual cost of using computers, peripheral equipment, typewriters, photocopiers, etc., whether they have been rented or purchased. In the latter case, the purchase prices is amortized on a five-year straight line basis, that is, 20 per cent per year. If equipment is used for several purposes or by several units, which is usually the case, the annual cost estimates for that equipment should be apportioned to match user distribution.

Breakdown of the 'Equipment' cost-item
C31 Computer (rental or amortization over 5 years)
C311 Auxiliary services
C312 Repairs and maintenance
C32 Equipment for data entering
C321 Repairs and maintenance
C33 Remote accessing devices
C331 Terminals
C332 Communication equipment
C34 Office equipment (typewriters, photocopiers, etc.)
C341 Repairs and maintenance
C35 External services
C36 Other

(c) Non-re-usable materials

Annual total expenditure on non-re-usable materials with specific uses (printing paper, punched cards, periodicals, monographs, etc.), and also on telecommunication costs for on-line retrieval, etc.

Breakdown of 'non-re-usable' cost-item
C21 Primary documents
C211 Copyright
C22 Data base on magnetic tape
C221 Royalities
C23 Computer supplies
C24 Office supplies
C26 Other

C21 covers all documents that come into the centre, whether purchased or on exchange. To evaluate the cost of exchanges, see the explanatory note on the cost-item schedule.

4. What are the cost-items?

The purpose of the first two questions was to justify costing and define its principles. We now come to the schedule of cost-items.

Schedule of cost-items of cost

Against each operation are shown the work units that are required to calculate its cost. These work units come into play when the costing method is used to assist decision-making.

The schedule of cost-items is followed by an explanatory note on those items which seem to call for definition or additional explanations.

SCHEDULE OF COST-ITEMS

(Summary)

  Staff Equipment Expendable materials
1. Acquisition      
1.1 Tracing of documentary sources      
1.2 Acquisition of primary documents      
1.3 Acquisition of secondary documents      
2. Processing of raw data      
2.1 Intellectual processing of documents      
2.2 Storage      
2.3 Storage of automated records      
3. Production operations      
3.1 Periodical monitoring of literature in the field      
3.2 Bibliographic retrospective search      
3.3 Information retrieval      
3.4 Source retrieval      
3.5 Current awareness publications      
3.6 Magnetic tape      
3.7 Synoptic study      
3.8 Other products and services      
4. Running operations      
4.1 Systems administration      
4.2 Systems maintenance      
4.3 Systems development      
4.4 Departmental administration      
4.5 Premises      
4.6 Overheads      

 

continue


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