Dossett Budget

Dossett, Judith C.

Budgets and Financial Managementin

Special Libraries

Judith C. DossettCLIS 724

Dr. Robert Williams

April 28, 2004

Table of Contents

Objectives.............................................................................................. 2

Introduction............................................................................................ 2

Budgeting Purposes............................................................................. 3

Types of Budgets.................................................................................. 4

Lump Sum.......................................................................... 5

Formula............................................................................... 6

Line-item............................................................................. 6

Program.............................................................................. 7

Performance....................................................................... 8

Zero-based......................................................................... 9

The Budget Process........................................................................... 10

Budget Standards and Rules of Thumb............................................ 11

Budget Presentation........................................................................... 13

Should the Ax Fall............................................................................... 14

Objectives: Distinguish between a special library’s budget and its financial management.

Describe the significance of a special library’s budget to its larger organization.

Identify three main objectives of a budget. Describe different types of budgets. Describe the budget process. Identify formal budget standards and rule-of-thumb standards. Develop effective budget presentations. Describe strategies for dealing with budget issues, including cuts

Introduction What is a budget?

Ask that question of most anyone and the response is likely to be “A budget is a plan.” More specifically, a budget is a plan of action matched by resources required to implement the plan. Budgets generally divide between two broad categories: the operating budget, sometimes known as the “expense” budget and the capital budget. As one delves into those two broad categories, increasingly detailed information identifies the labor costs, the materials costs and the overhead costs associated with a budget/plan. Budgets are an element of an organization’s financial management; financial management addresses the overall fiscal integrity of an organization and is an ongoing process. Although some aspects of financial management are cyclical (budget

development, cost monitoring, forecasting, etc.), financial management occurs on a daily basis. The mission of the corporate library is to maximize the value of information services while minimizing associated costs, the common goal of all functions of an organization. As a common organizational element, special library budgets emerge from the goals and objectives of the special library and directly support the mission statement, goals and objectives of the parent organization.Budgeting Purposes Budget affects special libraries in much the same way as budgets affect any organization, including the parent organization of the special library. Typically, budgets serve three major purposes planning coordinating controlling.

These three functions dictate that budgeting and the financial management process be flexible but accountable throughout the fiscal period. Budgets are the common denominator of an organization and a constant in the life of any organization (Evans, Ward, & Rugaas, 432) The planning aspect of special library budgeting affects special library personnel from both bottom-up and top-down directions. From the top, senior management communicates organizational goals and objectives and expects that all lower level functions within the organization align their objectives accordingly. From the bottom-up, all special library personnel would

theoretically be involved in budget development, especially that of line item budget development. Regardless of the type of budget developed by the special library, the budget process represents an ideal time for special library personnel to be informed and involved in the financial planning of its service complement. The budget process represents a means of engendering buy-in from special library personnel regarding the planned activities for the coming fiscal period. A budget serves as a fulcrum for coordinating special library programs among the special library personnel. Budgets represent a vehicle for sharing information regarding program mission, development, and implementation. When staff members have a global understanding of the available resources and the commitments of those resources, then staff members responsible for individual programs will function with a more prescient knowledge of the library’s finite resources. At all management levels, budgets typically represent an effective element of control, whether on a day-to-day operational basis or on a longer term basis. Controlling and monitoring are terms often used interchangeably; as one considers controlling/monitoring, the concept of performance standards represents a natural corollary. Therefore, budgets are often the basic performance standards by which library services are measured. If budgets parallel organizational goals, then performing to budget standards is typically interpreted as a reasonable element of control.

Types of Budgets Although many types of budgets exist, most special libraries employ one of the following six (6) types of budgets: lump sum, formula, line-item, program, performance/function, or zero-based. Use the following brief descriptions to develop fluency in budgeting terminology. Lump Sum Typically, lump sum budgeting involves the allocation by the library’s parent organization’s upper-level management of a “lump sum” of budget resources to the library. Since the lump sum method lacks specific ties to corporate goals and objectives, many library managers prefer other types of budgets. However, lump-sum budgets can be perceived as representing a high-level of flexibility and control within the library itself. Once the lump-sum is allocated, the library management proceeds with lower-level allocations among library programs and services. Formula Budget When a special library is funded through the formula budget, the budget allocation is typically tied to a numeric value such as full-time-equivalencies (FTEs), i.e., number of FTEs registered students multiplied by a fixed dollar amount yields the budget for the library. This method is fraught with weaknesses; primarily, the budget total is calculated at a late point in time and intrudes on advance planning – especially for purchases and staffing increases – within the library. Another weakness results from the formula

budget’s lack of identification with the parent organization’s goals and objectives. Another weakness emanates from the unpredictable nature of the budget since the formula is based on variables outside the influence or control of the special library.Line-Item Budget The line-item budget represents the most commonly used budgeting method for special libraries (Warner 9). In a line-item budget, each category of activity is afforded its separate appearance. Line-item budgets facilitate low levels of detail for both planning and cost control purposes. Often, the accounting function of the parent organization develops accounts and sub-accounts on a company-wide basis. In that case, the library uses the company accounting scheme. Among the advantages of line-item budgets are ease of preparation, use as detailed planning vehicle and utility as a means of comparing performance from one fiscal period to another fiscal period. Warner provides a model to illustrate the simplicity and utility of the line-item budget:

LINE-ITEM BUDGET Last year This year Next yearSalaries Materials Etc. Etc. Miscellaneous

TOTAL

Problems identified by Warner include the difficulty of relating the line budget to the goals of the parent organization, the line-item budget’s propensity for “perpetuating” a line, i.e., ‘once a line, always a line’, the tendency of the Miscellaneous line to grow unwieldy as technologies and their costs evolve, and the reality that comparing this year to last year is more complex and represents variables unaccounted for within the line-item budget (Warner 10).Program Budget By its nature, a program budget focuses on the services the library provides to its clients. Therefore, the program budget more readily relates to overall organizational goals and objectives. Its attractiveness is further enhanced by its usefulness when establishing priority for library programs relative to the parent organization. The program budget development is typically an extension of the line-item budget development method. Robinson and Robinson explain that each program in the program budget appears separately and is broken out in categories similar to the line-item budget (Robinson and Robinson 426). Warner provides the following model:

PROGRAM BUDGET Program # 1 Program # 2 Program # 3 TOTALSSalaries Materials Etc. Etc. Miscellaneous TOTALS % 100%

As the model demonstrates, the program budget facilitates comparative analyses among the library’s multiple programs. Others maintain that a program budget produces a document that is easily understood and demonstrates a willingness to make best use of limited resources by minimizing conflict and overlap among projects (Asantewa 15). A disadvantage associated with the program budget emerges when the adoption of the program budget method forces special library staff members to think along program lines in contrast to the comfort-zone associated with previous budgeting methods. Warner notes that some people can become defensive when required to “…analyze, report and justify how they spend their time.”Performance Budget Performance budgets share characteristics with program budgets, but performance budgets focus primarily on what library staff members do or what functions they perform in the library’s service complement. Tasks rather than programs are highlighted. Among the functions displayed within a performance budget are technical services (i.e., cataloging, materials processing); planning (budgeting, automation, employee selection, interviewing, development; patron contact (circulation desk, email & telephone contacts). Warner provides this model for the Performance Budget or Function Budget:

PERFORMANCE BUDGET, FUNCTION BUDGET Function # 1 Function #2 Function # 3 TOTALSSalaries Materials

Etc. Etc. Miscellaneous TOTALS % 100%

Warner identifies the performance budget’s strength as providing an instrument for monitoring staff members and for developing unit costs. The primary disadvantage associated with performance budgets is the emphasis on quantity, not quality, of the activity being monitored (Warner 11).Zero-Based Budget Zero-based budgeting shifts the emphasis from comparing present performance and/or programs to the past or to the current activity. Rather, zero-based budgeting requires that a “clean slate” be the starting point for budget development. Therefore, the emphasis is on what will happen in the future that corresponds to the goals and objectives of the parent organization. This “from scratch” approach is viewed as an appropriate instrument to rank library programs by cost/importance to organizational goals and to identify and eliminate programs that provide minimal value-added (Zach 22)Once the value enhancing activities are identified, then the attendant costs are developed. Accompanying zero-based budgeting is the concept of “decision packages”, a method used to examine each proposed program and rank its merits vis a vis the parent organization’s goals and objectives. Once the top-ranking programs are identified, a program budget model is typically used to construct the resource details.

Advantages associated with zero-based budgeting include its focus on identifying programs that will further the company’s goals for the future. Reliance on “the way we’ve always done things” violates the basic premise of zero-based budgeting. Most zero-based budgeting advocates maintain that the method promotes innovation, effectiveness and efficiency. The downside of zero-based budgeting relates to its time-consuming nature. Starting at “zero” implies that all aspects of the library’s operation will undergo examination and justification. Most special libraries indicate that zero-based budgeting also intrudes on day-to-day operational activities such as journal subscription renewals and standing orders (Warner 11). The Budget Process Develop and maintain a “Financial Management Calendar” (see Appendix A). Use this instrument to communicate at opportune moments with upper levels of management and with your library staff. The library manager realizes that the budget is an ongoing element of overall financial management responsibility. Since budgets represent a common feature of all functions within the parent organization and typically have high profile status, each library manager prudently anticipates all aspects of budget development, presentation and analysis. Warner’s admonition to “Own Your Numbers” implies a library manager’s thorough knowledge and understanding of the critical

nature of the budget process. Each manager must know the questions to ask and answer. Such questions would include: What is the total budget of the library? What is the total budget of the organization? What percent of the organization’s total budget goes to the library?

Although the answers to the second and third questions may be difficult to ferret out, the astute library manager creates a role within the management cadre that facilitates obtaining answers. Recognize, too, that the budget process extends beyond budget development and submission. On a regular basis, maintain and monitor cost versus actual records. Typically, the parent organization’s accounting department prepares periodic (usually monthly) cost reports. However, the lag time can be unacceptable to the library’s need for timely information. Therefore, establish an internal cost versus actual system that reflects not only actual but also “encumbered” funds, funds that are committed but yet to be processed through your accounts payable organization. Additional activities that accompany the budget process include maintaining and reviewing a consideration file at all times and reviewing and acting on other funding opportunities, such as grants and fund raising. Anticipate rather than react to budgetary concerns.Budget Standards and Rules of Thumb “Someone is always looking…” serves as a reasonable impetus for developing a repertoire of evaluation methods. Whether that

“someone” is you, the special librarian, or an individual totally external to the library, be ready to substantiate your library’s activities and programs in quantitative terms. Formal standards govern many libraries, especially public and school libraries. Among the formal standards for special libraries are those developed by the Special Libraries Association in “Objectives and Standards for Special Libraries” addressing such areas as objectives, staff, collection, services, budget and physical facilities (Warner 15). Professional organizations such as the American Association for Law Libraries and the Medical Library Association have also promulgated standards for libraries supporting those professions. Important, also, to the special librarian’s fiscal toolkit are informal standards/ guidelines/ rules of thumb. Often, these rules-of-thumb are gleaned from professional publications, professional associations, networking with peers – rather openly or “furtively “, as stated by Warner. Included among Warner’s collection of rules of thumb are In private law firms, the libraries materials budget (i.e., no salaries) is said to be approximately 1 percent of the firm’s total revenues.

In special libraries, library expenditures are rumored to be between 0.5 and 5 percent of revenues.

In special libraries, salaries account for 50 percent to 80 percent of the budget, literature and service costs 10 percent to 40 percent, and the remaining 10 percent all else.

The cost of purchasing equals the cost of processing (i.e., the technical services budget equals the book budget)

In general, serials prices rise exponentially faster than do book prices: 15 to 16.5 percent per year for serials, 7 percent per year for books.

Although less than scientific, these rules-of-thumb represent experience of other special librarians. As anecdotal support, one would cautiously employ such rationale when involved in formal budget/financial management activities with senior management. At the same time, knowing “what others are doing” can be judiciously applied to formal budget discussions if substantiated by “hard data”. Budget Presentations Follow the advice of Warner and “own your numbers” before considering methods for presenting your budget for approval. Often, budget presentations to upper management are brief for the presenter, but long and tedious for the review panel. Therefore, Warner suggests that regardless of the presentation format, the library manager presenting the budget must be brief to the point informed plain spoken.

Often, budget presentation formats will be prescribed by the budget review panel. If guidelines are provided, follow them carefully. In today’s world, presentation graphics software matched with a digital image projector is often chosen as the communications medium. Should you be considering this format, study and apply sound design principles to your presentation. Avoid overloading the presentation with distracting sounds, animation, small text, and

garish colors. Include only those elements that enhance your message and motivate your audience to act as your library needs them to act. Practice your presentation until you “own those numbers”, not only from the point of understanding your program and its required resources, but also from the perspective of delivering a smooth and flawless presentation. Focus on presenting the benefits of the library to the parent organization, on the ways in which the library’s programs support the organizational goals and objectives. Be prepared to provide the details. For example, have the line-item budget available for distribution should you be asked for low-level detail. Better still, be prepared to relate line items to the overall benefits of the program(s) supported by that line item. Arm yourself with valid statistical support for program effectiveness, for the library’s contribution to the organization. Provide examples of library efficiency, of program review, revision and consolidation as appropriate. These suggestions demonstrate that you understand the parent organization’s mission. The suggestions portray the special library as an integral part of the team concerned with maximizing organizational health and profitability while minimizing attendant costs. These suggestions present as a studied, earnest, and polished professional member of the management team. There’s no other place to be!Should the Ax Fall

In today’s world of shrinking budgets, libraries as an element of overhead often face first round budget cuts. The special library that integrates itself into the organizational fiber and consistently demonstrates its value to the parent organization through effective and efficient programs will be better positioned to withstand budget cuts. Specific strategies that equip the special library in dealing with the threat or reality of budget cuts include programs that satisfy the needs of its upper management and its end users. Therefore, know your organization, know your users needs. Develop and implement marketing strategies that establish the special library as a vital component of the parent organization’s success. This is a dynamic endeavor, a posture that requires constant refinement. Be prepared with your own proposals of library budget reductions so that you are proactive in the event of budget reductions. Be armed with plans that permit your priority programs to function, even in a somewhat skeletal manner. Remember, you are the library expert and can best tailor funding reductions so that the minimum program damage occurs.

Works Cited Asantewa, D’Lle. “Holistic Budgeting: a Process: a Whole System

Approach.” Information Outlook. 2003. August v7 i8 p 14-5. Evans, G. Edward, Patricia Layzell Ward, Bendik

Rugaas. Management Basics for Information Professionals. New York: Neal-Schuman Publishers, Inc. 2000.

Robinson, Barbara M. and Sherman Robinson. “Strategic Planning

and Program Budgeting for Libraries.” Library Trends. 1994. Winter, 420-28.

Warner, Alice Sizer. Owning Your Numbers: an Introduction to

Budgeting for Special Libraries. Special Libraries Association. 15 April 2004. <http://www.sla.org/sla-learning/selfstdy/course07/course.pdf >.

Zach, Lisl. “A Librarian’s Guide to Speaking the Business Language.

(Tools of Budgeting)”. Information Outlook. June 2002 v6 i6 p 18-23.

Appendix A

Financial Management Calendar

MONTH ACTIVITY LIBRARY MGR.

STAFF SENIOR MGMT

END USERS

JAN Obtain parent organization budget schedule

X

Obtain inflation factors X X Develop budget request

documents for library functions

X

Conduct mid-year program evaluations

X X X

Conduct mid-year collection to program evaluation

X X

Review alternative funding opportunities (grants, in-kind contributions); act accordingly

X X

Monitor YTD cost versus budget

X X

Prepare and distribute “ALERT” notices

X X X X

Review, modify consideration file

X X X

FEB Conduct needs assessment

meeting with clientsX X X X

Develop preliminary budget X X Review professional

publications to identify potential program additions, revisions, deletions

X X


X X


X X


STAFF SENIOR MGMT

END USERS


X X X X


X X

MAR Submit budget request (if

parent organization schedule requires)

X

Prepare budget presentation documents

X X

Participate in Budget Review meetings

X X

Develop preliminary acquisition plan (all media)

X X

Distribute preliminary acquisition plan to library functions

X X



Review and take appropriate action relative to current year funds expenditures; review encumberances


X X X X


APR Confirm budget resources for

coming yearX X X

Prepare seasonalized (forecasted) budget

X X

Generate and submit purchase requests

X X

Maintain contact with vendors regarding availability and ship dates

X X


STAFF SENIOR MGMT

END USERS


X X


X X X X


X X


X X

MAY Monitor acquisitions process X Conduct review of

subscription services X

Prepare preliminary end of fiscal year report

X X


X X


X X


X X


X X X X

JUN Confirm all outstanding

ordersX X

Establish financial monitoring system for coming fiscal year

X X


X X


X X


X X


X X X X


STAFF SENIOR MGMT

END USERS

JUL Implement new budget:

allocate to library programs as appropriate

X

Conduct mid-year program evaluations

X X X X


X X


X X


X X


X X X X

AUG Distribute initial needs

assessment documentsX X X

Review outstanding purchase requests and encumbered funds

X X


X X


X X


X X


X X X X

SEP Process additional purchase

requests as appropriateX X

Conduct capital budgeting needs assessments

X X X

Solicit feedback from parent organizations

X X

Review alternative funding opportunities (grants, in-kind

X X


STAFF SENIOR MGMT

END USERS

contributions); act accordingly


X X


X X


X X X X

OCT Identify potential

programs for coming yearX X

Conduct collection to program evaluation

X X X X

Prepare purchase requests as appropriate

X X


X X


X X


X X


X X X X

NOV Conduct needs assessment

meeting with clientsX X X X

Review current programs for revisions, deletions, additions

X X X X


X X


X X


X X


X X X X


STAFF SENIOR MGMT

END USERS

DEC Prepare mid-year financial

reportX X

Submit mid-year financial report

X X


X X


X X


X X


X X X X

Dossett Budget

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