Redwood Analytics

Four times per year we host the Redwood Forum, which is a chance for Redwood users to get together online and talk about business intelligence, law firm management and finance, and the role our tools play in that space.  

The Redwood Think Tank is hard at work researching Alternative Fee Arrangements (AFAs).  The goal is to understand the new demand, why this demand exists, and how firms can address it. 

What are firms and clients trying to get out of AFAs?  The reasons that appear most frequently are:

Challenges to implement AFAs

The biggest challenge to implementation is the risk of the unknown.  Firms do not know what will be involved (effort/hours) with each matter.  With this in mind, the billable hour approach has been the most popular method of billing for law firms in the past.

If firms could reasonably predict the effort per matter though, would firms be more receptive to implementing AFAs?  The Think Tank believes by shrinking the unknown risk of AFAs, firms will be more apt to implement them in their firm. 

Predicting the Effort

If every matter were the same, it would be pure science to determine and predict the effort of each matter.  However, all matters have substantial amounts of variability which makes prediction of the effort part science and part "art." 

By examining various data sources and looking at the number of hours per matter or per component of a matter, the Think Tank is hoping to find patterns that will rely more on science than "art" in order to give partners greater confidence in their figures within AFAs.  As firms continue to improve their ability to estimate what the work effort will be, the need for AFAs may decline. 

Figure 1 illustrates the number of hours required for real estate contracts.  What the Think Tank is hoping to see is a tight grouping of the data, which would indicate that type of work is fairly commoditized or at least fairly predictable.  The Think Tank will go through several different methods in order to tighten that range and reduce the unknown risk mentioned.   

 Figure 1

 Sharing Risk

Because predicting the effort for each matter may not be 100% scientifically precise, another component of the research is to find ways that firms can protect themselves.  One idea is to build a series of cushions where the data is not conclusive.  When working with clients, partners can also set certain change triggers as well.  The Think Tank hopes to find some areas where the matters are predictable, and we will want people to start testing their ability to predict based on the results. 

A participant asked how the Think Tank is collecting information on task codes in order to identify stages of litigation (example: discovery, deposition, pre-trial, trial, appeals).

The first cut of data the Think Tank is working in has only been at the matter level.  Stage 2 will involve exploring coding with the client members of the Redwood Think Tank. 

Another participant inquired as to how many firms are using the Redwood Planning Application to plan for AFAs.  It's too early to say how many firms are planning AFAs in this new application, but the technology currently supports fixed fee planning, blended rates, volume discounts, and in the next release, success fees planning.

This concludes our series on the Redwood Forum.  Thanks to Chris Katchuk for compiling the notes from this event.