Make More Rain : leverage, technology

Billable Hours vs. Head Count Leverage in Law Firms

Admin — Tue, 20 Mar 2007 17:02:23 GMT

The question of leverage is becoming more complicated given the increasing use of part-time lawyers and those working flexible schedules. Likewise, a pure head count approach where a firm underutilizes non-partner lawyers produces a misleading result.

William Johnston and Kristin Stark of Hildebrandt International address the leverage and underutilization issue in their paper titled Are We Approaching a Profitability Plateau?

“While partner/associate leverage is widely regarded as one of the drivers of economic performance (much like realization, productivity, etc.), leverage of billable hours is more important and should be given greater attention than leverage based on body count. Leverage is often stated as the ratio of non-equity lawyers to equity partners; economic leverage focuses on the total billable hours each group works. A surprising number of firms, including some of the largest firms in the country, have solid leverage based on body count, but only mediocre leverage when based on billable hours. These firms should reevaluate their use of leverage. Leverage is only positive when you can keep the timekeepers busy. After all, having a high associate-to-partner ratio is fairly meaningless if the associates are underutilized. Firms where 'body count' leverage far exceeds billable hour leverage typically have a large number of lawyers who neither work very hard as a working attorney nor generate significant business for the firm. Successful firms have the courage to take action when lawyers under perform, including counseling lawyers out of the firm.”

To see what the authors are talking about, compute your firm’s body count leverage and then compute the ratio of non-partner billable hours to partner hours. To illustrate, the related numbers for a composite of all survived firms as determined by the 2006 Juris Law Firm Economic Survey were as follows:

Partners: 12

Associates: 12

Leverage based on Body Count 1:1

Partner hours: 19,956

Associate hours: 17,724

Leverage based on hours: 0.89:1

While the body count leverage is 1 to 1, associates' hours were 89 percent of those produced by a partner, reaffirming the chronic underutilization of associates in midrange firms.

Morepartnerincome differs with the Hildebrandt team when it comes to corrective steps. Conditions on the ground may, in some cases, warrant thinning the law firm ranks of under-producing lawyers. However, spotty cases of attorneys who are inclined not to “work very hard” cannot account for across-the-board low body count leverage and even lower hourly leverage among 75 percent of midsized law firms. The blame rests not on lazy lawyers, but on law firm partners who hoard work at the expense of delegation and business development. Chopping heads is a short-term fix to stop the blood flow. The long-term solution is improved scheduling and delegation coupled with increased partner emphasis on business development, recruiting, and association development.

Back to the issue of measuring leverage, the issue of relying on body count leverage alone raised by the Hildebrandt authors illustrates why sound management requires a balanced approach in using law firm performance metrics. Leverage, utilization, price, realization, and margin must all be considered. Top performing law firms score highly in all metric categories. When it comes to measuring leverage, part-time and flex schedule attorneys add an additional complication. One simplifying technique is to use non-equity equivalents in computing traditional body count leverage. Two half-time associates equal one non-equity equivalent, for example. When using equivalents, the fractional measure should be based on compensation not on the billable hours that part-timers generate. If a flex hour attorney is costing you two-thirds of a comparable associate, they are two-thirds of a non-equity equivalent, even if they are producing at the annual level of 500 or 1500 hours.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Law Firms Disappointed With Associate Hours

Admin — Wed, 20 Dec 2006 18:57:31 GMT

A legal consultant just said to me, “I deal with partners all the time who complain that associates aren’t working enough billable hours. When I dig further, I find they haven’t told associates what is expected of them.”

We are coming up on a new year. While having a new year isn’t required to turn over a new leaf, it gives us reason to do so. What do you expect from the firm’s professionals in 2007? Grasp the opportunity that the start of a new year gives you to set individual goals and measure actual performance going forward.

Firms that plan, set goals, measure, and hold people accountable perform best.

PS: The Juris Law Firm Economic Survey of midsized law firms is a step-by-step road map for increasing law firm partner income. From now through the end of the year, you can purchase the survey for $187, half of its regular price, by clicking here for this special morepartnerincome holiday price.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Six Basic Law Firm Metrics

Admin — Tue, 19 Sep 2006 17:24:49 GMT

What top-level metrics should you track? If you are among the 20 percent of midsized firms who have a formal planning process, what you track depends on that plan and your objectives. But regardless, there are six basic metrics that every firm should track:

Productivity or Utilization

Effective (Blended) Rate

Realization

Margin

Days of unbilled fees (work in process)

Days of billed fees outstanding (accounts receivable)

Current performance should be compared to prior periods to determine if the firm's financial performance is improving, holding its own, or declining. It should be compared to the firm’s targets to determine if it is achieving its objectives. It should be compared to benchmarks of similar firms. Doing so will most likely indicate areas that deserve attention and that represent lost opportunities.

While I have not included it among the basic metrics, leverage is still the primary factor correlating with per-partner income. For example, in a recent survey, the top performing 25 percent of midsized firms had 2.5 associates for every partner, compared with an average of 1.3 associates for all firms. The chart below appears in the Juris Law Firm Economic Survey of midsized firms for 2005. The chart clearly illustrates the dominant influence of leverage on per-partner income.

If you need help computing any of the six basic metrics, refer to the previous posts linked below:

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

A New Microsoft Windows Is Coming and Its Impact on Law Firm Hardware Plans

Admin — Fri, 02 Jun 2006 17:31:55 GMT

By Guest Author: Barry Lancaster, Juris, Inc. Senior Director of Client Services

Microsoft® is set to release a new desktop operating system Windows Vista™, due in January of 2007. Based on the latest comments from Microsoft, I would expect them to delay the release until later in 2007. The Vista version of Windows has some exciting features to enhance your PC experience. However upgrading to Vista may require hardware upgrades. Now is a good time to create a plan for moving to the latest version of Windows.

Listed below are the hardware recommendations from Microsoft for Vista:

Processor: 800 Mhz

Memory: 512 MB

Graphics: SVGA (800 x 600)

Hard Drive: 20 GB

Hard Drive Free Space: 15 GB

Optical-Drive: CD-Rom Drive

Microsoft’s recommendations are below the standard of computers sold today. So if you are thinking about technology purchases, do not let Microsoft Vista requirements delay your purchase. Juris, Inc regularly publishes a recommended minimum configuration for law firms considering new workstation purchases. That recommendation takes into consideration equipment prices and the state of software technology at the time. Juris last updated its “Best Value” recommendation on January 2006; however that recommendation shown below is still valid at the present time, June 2006:

Processor: 2.8 Ghz

Memory: 1 GB

Graphics: SVGA with 17 inch monitor

Vista offers many new features for PC users which are detailed on their Vista homepage: http://www.microsoft.com/windowsvista. We are running a beta version of Vista on a test machine. Some the features that I expect to have the largest impact for law firms include:

User Experience – As with each upgrade to its PC operating system, Microsoft has enhanced the look and feel of Windows. While the new user interface is expected to increase attorney and staff productivity, in the long run, as with most changes, individually productivity will take a hit until users become comfortable with Vista through use.
Security – Microsoft continues to focus on the security of its products. Vista has more security controls over Windows XP to protect against unauthorized access and viruses. Some of the security may require more management from the IT staff. Firms will have to find the balance between security and management that is right for them.
Search and Organization – Microsoft made many enhancements into search features. The new features are helpful in a law firm environment that may have thousands of documents on their network.
Internet Explorer 7.0 – a new panel feature allows for multiple explorer sessions through a single window. This means your desktop has less clutter when you are running more than one instance of Internet Explorer.
Windows Backup – This feature is currently in Windows XP but has been enhanced. Today, most offices are networked with a plan to backup data off the network server. Most people still store some data such as confidential personnel memos on their hard drive so the network administrator cannot access the file which is rarely backed up. So law firms should have a strategy to backup hard drives.
Windows Update – This feature is currently in Windows XP. All Windows users should take advantage of this feature to manage receiving critical Windows updates that can affect the security of your PC in an automated fashion. Activating this feature for all the PCs in your law firm increases your protection against the latest viruses and other security threats.

The release date for Vista is not firm and while law firms may not move to Vista immediately upon release, they will need to do so within a reasonable period or fall behind their peers in technology and resulting productivity.

Perhaps the most important message is that law firms should not postpone equipment replacement or invest plans in anticipation of Vista. Vista’s requirements are well within the specifications of typical “best value” equipment purchases being made today. Law firms should maintain a level of technology appropriate to service their clients without losing competitive advantage to more productive competitors. In today’s environment, that means staying current with software releases and maintaining adequate hardware to do so.

About the Author: Barry Lancaster, a graduate of Vanderbilt University, joined Juris, Inc. after a 15-year career with Accenture, one of the world’s leading global management consulting, technology services and outsourcing companies. His experience includes leadership of technology and development teams, business analysts, consultants, and implementation of business process quality initiatives.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.