Planning Concepts and a Sneak Peek at the LexisNexis Redwood Planning Application

MichelleStPierre — Thu, 10 Dec 2009 14:45:00 GMT

Planning Overview The LexisNexis Redwood Planning application is a sophisticated management tool that uses a firm's profitability model to look at client planning and alternative choices in the staffing and pricing of new matters as well as the consequences...(read more)

Business-Continuity Planning for Law Firms

Admin — Mon, 18 Feb 2008 08:00:12 GMT

Planning is an oft-referenced theme on this blog. Plan for increasing wealth, plan for economic down cycles, plan for disasters. What about during interruptions such as the recent blackberry outage?

There are many things that can cause business interruptions. Planning for them will mitigate the consequences those interruptions have on your firm's operations. Not planning for them will cost you money.

What are some things you can do to prepare? There are companies that make a living selling plans to businesses, but basic guidelines include:

Business Impact Analysis: Determine the effect an outage would have on the firm's most crucial systems and processes. More or less identifying the important processes subject to interruption and how that interruption will affect business. In a law firm, this includes (but is not limited to) telephone systems, computers, staff, software systems.
Plan what you will do if business interruption takes place: This, of course, is the hard part. Planning means taking the time to think of ways around the interruption - and gain approval for the procedure. For example, if your office is unavailable, where are critical staff? They need to have a place to meet to put in effect the plan. Remote communication is easier now than it's ever been. Cell phones help but what about email? If your email servers go down, you will need a backup plan to send and receive communications. There are services such as Mimecast Unified Email Messaging that can provide a seamless transition that clients won't notice - making it appear as if there were no interruption at all - so long as you have access to high speed internet or have a data-enabled mobile device. In the case of an interruption of internet access, there needs to be a secondary plan to know where your people are.
Always have good, redundant, and off-site backups available: All the benefits of technology are in vain in a disaster situation if you have no backups. It has been reported that 25% to 30% of backups don't save properly. When was the last time your office checked to make sure the backups were working? Services such as LexisNexis Data Backup and Protection Services provide continuous automatic off-site storage of your data.
Run a drill or two to test the processes: It is paradoxical to interrupt the business day to test processes geared to mitigate interruptions in the business day. But it has to be done. Otherwise you may not find the flaws in the plan until you put the plan in action - not the time you want to find out that you left out an important facet.
Review the plan annually: Don't just dust off the Y2K disaster readiness plan and change the cover page. Times change, technologies change, and needs change. Make sure you are up to date on all your systems and their effect on your business.

A sample business continuity and disaster preparedness plan, courtesy of ready.gov, can be downloaded by clicking here.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Pricing's Role in the Law Practice Business Model

Admin — Thu, 23 Aug 2007 17:00:06 GMT

When Davis Maister published his Law Practice Business Model, shown below, he gave students and law firm leaders a unifying tool to understand and express the financial variables that determine per-partner income.

Maister’s contribution has proved to be an effective and valuable tool for understanding the key factors influencing law firm financial performance. As valuable as it is academically, however, some concessions to practicality are required for front line use in an actual law firm. Two modifications make the model's framework a more useful operational tool. Price, Blended Rate (BR) in Maister’s model, is expressed as the blended standard rate of a firm’s fee earners. That is difficult to determine and the method of calculation can bias the result. It is more practical to use a firm’s effective blended rate. Likewise, where Maister defines Realization as overall realization determined by dividing revenues by the standard value of time work, it is more practical to use collection realization determined by dividing collections by the amount billed.

That is the approach morepartnerincome.com will take in applying the Law Practice Business Model framework for the purpose of predicting future performance or testing the impact of changes in the formula’s variables. This post pulls together a number of prior posts to provide the reader with a single and more comprehensive review of the role that pricing plays in influencing per-partner income in the law firm.

Survey after survey comparing billing rates by firm size confirms the pricing advantage of midrange law firms. Midrange law firms across the board have upward pricing room. Many are significantly underpriced when you compare their standard (target rates) to peer level firms. And when you compare the rates actually billed by midrange firms, one frequently finds that their effective rates are materially below the firm’s reported standard rates.

Paul Calthrop, a partner in Bain & Company, makes the point that while lower pricing may be a viable strategy for entering a new market or launching something new, it otherwise inevitably undermines the firm’s prospects of achieving sustainable revenue and profit growth. For a law firm, Calthrop’s warning reinforces the importance of tracking the firm’s effective blended rate metrics. It also explains why it is so important for the firm to have strategies and tactics in place to continuously increase its effective blended rate.

Consider the following chart showing the correlation between price and per-partner income. The chart taken from Juris 2005 Law Firm Economic Survey disclosed that firms in the first quartile measured by per-partner income had the highest rate structure—both in terms of what they said were their prevailing standard prices and in terms of the “actual” blended rate being achieved. As you move across the quartiles in terms of partner income, prices declined. Partners in firms with the lowest price earned the lowest income. It is that clear.

You don’t achieve a continuing increase in the firm’s effective blended rate through periodic price increases alone. It requires sustained diligence directed at increasing the value of the services delivered by the firm and then making sure that the firm is being appropriately compensated for that value. For example, firms with a single standard rate schedule overlook the opportunity to price higher-value services at a higher rate. Likewise, constant review and reconsideration of pricing at the client level is needed since existing discounted rate deals are often the key to a low effective rate. It is also clear that some firms are underpriced and never catch up by relying on annual price increases. A deliberate approach is need to restructuring fees based on market information. How do you know how your prices compare? Traditional surveys provide some insight, but they are often 18 to 24 months behind the curve, and matching an individual firm to a meaningful peer group is an imperfect task. Better information is now available through new benchmarking services including the new Juris Insight service.

Improved pricing deserves to be on the law firm leader's radar every single day given its important role in determining per partner income. All of the following should be considered in the firm’s ongoing efforts to move its blended rate higher:

Rather than rely on general price increases, restructure prices based on competitive benchmarks
Increase low negotiated rates extended to existing clients to their higher competitive level
Tighten control over billing attorney write downs and adjustments prior to billing
Introduce separate (higher) rate schedules for selected areas of specialization and expertise
Identify new specialty areas and train or acquire expertise, thereby increasing value and the potential for increased billing rates
Market for better clients—those willing and able to pay more
Add new value to established services—convenience, response times, certainty, etc.
Tighten and enforce case acceptance standards that emphasize the value of matters undertaken
Upgrade the quality of service, presentation of work product, technology, efficiency and responsiveness to create higher value
Increase unit value through improved efficiency
Increase value by improved predictability of cost to client—case and matter budgeting
Take advantage of opportunities for alternative billing (value based) pricing
Keep prices competitive with periodic or annual increases
Invest in a better business system for pricing flexibility, easier price changes, improved anniversary date tracking, etc.

Periodic price increases remain important, but few firms have systems and procedures in place to realize the benefits of an announced price increase. It is easy to announce an increase; it isn’t as easy to implement that increase across the board to existing clients. Getting the benefit of a rate increase often requires analysis of each client situation and dealing with each client individually or, at a minimum, in groups. One simple example is the application of an increase to clients you added the week or month prior to increasing the firm’s fee structure. You are probably not going to immediately increase prices for your newest clients. Likewise, your originating attorneys and billing attorneys have agreed to deals that do not go away easily.

One approach is for the firm to reset standard hourly fee schedule annually, applying the new rates as the baseline for setting or negotiating the fee for new clients and matters coming into the firm. With respect to the firm’s existing clients or matters, however, the approach would provide for review and re-pricing on their anniversary date. Such a plan provides an orderly and manageable process for renegotiating fees. Your accounting system should provide you with the ability to code client/matters by an anniversary month.

Absent an orderly and manageable process like that described above, some clients simply fall through the cracks. They continue to enjoy unadjusted rates for years, getting further and further out of synch with the firm’s target prices

You can’t successfully manage price without knowing what your price is and what is happening to it .That is not as easy as it sounds. Price, like other key performance indicators, is the product of complex forces. Measuring a firm’s effective price is complicated by the fact that not all billings are based on hours work. It is further complicated by the lapse of time between when work is performed and when it is billed. Work billed one period is not necessary the same work that was performed during that period. The mix of fee earners also has a significant impact on the effective price of the firm’s services. It is easy to get lost in the numbers and complexity.

Managing partners turn to simplifying tools and models to stay on top of key performance indicators. One such tool is Rolling Effective Rate. Ideally, rolling effective rates are calculated using only “billed work”. While the majority of work in most midrange law firms is billed based on fee earner hours, some of the work will have been billed as a flat fee. Other work will have been performed under a contingent arrangement or some other creative billing arrangement. The billing method doesn’t matter. What is important is to capture the hours that were invested to produce those bills. Thus, in order to accurately measure rolling effective rates, you need a law office business system that measures the hours worked for bills that have been issued by the firm-collected or not. For accurate measurement, work that is unbilled (still in the firm’s work in process) is excluded from the rolling computation.

Unfortunately, many firms may find that their law office business system is not capable of separating hours between those billed and those unbilled for the selected period. In such cases, the computation uses the hours worked for the most recent 12 months compared to the amount billed for the same period. The computation will include 12 months of work and 12 months of bills; however, on average, two of the work months and two of the collection months will be a mismatch. The distortion will be immaterial enough in most cases to produce a close approximation of the firm’s Actual Effective Rate for the period.

The Excel® spreadsheet below illustrates the rolling effective rate computation. In the example, the effective rate is computed by personnel type and a weighted average is used to compute the Effective Blended Rate for the firm (click graphic to download).

Arriving at the Effective Rate by Personnel type is important for modeling future results and for comparing the firm's pricing to benchmarks of peer firms.

Once we know your effective rate, simplified models can be used to predict the future or test the impact of changes in the number or mix of fee earners. The model can also be used to see the impact of increases or decreases to the firm's effective rates. The Fee Revenue Model shown below is an example of such a tool (click graphic to download).

Likewise, the firm’s overall blended rate can be used for modeling per-partner income as illustrated in the following Law Practice Business Model (click graphic to download).

When it comes to using the Rolling Effective Rate to change future performance, law firm leaders will need more than the firm’s Blended Rate or Effective Rate by Personnel Class. They will need actionable information---the kind of information that they can get from Business Intelligence (BI) tools like Active Information from Juris. They will want to know the Effective Blended Rate by Billing Attorney, for example. They will want to be able to drill down to see Blended Rate by Client and Matter. They will want go deeper to view the mix of personnel handling the work. Firms organized by practice class will want to know the Effective Rate by Practice Class and then drill down as needed for actionable information—information that can used to make decisions that change future outcomes.

Keep in mind another performance metric that will affect the final revenue numbers: realization. While it starts with what you bill, you still have to collect from the firm’s clients. Write-offs, adjustments and bad debts will determine the final fee revenue numbers.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Make More Rain : planning, pricing

Planning Concepts and a Sneak Peek at the LexisNexis Redwood Planning Application

Business-Continuity Planning for Law Firms

Pricing's Role in the Law Practice Business Model