A Law Firm Can Not Live In The Past

Admin — Mon, 24 Sep 2007 17:26:04 GMT

As any organization increases in size, what worked as a smaller organization begins to break down. It becomes increasingly important to have a “play book” so everyone in the organization understands what is expected of them and what rules (core beliefs) should guide the decisions and actions of all in the firm.

Consider the real life example of a 50-attorney firm that will not allow its attorneys to enter their own time. The founding partner doesn’t believe attorneys should do “administrative work”. I’m sure that practice worked fairly well when the firm was small and everyone, including secretaries, knew what everyone was doing. But for a sizable 50-attorney firm, the practice is surely folly and will, sooner or later, get the firm in trouble.

Forty two percent of corporate clients think law firms pad their bills and the courts are not understanding about lax law firm practices for accurately tracking attorney time. The attorney is the only person who can accurately answer “What work was been done and how much of the attorney’s valuable time was spent doing it?"

Many first generation firms are the product of defections from big law. The firm was founded as a rebellion against rigid big law policies and procedures. As the product of the environment from which they fled, the founding partners didn’t require their own rule book. They were already disciplined by their experience. They did the right things without the bureaucracy. With growth, new people enter the organization without the benefit of a similar experience in a structured environment. They need the current law firm to provide structure since they bring none with them.

What about your firm? Do you still have “small firm” traditions in place that are no longer appropriate? Are you still trying to preserve an environment where there are no formal rules to play by? We have to change as we change and as the world in which we do business in changes. You can be accidentally successful for a while, but long term success and durability takes purposeful management.

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.

Role of Utilization in the Law Practice Business Model

Admin — Mon, 27 Aug 2007 17:33:12 GMT

This post deals with the use of Utilization in the Law Practice Business Model.

While David Maister uses the term utilization his model, many others refer to this metric as productivity. Sometimes productivity is used to refer to timekeeper billable hours and utilization is used for firm or group totals. This post will use both terms, productivity and utilization, interchangeably.

At first glance, Davis Maister’s Law Practice Business Model seems simple enough to apply to your law firm. With it, you can predict future results and test the impact of changes involving price, leverage, productivity and expense levels. But as the old saying goes, the devil is in the details. It isn’t that easy to measure the variables used in the model. Utilization is no exception.

Utilization is the number of hours worked on billable matters and is usually expressed as the “Billable Hours per Fee Earner”. Very simple models like the example below (click on graphic to download) work with a single average per fee earner which is multiplied by the number of fee earners to arrive at the total billable hours for the firm.

While more complex models may use average productivity by class of fee earners such as first year associates, mid-level associates, senior associates, etc., it is important to keep any model relatively simple. It is easy to get lost in numbers and complexity. Models keep us from being distracted by the minutia and focus our attention on the relationships among the key performance elements that influence financial performance. Simplified models usually prove to be better predictors than detailed forecasts and budgets. Models are not replacements for either. Budgets and forecasts are operational tools—detailed road maps for accomplishing a plan or targets. Models are decision support tools used in setting and revising those targets. Measuring and tracking the variables used in a model provide leaders with an instantly digestible macro view of the firm’s performance. Business Intelligence (BI) systems like Juris Active Information can convert models into dashboard images with drill-down capability to provide law firm leaders with actionable information needed to take corrective action when the firm or areas in a firm move off course.

There are three things we want from a metric like utilization:

1. We want a metric that telegraphs changes in performance without the risk that such changes will be masked by the computation method.

2. We want a representative number for benchmarking against our peers

3. We want a reliable number for predicting the future

For the first objective, a straight end-of-period calculation is the most appropriate—total hours divided by the number of fee earners. The objective here is to signal something has changed. That change may be due to moving attorneys to part-time status, hiring new attorneys or losing attorneys to other firms. The change can be good or bad. The change can signal a continuing condition or a temporary variance from expectations. Whatever the reason, a change has occurred. The change in the metrics alerts management that they need to investigate in order to understand the nature of the change.

For benchmarking purposes, utilization based on the average number of fee earners is the right approach. For comparative purposes it would be meaningless for a firm that added ten laterals near the end of the year to include those attorneys in the calculation of attorney productivity, without some compensating adjustment. Ten attorneys for two months are only equivalent to 1 ^2/3attorney for a twelve month period. The full time equivalent result is accomplished by using the average number of fee earners for the period being reported. A growing firm that reports end-of -period counts of attorneys rather than the average will always appear to be underperforming. Likewise a firm declining in size will appear to have higher performance. Utilization based on the average number of fee earners for the period is also the right number for tracking individual productivity. It signals when the firm has access capacity or is moving toward burn-out work levels for its professional.

The third forward-looking objective takes some "Kentucky Windage". To project next year’s results, start with the firm’s backward-looking current average productivity per attorney. Adjust it for significant plans, if any, that are expected to impact productivity. Use this forward-looking expected average of fee earners for the period being modeled. Keep the relationship between the variables in mind to avoid serious errors when looking forward. A learning curve related to new hires could require a decrease in the firm’s expected average productivity. While the new associates may be unproductive for several months, the firm will still be paying their salary. Thus, margin as a percent of fee revenues may also require a compensating downward adjustment to reflect that the firm’s expenses are expected to increase relative to added revenues. In most cases the greater danger of misleading projections is from over-manipulating the variables in an effort to compensate for future plans. Models are broad brushes. Make compensating adjustments but only for “big” exceptions to norms. Things have a tendency to balance themselves out; as a result, simplicity usually wins the reliability contest.

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.

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A Law Firm Can Not Live In The Past

Role of Utilization in the Law Practice Business Model