THOMSON REUTERS ELITE

Q2 2016 EDITION

Forefront
 

How to Increase Law Firm Revenue and Profitability
Using Data Alone

Let’s begin at the beginning. What is the value of data to legal firms? Simply this: data gives you a number of important insights. It will tell you, for example, how much work actually costs. This is critical because when you’re costing future jobs for clients, or setting rates, you must be able to accurately predict the actual cost of a job in order to submit a competitive bid and one that will bring a profit.

What else does data reveal? It can break down the balance of partners and associates working on any given matter. This enables you to understand better the blend of skills that will optimize the costing of a file. It can tell you how long a job has taken. Data helps you schedule work. It can help you identify which types of work to bid for. All of which contributes to sound decisions that will underpin your firm’s profitability.

As well as steering the firm away from the risks of under- or over-estimation, data is also about minimizing compliance risks by billing in the right way, at the right time. It’s about nurturing relationships by presenting clients with detailed, timely, and accurate billing which gives them more confidence in the probity of the firm.

It’s about seizing opportunity. Data lets you understand the cost of a sale, what you should take on, and how. Without good data, you can be sending out bad bills and making bad decisions. Good data is powerful and important, which makes it really surprising that so many firms get data wrong and miss out on the opportunities it brings.

Don’t Get Data Wrong

The problem is that data is routinely misunderstood in two key ways. For one thing, a lot of firms simply fail to recognize the value of good quality data in the first place. The second big issue is that firms often don’t recognize that the data they’re using isn’t very good. Remember, it’s impossible for poor quality data to generate reliable insights. Garbage in leads to garbage out. The information used for analysis needs to be accurate, relevant, and timely. All too often it’s not.

For example, at Tikit we routinely see lawyers who complete timesheets days or even weeks after the activity they’re recording has happened. It’s not good enough. Things get distorted and missed. The quality of that data is low.

In truth, though, the type of data that firms mostly persist in using is financial data. What’s so wrong with that? Well for one thing, it’s historical data. It tells you what happened in the past. Essentially, it’s looking in the rear-view mirror at what’s gone by.

In addition, it’s data that’s based on outcomes, not inputs. So it can’t provide insights about how the outcomes were achieved. This type of data leads to a harmful fixation on billings, rates, and collected realization. The drawback with that is that it doesn’t help you understand your costs and how your costs can be rationalized. This can be a very expensive mistake in today’s highly competitive legal climate.

What firms should be doing is righting these wrongs. They need to understand and accept the real value of data analytics. They need to move away from their reliance on historical financial data. Then they need to embark on a program of the kind I’m going to outline below. This will move them toward the culture and practice of acquiring high quality data on which to base high quality decisions.

Acquiring High Quality Data

At this point, I have to tell you that it’s all good news from now on. Great data leads to great insights and great decisions. But the really good news is that great data is easy to acquire because it’s a by-product of a thing you have to do anyway – which is timekeeping.

Moreover, as much as high quality data is a benefit of high quality timekeeping, it’s far from the only one. High quality timekeeping means you find more time and get more revenue as a result. It also means you embed stronger relationships with your clients because they see you being painstakingly accurate about their bills.

But sticking for now with data. How do we get great data? For me, it’s characterized by one thing and one thing only: zero velocity. What does that mean? Well, velocity is the number of days between an activity happening and the point that it’s recorded. Zero velocity is no time at all between when the activity happens and it being recorded. It means lawyers are always recording time as they go along, instead of at the end of the day, week, or month. Work toward zero velocity, and the accuracy of the data and its quality takes care of itself. 

How do we arrive at zero velocity? It’s a question of putting in place the processes, policies, cultures, and systems that enable it (which I will explain below). When you do so, data automatically becomes really clean and precise. When lawyers record what they’ve done as soon as they do it, the data is complete, exact, and reliable.

A final very good reason for zero velocity is the overall improvement in a firm’s time capture processes. To illustrate this point, one firm I worked with went through the exercise of estimating the cost of having half of its lawyers scrambling to enter time on the last day of the month. They have 1,200 lawyers, and they estimated that 50% of them were taking two to three hours at the end of every month to reconstruct their time. Guess what that costs? The firm conservatively estimated that over 1,000 possible billable hours were squandered each month. I leave it to you to complete the calculation based on your firm’s average billable rate. The amount—effectively the cost of poor timekeeping practices—is eye opening.

The Journey to Zero Velocity

How do you get to zero velocity? Here’s a five-point outline plan.

  • Review all existing time entry policies and measures. Firms need to gauge how effective current policies are and if they can be improved, because setting the right tone and culture in respect of timekeeping is crucial. Policies should be clear and should aim to create a better timekeeping experience for everyone. They should make timekeeping a shared responsibility across the firm, not just a task for lawyers. Policies also should be underpinned by the introduction of metrics and measures. Firms could look at incentives and possibly penalties for timekeepers that don’t meet an acceptable threshold as a way to drive contemporaneous time capture as standard.
  • Communicate the reasons for change. In tandem with policy revision, lawyers should be given a clear rationale for change and also treated like consumers of a new product. Emphasize that they’re the ones who get to choose how they capture time. If the new approach is positioned as a personal tool designed to help them, rather than a system for the convenience of the firm, it will gain more traction, achieve earlier adoption, and deliver stronger results.
  • Orientate the users, don’t train them. Lawyers will be using already-familiar devices to capture time from now on, so they don’t need formal training (itself a term that sounds dry, time-consuming, and dull.) Instead, provide no-longer-than 30-minute orientation sessions on specific methods of capture that fit their practice. Keep it crisp and to the point, and lawyers will be more likely to engage. Continuously stress the importance of contemporaneous capture for the individual, but also as an objective of the firm.
  • Roll out a new timekeeping system in stages. Nominate high profile senior lawyers as project sponsors and run pilot implementations to gain feedback and acceptance. Then publicize the rollout’s success to motivate and galvanize everyone else.
  • Above all, –implement technology that provides ”any device, anywhere, anytime” capture. Once you’ve created the right environment and time capture culture, it’s essential to introduce time capture software that is both extraordinarily easy to use and delivers a consistent interface across PCs, tablets, and smart phones. If awyers can capture time painlessly, at zero velocity, they will do so.

This has been a very brief guide to the importance of data to firms and to the criticality of moving to zero velocity. I hope that it provides some food for thought. The takeaway is simply this: in today’s highly competitive legal environment, firms cannot afford to squander the chance to take competitive advantage, and this is clearly one such opportunity.

 

Tikit

Tikit is one of the largest suppliers of technology solutions & services to legal & accountancy firms, and is part of BT Group. Tikit's client list totals more than 1,450 firms globally, including 90 of the UK's top 100 law firms, 250 US law firms, 12 of the top 20 European law firms and 18 of the UK's top 50 accountancy firms. Click here for more information.

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