Best Practice Brief
LPM is not Simply about Project Management It’s about Data-Driven Practice Management Price it. Deliver it on budget. Profitably. The term Legal Project Management or Legal Process Management (LPM) is really a misnomer and confuses lawyers. The common methodologies globally for project management are PMBOK (Project Management Institute – the certification is called a PMP) and Prince2 (UK Government). These systems involve the use of dedicated project managers and highly structured project plans. The legal market is unlikely to embrace this approach. Formal project management does not really solve the problems law firms have. Their real pain points are fee predictability and a better understanding of matter economics. A better term for addressing these issues is Practice or Matter Management. Solving the fee predictability and matter economics problems requires a data-driven culture with metrics-driven fee estimates and greater visibility into profit margins. This approach supports better decision-making on how to staff matters to deliver value to clients and an appropriate profit margin for the firm. Irrespective of what we call it, the goals can be expressed from both a client and firm perspective.
The client perspective ››
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The client wants to buy legal services that match the firm’s business goals and risk tolerance. A simple example: How much in legal services do you think anyone is willing to pay for a contract that represents $60,000 in costs or revenue? How much in legal fees are acceptable when the total liability of the case is only $100,000? In-house counsel typically are required to set an accounting reserve for litigation, which sets a price for the entire case—including fees and settlement costs. Almost all clients have budgets for overall legal spend. Inside counsel needs to meet that budget. Surprise bills are bad for the careers of in-house lawyers. With early warning, they can make mid-course corrections to stay on budget. Clients continue to seek alternative fee arrangements (AFA) and discounts to show management they are controlling legal spend. Clients want communication not only around the legal services provided but around everything that affects cost. Clients often coordinate a matter across multiple firms and vendors to manage the total spend. This increases the need to ask firms to use phase or task code pricing for matters.
© 2016 Prosperoware LLC
The firm perspective ››
With clients now asking for non-standard fee arrangements—including discounts, fixed fees, or other alternative arrangements—firms must determine how to deliver their matters profitably. Here are a few pointers: • Improve internal communication so that lawyers and staff have a clear expectation of the substantive legal work that needs to be performed in light of the budget restrictions. • O n a regular basis, enable those responsible for managing matters or maintaining client relationships to understand what efforts are being performed. This enables them to manage the budget or simply confirm that the correct tasks are being performed. Regular updates are critical if only to avoid the pro-forma/pre-bill surprise. • W ith appropriate expectation setting and regular monitoring, partners can avoid an alltoo-common reaction: Associate X is doing really good legal work on this matter. The problem is that I did not know how much time was spent doing it, and I know the client will only pay for a fraction of the time. ›› Improve estimating skills on pricing legal work. Like all skills, it takes time develop. The key to developing this skill is to give those who estimate work a better understanding of the effort (hours) and costs. The best way to do this is with accurate data on prior similar matters. The emphasis is on “similar” here: without effective classification, the discovery and grouping of prior matters is difficult and dependent on the partner who is doing the pricing to be aware of good exemplars. If phase or task code pricing is required, having standardized phase and task codes makes leveraging this data easier.
Three Critical Process Points
Price & Budget The process of pricing and budgeting matters typically occurs before or just after matter opening. The timing depends on the circumstances. In competitive situations, the pricing and budgeting occurs pre-matter opening. In noncompetitive situations, the pricing and budgeting occurs post matter opening. The budget information can also be part of an RFP response. A critical element of the pricing process internally is to confirm that the matter can be delivered profitably. Firms without clear and consistent profitability metrics will need to develop them. One of the keys to developing an effective budget is good assumptions around the scope of work. This is critical both for expectation setting at the outset and communication during the life of the matter. Furthermore, clear scoping allows the firm to seek pricing adjustments when the scope changes. There are multiple ways to create a budget. Budgets can be created at the matter, phase, and task-code levels. Budgeting can be done based on an amount or it can start with hours and resources. To be more useful, phase and task codes will need to evolve to capture actual tasks and activities. An example of a task would be Take Plaintiff’s Deposition. The underlying activities are (1) send notice; (2) pull documents; (3) review documents; (4) build outline; (5) take deposition; and (6) update outline. A person or fee earner class would be assigned to each activity and amount. These tasks can then be sized (e.g., small, medium, or large).
© 2016 Prosperoware LLC
Monitor & Communicate Once a matter is active, the partner in charge must monitor and manage actual spend and activity against the budget. The goal is to make sure the matter is being delivered according to its budget and to communicate progress to clients. The best way to accomplish this is to provide the partner in charge with easy access to data, which gives that person the ability to understand what has happened in the matter and the ability to view in real-time the time entries being submitted against it. Access to time narratives is critical because they enable the supervising lawyer to understand what is happening. Moreover, the simple fact that staff is aware that a matter is being monitored will encourage better compliance with time-entry deadlines. Monitoring capabilities can be further enhanced by providing alerts when pre-set budget thresholds have been reached. These threshold warnings can occur at the matter, phase, or task-code levels. Client communication is also improved by having an up-to-date status on what is happening on a matter and the financial costs accrued. Additionally, partners can invoice with an understanding of the current status of the budget.
Post-Action Analysis The goal of looking at a matter at the close is to understand what the firm could have done better. Does it need to include other tasks or activities in the scope? Should it revise how long or how much it thinks a phase (or a task within the phase) should take? How does the outcome compare to similar matters? Did the firm deliver its services with the same profitability and staffing? Is the client happy with the results?
Price it. Deliver it on Budget. Profitably. Too many discussions about LPM and phase and task codes do not clearly define the real problems we’re trying to solve. The real problems are fee predictability, setting budgets, monitoring budgets and progress, communicating that information to the client, and considering adjustments as necessary. The solution may or may not include “project management” or phase and task codes. But the solution is definitely data driven.
About Prosperoware Prosperoware is an enterprise software company providing solutions for law firms, corporate legal departments, and professional services firms. Our customers include nearly half of the G20 and Am Law 100 firms as well as large global corporations and Big Four accounting firms. Our innovative software transforms how professionals work and enables firms to deliver more value to clients while protecting profitability. We empower firms to reduce costs, improve profitability, and better compete by: • • • •
Simplifying iManage administration and improving user adoption of electronic files Enforcing and automating information governance with a focus on security and risk management Improving relationships with clients by delivering predictable fees and beneficial insight into the work performed Empowering professionals to leverage modern profitability metrics, which drive truly informed budgeting and pricing decisions
Our teams work primarily from offices in London, Chicago, and Philadelphia. Our more than 255 customers range in size from small firms with just a handful of users to those with more than 14,000. Prosperoware customers include: Akin Gump, Goodwin Procter, Baker Botts, Hill Dickinson, Berwin Leighton Paisner, DLA Piper, Duane Morris, Hughes Hubbard & Reed, Sheppard Mullin, Comcast, NBCUniversal, and HP © 2016 Prosperoware LLC
It’s about Data-Driven Practice Management Price it. Deliver it on budget. Profitably.