Law Firm Analytics in Real Life

In an earlier blog on pricing and profitability analytics, I commented that in my experience I have found that there is no single configuration of business drivers and metrics that govern the generation of acceptable law firm profitability. Billing rates, realization, associate and paralegal leverage, attorney productivity and cost structure interact together in different ways and in different combinations with the end result being “satisfactory” law firm profitability. Some of our clients tested this notion, employing the analytic functionality of our ViewPoint business intelligence application.

One law firm, with average profits per partner close to seven figures over a recent 12-month period, discovered striking variations from that level among its diverse client base – with client to client profits per partner ranging from as high as twice the firm average to as little as less than half. The top ten clients of this law firm in terms of profits per partner had, in the aggregate, 65% higher profits than the firm average. Analysis showed that, as a group, they had substantially higher performance in a number of law firm metrics, including associate to partner leverage in terms of billable hours, much better billing and collection realization and markedly higher attorney productivity in terms of billable hours per attorney. But only three of these clients had superior performance in every metric, with the other seven clients of the group falling short in at least one, demonstrating that above average profitability is possible notwithstanding less than optimal performance in one or more key law firm performance measures. In a few cases the revenue effect of non-attorney production, i.e., paralegal and other non-legal personnel, was substantially positive to per partner profitability. I call this hidden leverage.

On the other hand, not surprisingly, the least profitable clients in terms of per-partner profits showed, in varying degrees and combinations, key metric performance well below the average, sometimes with negligible leverage, high write-offs and poor realization, and underutilized and less productive attorneys.

The results were eye opening to law firm management, providing insight not only to individual client profitability issues but also revealing issues with respect to at least one consistently under-performing practice area. Delving deeper, the same law firm analytics were applied at the individual partner level and, similar to results revealed by like analysis at other firms, certain clients which were dilutive to overall law firm profitability were found to be recruited, retained and managed by partners who appeared to have little understanding or appreciation of the impact on profitability of the key drivers of performance, drivers which were often in their control to manage. There are many partners today who still believe that the ultimate accomplishment of success is the billing number alone, notwithstanding how many wasted resources may be expended in its achievement. I have found that the opportunity to educate is perhaps one of the greatest benefits in the application of business intelligence and analytics in law firms.

The value of the law firm analytics uncovered by a discovery application proves itself time after time, providing to law firm management rich insight and a clear road-map for action. Properly viewed, law firm analytics spotlight which clients and which matters are the most important to the firm, not just to the top line but to the bottom line, as well. They identify for action those responsible partners who may need a refocus on client and matter management skills. They identify poorly performing and unproductive revenue generating personnel. They help to identify those practice areas and matter types with the most potential and those with the least. They provide valuable information about trends over time in law firm metrics and performance, which is very often much more illuminating than point-in-time data. There is little doubt in my mind that the most prosperous law firms are those who continually seek to discover and understand the underpinnings of their business and then take the actions and make the necessary adjustments to keep it on course.

Please contact us today to learn more about how our business intelligence software will take your law firm to the next level!

Law Firm Pricing Guidance — Maximize Profitability

I’ve seen several articles recently on the “surge” in pricing managers at law firms, with The American Lawyer reporting that 76 percent of big law firms now employ “some sort of pricing officer”. “Some sort of” can cover a lot of ground, and I suspect that the function at most firms falls under the aegis of business and practice analytics groups with a considerably broader mandate. Notwithstanding, there is clearly an impetus within law firms to better determine how to profitably price legal work that is not hourly based, in a business environment that is not becoming less competitive.

The Washington Post similarly reported on the phenomenon, noting the strong nexus at some law firms with staffing and matter management functions. There is no question that firms that are focused on client (and partner) profitability – which theoretically should be all law firms – will benefit from better pricing strategies. And helpful in that regard is probative analytics based on the results of past experience integrated with a predictive model that is applied to new opportunities.

Not all law firms actually have readily catalogued and easily accessible data, on a broad range of matters, which can provide a baseline for evaluating in a predictive way the economics of prospective client engagements. The firms that do are at a real advantage in this regard. The genesis for this collective storehouse of knowledge was the introduction and adoption (quite a number of years ago) of the so-called task coding structure. This structure was embraced by law firms in response to the demands of clients who wanted the ability to do their own analysis of their lawyers time, with the intent to drive efficiency and reward the most efficient service providers with new work. Law firms were slow to recognize the value of this information internally and sometimes implemented the task identification and coding process selectively when demanded by a client, rather than undertaking a firm-wide initiative.

So, law firms today are at various stages of readiness to meet the challenge of applying analytics to the pricing and profitability arena. Parsing old time records to create usable data is a time consuming and error prone process, but that’s where some law firms are. Of course it’s never too late to begin the process right and virtually every serious time entry and transaction processing system marketed to professional service firms has the capability. A word to the wise.

But analytics to support law firm pricing strategies which lead to being successfully engaged is just one part of the story. The ultimate objective is, of course, law firm profitability. Here is where analytics are especially important to evaluate which pricing strategies, applied in conjunction with other key drivers and dynamics, have delivered acceptable levels of profitability and would be expected to do the same in the future. How many firms have actually attempted to determine — in a systematic and rigorous way — the profitability of each significant client (or matter) in their portfolio? How many even developed an analytical model to do so? More than a handful, I think, but certainly not the majority. And having developed that law firm profitability model, how many have analyzed the outcomes, asking the question why is one client or matter more or less profitable than another. What are the primary driving operative factors?

In my experience, there is no single composition of factors that govern the generation of acceptable law firm profitability. I have seen very profitable matters with a quite low billing realization offset by high levels of attorney or paralegal leverage. One could make the mistake, without sound analysis of all of the underlying factors, to assume that because realization was low, so is profitability. Likewise, consider attorney productivity (utilization). Spreading a fixed attorney cost over higher than average billable hours yields a lower cost per hour that certainly impacts client profitability. Or, client work done in certain geographic areas with lower than firm average billing rates may not appear to have the same impact on the bottom line as work done elsewhere at higher rates, but would very well be an equal contributor when factoring in a lower local overhead burden. What I am saying is that there is more than one way to skin the cat, and only properly applied analytics will help avoid mistaken, and often bad, conclusions and decisions.

The message is clear. Informed law firm pricing is critical to the success of every law firm, but informed means consideration of all of the factors that underlie profitability, not just what worked before. Particularly when what worked before delivered mediocre profit.

Please contact us today to learn more about how our business intelligence software . will take your law firm to the next level!

Do It Yourself Business Intelligence Software

In an article published recently on CFO.com written by John Parkinson, an affiliate partner at Waterstone Management Group, the author cites an old design heuristic he learned years ago: “No one knows what they want until you give them what they ask for.” He goes on to say that “no matter what we put in a report, and no matter how well the content meets the needs of a specific audience, other audiences will want something different. The tweaks may be large or small, but they are time consuming”. He points out that every tweak risks introducing errors or causing distortions into the data, or the interpretation thereof. Further, many reports are outdated when they are rendered.

Today, advances in business intelligence and analytics technology have, fortunately, proven to provide a potential cure for this malady, as user-driven, user-friendly features in BI applications have supplanted the need to seek out IT specialists every time a new information need is identified. No longer is the business side of the house subject to stale data from once-a-month refreshed data warehouses or stagnant reports derived from those static sources. Businesses of all sizes, not just the largest enterprises, have access to affordable business intelligence and analytics platforms. Given that many midsize businesses, including law and other professional services firms, are just now beginning to realize the advantages of a business intelligence and analytics initiative, the Gartner Group projects that such platforms will remain one of the fastest growing software markets for some time to come.

Large companies have had for a long time the advantage of business intelligence gleaned from advanced analytics. It has let them be increasingly competitive by being able to make decisions faster and better, based on timely information, and has helped them improve operational efficiency and financial results. Today, however, market developments have made business intelligence and analytics vital to the success and endurance of midsize organizations — such as law firms. The needs for more intelligence tools has been driven by several years of difficult economic conditions and heightened competition, as well as just the ever increasing amount of data, internal and external, that has to be absorbed and managed securely and in real time. Amassing such multi-formatted data into a business intelligence solution can be daunting to many. What many don’t realize, however, is that today, businesses of all sizes can employ sophisticated business intelligence tools, notwithstanding their smaller staffs to deploy, adapt and utilize analytics.

As an example, the business intelligence platform on which ViewPoint has been built is QlikView, a ubiquitous and powerful development tool, which the Gartner Group has identified as among the leaders in the business intelligence and analytics market. Gartner’s “leaders” are “vendors that are strong in the breadth and depth of their BI platform capabilities, and can deliver on enterprise-wide implementations that support a broad BI strategy. Leaders articulate a business proposition that resonates with buyers, supported by the viability and operational capability to deliver on a global basis.” Gartner goes on to say that “the evidence that they are market leaders comes from the fact that most of the market is trying to imitate the simplicity of their architecture and the ease of use that it provides”.

Please contact us today to learn more about how our business intelligence software . will take your law firm to the next level!

Getting Past the Data

You may be surprised to learn that many finance and technology executives, while they value data and are motivated to deliver data-driven action in their enterprises, are not sure how to effectively manage their data resources and turn voluminous amounts of data into effective and useful business insights that drive action. So it is not surprising that many managers in law and other professional service firms face the same uncertainty with respect to their businesses.

According to a recent data and analytics report on the findings of a study commissioned by KPMG Capital, more than two-thirds of the 144 CFO’s and CIO’s surveyed believe data and analytics (D&A) are crucially important or very important to their business. The numbers jump to 99% when including those who would say it is somewhat important. However 85 percent say they face challenges implementing the right solutions to accurately analyze and interpret their existing data, and 75 percent say they find it difficult to make decisions around data and analytics.

KPMG Capital announced that the findings from the report (Going beyond the data: Achieving actionable insights from data and analytics) “reveal a stark disconnect between C-suite executives who realize the value of big data, but are unsure of how to effectively implement and manage their existing resources”. Furthermore, “a large majority of executives (75 percent) find it difficult to make decisions around D&A, even though 99 percent consider it to be important to their business”.

“We live in an increasingly data-driven world where D&A has the potential to revolutionize the way we conduct and manage business operations across the entire enterprise,” said Mark Toon, CEO of KPMG Capital, in the firm’s press release. “From CEOs, to CFOs, CIOs and CMOs, the challenge for today’s executive is understanding how to draw actionable insights from data and turn them into tangible, genuine results. This report demonstrates not only the hunger to harness new D&A capabilities, but also the greater level of support that’s needed to operationalize these insights.”

All of this points out, to quote Mr. Toon, that “business leaders need better tools and processes to uncover valuable business insights”. We at Decision Analytics Group believe that the ViewPoint product, along with the will to implement a culture of data-driven action, is exactly the tool that all law and other professional service firms need to uncover and leverage those insights and create a real competitive advantage.

Please contact us today to learn more about how our business intelligence software cialis paypal only. will take your law firm to the next level!