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The LPM Maturity Model: 5 Steps for Transforming into a Client Focused Business

Posted in Legal Project Management, Legal Project Management tools

In this guest post, we are pleased to have Keith Lipman, Esq., President and Founder of Prosperoware, share his practical insights about implementing Legal Project Management.

Unless you are deaf to the present realities in today’s legal marketplace, you now hear the persistent drumbeat of client-focused legal service delivery: a persistent rhythm driving you toward Legal Project Management (LPM). Clients are insisting that firms price and deliver services that fit their tolerance for risk, produce excellent results and keep the work within budget — all in the most efficient manner.

Maybe you’re ready to dance to the beat — you accept that LPM is critical to the future of your law firm — but you don’t know where to start or how far to go.

The challenge to adopting LPM and its first cousin, Legal Process Improvement (LPI) is further complicated by inherent differences among your firm’s practice areas.  Some will require a serious foray into LPM and LPI, others much less so. The depth of your immersion will depend on the amount of client pricing pressure being applied in each practice area.

Fee Pressure Territory

Why does pricing pressure exist for one practice group and not another? The reason has less to do with the type of service being delivered than with the client’s experience in purchasing a particular service. When clients buy the same kind of service over and again, they learn empirically how much a given matter should cost and how much effort (that is, billable time) it should take.

For example, for years, employment law practice and patent prosecution groups  have faced client pressure for lower fees. As that pressure continues to mount, these practice disciplines will be forced to adopt effective project management (i.e., LPM and LPI) principles.   The reason that employment and patent prosecution groups experience such pressure is that most clients have been purchasing the same services year after year, and they have become savvy shoppers.

Merger and acquisition (M&A) work has received less pressure across the industry.  However, there are some large technology companies that have been making 30 to 60 acquisitions per year.  These tech companies have gained tremendous experience purchasing M&A work and are applying significantly more pricing pressure than a client who makes an occasional acquisition.

A client who has less experience in purchasing a particular service may use RFPs to get competitive quotes (no different than getting multiple quotes to remodel a kitchen) or develop an historical database to get better pricing intelligence.

A Framework for Changing Gears

Making the transition to a state where a practice area consistently and effectively uses project management and process improvement is not something that happens overnight. It is simply too large of a cultural shift. Firms need to understand that lawyers need to make incremental steps to reach the ultimate full and complete LPM adopion.  The following LPM maturity model provides a framework to work with your individual practice group and help you to think through the transition.

Step 1: Budget & Monitor at the Matter Level

Understand Effort-to-Cost.  Do you really know what your work costs to perform? With the billing process traditionally occurring weeks after the work has been performed, there can be a huge disconnect between the effort and cost.  A timekeeper may have spent scores or even hundreds of hours on activity that adds no value to the matter and must be written off.  The effort of building even simple budgets and then monitoring “budget-to-actual” will help billing lawyers develop greater familiarity with costs and the effort required for certain work.  Constant monitoring also gives lawyers the opportunity to stop duplicative work or tasks that the client considers of little value.

Budget 101

For many lawyers, creating even a simple budget can be intimidating.  A useful starting place is with the amount the client is willing to pay for the matter.  The budget is then built by identifying the people or timekeeper classes who will work on the matter.  Based on these inputs, the number of hours can be calculated.  If a lawyer believes that too few hours have been allocated, he or she can:

  • Change the resources to cheaper ones ( e.g. 5th-year to 3rd-year associates) who can bill more hours to cover the same ground;
  • Make the decision that a certain number of hours need to be written off;
  • Discount the billing rate; or
  • Increase the amount of time to be spent on the task.

Another option is to build budget from the bottom up, using hours and resources.  This is a more daunting task for many.

Once a budget is established, the lawyers working on the matter should be sent at least weekly reports that indicate their progress against the budget.

Key Performance Indicators

With either approach, the goal is to get lawyers to quickly begin to look at matters through key performance indicators (KPIs).  The minimum set of KPIs at a matter level should focus on leverage (e.g. non-partner hours versus partner hours) and realization (achieved or target revenue ÷ hours at current rate).  Ideally, the lawyer managing an engagement should also look at matter profitability (cost per hour ÷ revenue per hour).  Matter profitability provides a more accurate representation of the profit achieved from a matter.  Looking only at realization can be very misleading.  In fact, a matter where the realization is low but the leverage is high will likely be quite profitable.

Step 2: Service Deliveries & Phase Development

Going Deeper for Monitoring and Pricing. This challenge of breaking down your processes into matter types and phases is the most important step in your LPM journey.  The goal is to have more granular budget and monitoring while enabling the firm to leverage past experience for pricing future matters. The two critical tasks are defining the services the firm delivers (mergers & acquisitions, etc.) and then defining the discrete phases that occur within each of these matter types.

Are Your Data Clean?

Developing clean data is the key to coming up with metrics that will guide your decisions moving forward, so it is important to get this part right. In describing its deliverables, the firm should look at using a couple of different fields to describe a matter.

The first is matter type (typically litigation, transaction, advisory, and regulatory). The second is area of law which describes the subject matter (employment, finance, etc.). The matter sub-type is the actual service delivery or what service is the client purchasing from the firms (employment discrimination litigation). The final field should be a tag field that describes the unique elements of the particular matter (age, sex, timely filing).  The advantage of this model is that you can start benchmarking shared phases between the matter types.

Step 3: Monitor & Identify Obvious Inefficiencies

Paying attention pays off. It is amazing what you find out when you really start looking at who is performing work on matters. From the “stupid stuff” or low-hanging fruit – is it really cost-effective to have a partner schedule that deposition instead of a secretary? – to the more complex issues that drive up the cost of a matter, simply tracking and monitoring will reveal a wealth of information.

What are some complex factors that can drive up the cost of a matter? Here’s just a couple:

  • Partner expansion – A partner is asked to handle a small item for a case and it gets expanded far beyond the scope originally contemplated,  a “creep” that often goes unnoticed until all the hours are entered and the matter is found to be over budget.
  • Bad delegation and failure to assign or explain a task properly – When a task is misunderstood and carried out incorrectly, it can lead to expensive re-work.

The process of budgeting and monitoring builds a learning loop that starts creating a linkage between the task and the effort.  Through the process of bringing the lawyers closer to the data, they will learn more about the true effort of the work, which positions them for the next step.

Step 4: Identify Common Tasks Across Matter Types & Build a Budget Using Tasks

Standardize your verbs. Across different types of matters we see a host of repetitive “verbs” or tasks. Regardless of the type of matter you’re working on, the process you follow to answer a complaint, for example, should always be the same. You follow the same steps when it is time to take a deposition.

Once you have identified the steps in the task, the next step is defining the base amount of work.  In the “take deposition” example, you would want to determine the base length of the deposition that you want to take (e.g. one-hour deposition testimony) and the increment (e.g. each additional hour of deposition).  In order to take a one-hour deposition, what would be the amount of time spent in preparing for it and who would be doing the work (e.g. 3rd year, 4th year, partner, etc.)? Once you have defined the base amount work, you need to determine how much more work would be required for the increment (each additional hour of deposition testimony).

Once you identify these common tasks, you can easily build a matter budget from the bottom up. The work of defining the tasks for different matter type and sub-types is an advanced task. The investment in developing these tasks can be significant.  However, the payoff is more effective budgets based on more detailed matter planning.  How fast a particular practice area embraces this approach will be depend a whole lot on pricing pressure: as a matter of human nature, more pressure = faster trip up the learning curve. Once this step has been taken, matters can be managed to a checklist.

 Step 5:  Manage Matters With Checklists

Build a Plan. Deliver to Plan. This is the sweet spot in your LPM process. You know what your work costs to perform. You have broken down the phases and tasks. You have weeded out the obvious inefficiencies and built templates that allow you to craft a matter budget in a snap.  The next step is to develop task templates to actually drive the work process.  The team will now work from a checklist of tasks and activities.  This presents full visibility of the expectation of time for a particular activity and drives rapid understanding when there is a mismatch between the allotted time a for a task and the actual work.  There is now a greater visibility as to the current status of the matter by simply reviewing the checklist.

This level of detail now gives the practice area the ability to truly hone and improve its processes to gain greater and more consistent efficiency.  For most firms, the evolution to this stage of maturity will be a multi-year process. However, LPM and LPI experience clearly show that the benefits of this effort will result in true competitive advantage.

To contact Keith Lipman: keith@prosperoware.com

© 2014, Pam Woldow, Doug Richardson, & Legal Leadership, LLC. All rights reserved. No part of this article may be copied or reproduced without prior written approval.