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Lower Revenue? Lower Utilization? Watch out BigLaw — You Might Be Doing Something Right

Posted in Legal Project Management

Editors’ Note: The boom in Legal Project Management (LPM) has been accompanied by a skeptical backbeat: “Does LPM really work? How does LPM work? Does LPM have costs as well as benefits?” Husch Blackwell has fully embraced LPM, not as a cultural experiment, but as an essential component of the Firm’s commitment to delivering value to its clients.

In this guest post, Husch Blackwell’s Director of Legal Project Management & Strategic Pricing, Kevin Bielawski, describes some interesting short-term consequences of making LPM a “built-in,” rather than an “add-on.”

The erosion of overall demand for legal services has been well documented. It’s not a temporary blip; it’s a trend.  The 2017 Law Firms in Transition, An Altman Weil Flash Survey calls the decrease in demand “a disease.” And at first glance, this trend may indeed look like an illness; after all, in most firms decreased demand means decreased revenue, right? Well, that can’t be good.

The symptoms of the “ailment” are common and evident:

  • Companies are pulling more and more work in-house.
  • Work is being shifted from law firms to alternative legal service providers/LPOs.
  • Companies are no longer contracting for work considered non-essential to their business/strategy.
  • Manually intensive work is being completed utilizing technology, with less human involvement.

LPM: Part of the Problem or Part of the Solution?

Another less documented factor that may be contributing to your firm’s decline in revenue/utilization is your Legal Project Management (LPM) program. Yes, the very LPM initiative many firms have implemented to better meet client demands, improve legal service delivery, explicitly demonstrate value to clients and win more work, may initially lower revenue if executed well.

And for all intents and purposes it should. To understand this apparent paradox, we need to briefly explore the dynamics of LPM implementation.

The Law Firms in Transition survey indicates that LPM training is being undertaken widely but for some firms has not yet generated convincing results. Both buy-in and results seem inconsistent. So should LPM advocates just fold their tents?  We at Husch Blackwell think not, but it is fair to ask what results should we be looking for when we ask our attorneys to adopt the protocols and disciplines of LPM.

Wait, don’t answer that just yet.

Remind Me Again, Just How Should I be Implementing LPM?

LPM demands consistent use of a variety of related tactics and techniques:

Scoping: Developing a detailed scoping statement, if done collaboratively with clients, focuses the effort of the team. Effective scoping, by the way, defines not only what work is to be completed (and how and when and at what cost), but also what work shouldn’t be completed. It promotes greater efficiency, which can equate to fewer hours billed.

Project Planning is an essential step for defining phases, tasks and timelines and prescribing which resources will be completing the work (in-house, outside counsel or other legal service provider). The benefit is clear: no more guessing for outside counsel and less chance of duplication of effort.  Less redundancy. Fewer write-offs and write-downs. Less overbilling – but, of course, also less overall billing at times.

Budget Development, before work starts, establishes cost expectations (the client’s and the firm’s) and reduces the chance for “resource misalignment.” If you couple rigorous budgeting with near real-time budget-vs-actual reporting, all stakeholders should be able to quickly identify when there is a deviation from plan and progress is off-track. This permits faster and better adjustments.

Explicitly defined and executed Communication Plans, detail who is getting communicated to, what is being communicated, when and through which medium, increase client feedback and promote better allocation of resources. Clear and consistent communication pathways minimize misunderstandings and the blame game, decrease redundancy and reduce law firm-side scope creep.

Systematic Post-project Review, that is, hindsight analysis that not only identifies areas for improvement but  also what went well and how to ensure it is replicated on the next project, provides yet another avenue for client feedback and law firm adjustments in delivering the next project.  And, not so incidentally, post project reviews also are terrific business development opportunities.

Let’s Talk About Results

With this LPM framework in place, let’s return to the question, What results should we be looking for when an attorney starts implementing the protocols and disciplines of LPM? How should we measure success? Does LPM make us money or cost us money?

First, wrap one hand firmly around some of the metrics law firms traditionally use to measure attorney performance:

  • Utilization (aka billable hours)
  • Revenue
  • Realization

Now, wrap your other hand around information about law firms that are recognized as champions of value and who have a reputation for collaborating with their clients to reduce legal expenses 20%, 30%, 40% or even more. Many of those collaborations revolve around exceptional implementation of LPM disciplines and protocols.

What happens when you clap your hands?

Ironically, the significant reductions in legal expenses clients experience – and applaud — may produce negative performance metrics for those attorneys adopting good LPM practices.  Oops.

Let’s say an attorney with a $10M a year client goes through robust LPM training and implements the disciplines and protocols defined earlier. Let’s say the result the following year is a 20% reduction in legal fees for the client, who is, of course, thrilled.

But how does law firm leadership view the performance of an attorney who has taken a $10M/year client and managed it to $8M/year? When leadership glances at their reports or financial dashboards and sees the 20% decrease in revenue, they may well think “What is going wrong?” and not “Boy, Mary is doing a great job by reducing her client’s expenses by utilizing LPM”.

Let’s be clear: at least initially, a successful LPM initiative is likely to result in lower revenue and hours, all other factors being equal. That is likely to be hard for law firm management to accept inasmuch as the metrics they track typically revolve around hours, fee billings and revenue. That means an attorney managing a $100K client, a $1M client or a $10M client, who rigorously implements LPM and is able to reduce legal expenses for the client by 20% to 30% or more, may not be looked at favorably during review time. Obviously, this creates a disincentive for the attorney to become an LPM advocate and champion.

Just Wait

However, as we have hinted repeatedly above, the impact of LPM on revenue is likely to be a short-term consequence, which means that giving up on LPM prematurely as a failed experiment is a short-sighted perspective.

Over time, effective LPM implementation — at least in theory — evolves into a best-case scenario: your clients become so pleased with lower legal costs and greater efficiency from your firm that they send you more work, move significiant amounts of other work from other firms to yours, or refer your firm, garlanded in praise, to their colleagues and acquaintances.

In other words, good LPM promotes good BD — with enough gain to offset the lower billings caused by LPM’s greater service delivery efficiencies.

I am pleased to report that we already are seeing strong evidence of this at Husch Blackwell.

However, if this happy scenario does in fact happen — and we acknowledge that it may not happen in all cases and with all clients — the timeframe over which it evolves may be longer than the twelve-month period many firms use to evaluate attorneys.  So at least in the short term, for firm management there may be a tension between happy clients and diminished PPP, and LPM may be regarded as a villain, not a savior.  We are aware that in some firms, LPM has been orphaned or abandoned for just this reason.

We’re Still on Board

Even holding these economic truths to be self-evident, at our firm we remain committed to long-term institutionalization of of LPM.  We are prepared to accept that it may take awhile for a new model of productivity and profitability to take hold.

Meanwhile, to avoid throwing the baby out with the bath water, what is needed is an augmented set of lenses for evaluating the performance of the firm’s economic engine.

So What Metrics Should We Use to Evaluate LPM Success?

Those of us who work on the financial side of the house believe that other than billable hours and gross revenue, there are other metrics that should be considered when evaluating LPM success. Here are a few to consider:

 

  • Profitability
  • Cost per matter (both for you and the client)
  • Speed of matter resolution (aka cycle time)
  • Budget vs Actual Accuracy
  • Leverage
  • Law Firm Satisfaction Ranking (if tour clients capture and are willing to share such information)

The bottom line is this: traditional law firm metrics don’t adequately identify the spectrum of benefits effective LPM can contribute to law firm success. LPM does indeed represent a paradigm shift in legal service delivery. That shift requires that firms now be willing to look to other metrics to evaluate success – both the firm’s and its individual lawyers’ – and to weigh them against (or at least integrate them with) traditional law firm reporting factors.

 

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