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4 posts from January 2010

January 25, 2010

Should law firms hire outside project managers?

If you’ve seen my recent three-part series on project management or visited the project management section of our web page, you know how important I think project management is to law firms’ future success.

A few days ago, I was talking about this to the Director of Business Development at an AmLaw 200 firm.  They are already one of the leading firms in project management, and they want to get further ahead.  The central question was, what should his firm do to get to the next level?  One of the options he raised was hiring outside project managers.

That same day, Greg Lambert at the 3 Geeks and a Law Blog posted a very interesting item entitled "Law Firm Project Managers - Lawyer or Non-Lawyer?"  He started by reviewing a Hildebrandt blog post titled "Is It Possible To Turn Lawyers into Project Managers? Or Will They Crash & Burn?" which asked:

Is it possible to MAKE someone (a lawyer) a good project manager?  Is it possible to change someone's behavior in order to drive the cost down?  Will the push to drive down costs provide an impetus to change behavior?  Is it possible to change behavior across a firm, i.e., change the culture of the firm?
The questions had been discussed at Hildebrandt’s Marketing Partner Forum January 13-15, and the conclusion at that meeting was “A disappointing no – it is not possible to change behavior to drive the cost down.”  Carla Landry, who wrote the post, disagreed with that group consensus.  “Lawyers are inherently competitive and, I believe, if challenged to become good project managers, they will become some of the best project managers.”

In his follow-up post, Lambert took the discussion further, and argued that for project managers to be successful, “[Project management] has to be your primary (and sole) function.”

I respectfully disagree.  The best way of implementing project management will vary from firm to firm, depending on each firm’s culture and on the individuals involved.  In large firms, different practice groups may even answer the question in different ways.

Some lawyers will make good project managers; some won’t.  Some firms will do well with individuals who focus exclusively on project management; some won’t.

One good example of a firm that uses full-time project managers is Orrick, who uses them "as part of our continuing focus on reengineering our approach to legal work." Their web page describes a separate job category for "Legal Team Professionals," including full-time project managers.  According to sources at Orrick, some of their project managers are practicing attorneys but most are not.

Another example comes from the largest and best known firm that works strictly on an alternative fee basis: Bartlit Beck.  Last April, when Fred Bartlit participated in my panel on alternative fees for West LegalEdcenter, he talked about how his 60-lawyer firm has centralized project management.  At Bartlit Beck, there is no management committee.

One guy, Skip Herman, runs the entire firm, from deciding which cases to accept to setting the price and staffing each matter.  We have no firm meetings and no conferences; Skip runs everything.
A third example comes from Eversheds, a UK-based firm that has a project management section on its web page.  It explains their approach, starting from the fact that:
We have invested more than £10m [that is, $16 million] in:
•    developing innovative project management processes to provide transparency
•    installing new IT systems to support our project management approach
•    training all of our people to apply our project management methodology.

Which takes us back to Greg Lambert’s original question about who should serve as project managers: lawyers or non-lawyers?  At one level, I don’t think it matters.  As  Richard Stout wrote in a followup post at Lawdable:

Excellent project management is completely dependent on the individual project manager. If you look hard enough, there are lawyers out there who are great project managers, who understand how to budget and track metrics, who know how to design and implement proven protocols – and who have been doing this for years. On the flip side, there are undoubtedly non-lawyers who can come into a project management role, add a lot of value, and do a better job than 95% of the lawyers who currently have project management responsibility.

But knowing how to manage projects is the easy part.  The hard part is getting lawyers to do it. 

In this time of transition, some firms will undoubtedly hire outsiders to manage legal projects.  I predict that while a few may succeed, most will fail.

I am reminded of law firms’ experience over the last few years as they tried to become more professional about developing new business.  Many experimented with hiring people with no law firm experience to help in sales.  A few of these outsiders quickly figured out how law firms operate, and had great success.  But most became frustrated by the way decisions are made, and not made, in law firms.  They were unable to adapt to an environment in which they could be personally micromanaged by dozens of owners (that is, partners).  Some quit, others were fired.

As the owner of a firm that offers business development coaching, I know all too well how hard it is to get lawyers them to behave differently when selling.  And most of them don’t even care that much about selling.  It’s just the principle of the thing: they want to do things their own way.

Changing business development habits will look easy compared to getting lawyers to manage projects differently.  Effective project managers will want some partners to change the way they have worked for their entire careers.  Good luck.

I am not saying that this cannot be done.  In fact, I believe that it MUST be done, and that firms that fail to figure out how to manage more efficiently are ultimately at risk of going out of business. But success is going to require flexibility, patience, resources, the right kind of  training programs, and more than a little psychology.

Each group’s answer to how to implement this change will be based on whether some of their lawyers are naturally good at it, whether those individuals want to do more, and how much time and money the firm is willing to invest in it.  There are many ways to solve this problem, and what works in one firm or practice group may not work in another.

But of one thing you can be sure: to succeed in today’s challenging environment, firms will need to manage projects more efficiently.

January 20, 2010

Project management and alternative fees (Part 3 of 3)

This week’s post concludes our series on how law firms are using project management to improve performance on alternative fees, based on the results of our national survey of alternative fees.

Project management systems may reveal some hidden traps in the way lawyers deal with alternative fee projects:
It takes a lot of discipline to manage a contingent matter.  When lawyers track hours on a traditional hourly project, they know that clients will review the results, and that creates a certain discipline.  On contingent matters, lawyers may think no one will look at the hourly record for years.

One of the lessons [we’ve] learned is that somebody has to be the point for cost control. It often happens that alternative fee matters, particularly large ones, [end up being] a dumping ground for individuals who may not be fully employed because you are reportable to the client for the result, not the cost.  [When lawyers work unnecessarily on a project] your profitability looks bad, so in order to really determine the profitability, we need to deal with that issue. 
Project management also requires an understanding of the differences between clients, and the people skills to manage relationships:
The better you know the client, the better you can predict the outcome of the situation. For example, an experienced lender will know how to manage a project and relationships with other banks to get a deal done.  But other clients have difficulty reaching consensus, which slows the process and increases the cost.  [It helps to know] what kind of client we are dealing with in terms of experience level [and] assertiveness.

It is risky doing deals with a client who will fight with you over the scope.  You put in sentences about how you’re going to make equitable adjustments, but I always presume that there will be none, because there is a game of gotcha out there.

The art of managing a large relationship and a large project requires an eye on the relationships and the ultimate goals.  The best project managers I have seen understand that some give and take [is needed].  An ability to reach quick and practical agreements is far preferable to a consistently contentious relationship which generally increases costs and produces unsatisfactory results.
Managing client relationships begins with communication:
The more the client knows about what the attorney is encountering, either in the context of what’s going on in a deal, or in the context of how the fees are accumulated, the better this works.  If you incorrectly assume that the client knows what’s going on, it can cause a fight when the work is done and the fees are to be collected.  It is critically important to keep track of when assumptions are violated [and to tell] clients immediately.
Communication is particularly vital when it comes to change orders – formal agreements that the scope of a project has changed in a way that also changes the budget:
The communication aspect between a partner and the client as the deal progresses is very important. You can’t wait until the end to talk about all the change orders. You really can’t be afraid to address these issues, [and] a lot of partners [are].

The American Institute of Architects has a standard form for a written change order if you change a design [during a construction project].  But I deal with partners all the time, [who] say that they changed something and that the client acknowledged the change.  I ask, “Is it written anywhere?” And the answer is no.
It is also useful to continue communication even after a project has been completed:
At the end of each alternative fee matter, post-action autopsies of your work are extremely valuable for two reasons.  One is that it helps internally to understand how much things actually cost, [since] they don’t teach you in law school what a deposition should cost.  The other reason is that we discuss the results with clients, to get their sense of what’s worked and how they perceive value.

There are two parts [to succeeding with alternative fees]. One is structuring the deal in a way that people are satisfied with, and two is managing to that deal.  The second is no small task; it takes the right person and very regular monitoring. What we have found effective –and this goes back to partnering with the client – is a prearranged sit-down in which we review where we are in six months, and another six months after that, and be sure the arrangement looks fair to both parties.
Clearly, the process of managing alternative fees is a large undertaking.  But it is also vitally important, and the benefits are obvious:
The things that are healthy about this trend are that it requires closer management of the work, which we ought to be able to do, and [which] is really a better way to operate than just letting everybody loose.

I am not sure lawyers in general are built for this kind of management.  Those who can find a way to manage alternative arrangements effectively are going to have a competitive advantage. 
As one participant succinctly summed it up, “If we teach our people to manage, we can make more money.”

This three part series was reproduced from The LegalBizDev Survey of Alternative Fees which may be purchased online for $395 per copy (with volume discounts available) or by calling (617) 217-2578. 

January 13, 2010

Project management and alternative fees (Part 2 of 3)

This continues our three part series on how law firms are using project management to improve performance, based on the results of our national survey of alternative fees.

Effective management starts in the bidding process, when law firms define the scope of what will and what will not be included in each agreement:
If [a firm is] going to do [alternative fee] pricing arrangements, they need to define the approach and staffing ahead of time.  They scope the project, they scope the engagement, they scope the matter much better, and that results in a couple of [improvements].  One, the firm and client are more cognizant as to what’s going to happen, and two, that process forces [the firm] to engage in a protracted series of discussions that allow them to get to know the client better and also to demonstrate their confidence.

[You must] understand the assumptions that underlie any of these fee arrangements, because at the end of the day, that’s what makes them work or not work. And getting our people to be explicit with the client about that is one of the keys to [success].
But defining scope in writing is just the start.  Alternative fee projects must be closely managed every step of the way:
Lower rates are not going to provide more value to the client, but better management will.

Get the right people on the job, get a good plan.  Don’t put an overqualified person on the project just because they happen to be available.  It has to be a core competence, and they don’t teach that in law schools today.

We really need to manage the matters much more closely than we ever did before, make sure that they’re being staffed and handled efficiently.  Clients don’t want new lawyers working on their matters.  Rather than have a first-year associate spend ten hours researching something, they’d rather have a senior partner spend half an hour and solve the problem.

The more aggressive a bid is, the more pressure there is on the lawyers managing the matter to be efficient and to staff the matter at the lowest possible level.  The pressure is a good thing.  It forces lawyers to take a hard look at costs and benefits.  Is it really necessary to proofread that agreement eight times?

The most important thing to make [an arrangement] work is familiarity with the client and having a stable team who has done this before.
In order to assure that projects get completed within budget, it is absolutely critical to track spending as it occurs.
It’s important to closely keep track of the budget or else you might be unpleasantly surprised. 

You have to train lawyers to work in alternative fee situations.  Many of them don’t really know how much projects cost, so you have to get them used to the budgeting.  It’s very easy to go wrong.
This will require new habits and new tools:
In order for lawyers to really make a sea change in terms of alternative fees, they need to have the infrastructure and systems to support that. And that’s going to include things like project management tracking [and] being able to assign hours to projects.  While the current systems may accommodate that in some fashion, there are some real deficiencies.  The vendors are not there right now, [either,] and they’re going to have to catch up to what’s going on there too. In many cases, we’ve got some of the best accounting systems on the market, and [the vendors] just don’t have that capability. They haven’t anticipated that need yet. 
Firms are approaching this in a variety of ways:
In each of these alternative fee arrangements where there’s a fixed fee and we’ve got to watch and make sure that it does not become unprofitable, we assign a senior partner to manage the relationship. They get monthly reports from our finance group that show them exactly where we are against the retainer.

It’s very important for the firm to keep track of the fees during the project, and for partners to be aware of where they stand.  We have an internal system to keep lawyers informed when a cap is approached; “You are at 75% of the total fee.  How do you see the rest of the project going?”

On a daily basis, the supervising partner can look at how [a case] is being staffed, and how the costs are running against the budget. It’s an area that we have to get much better at, because if we don’t manage for efficiency, alternative fees do end up being a loss leader.
Some firms have developed quite sophisticated new tools to improve tracking:
Our firm has a web-based cost management tool that we use to provide near real-time cost updates, including unbilled time, to clients once a week.  The tool includes a Surprise Avoidance Alert to help both the client and the law firm avoid cost surprises.

Those tools include, on the front end, some fairly extensive profitability analyses that focus on optimal staffing from a cost standpoint and enable us to price more appropriately.  It includes fee alerts.  We’ve built systems so that partners can indicate that they want to be notified every time we bill another $25,000.

We’re building dashboards where partners can look at all of their matters and put in budget, fixed fee and fee cap information and then monitor their status. We do a lot of enhanced reporting that looks at performance relative to budget, including broken down by practice area, by timekeeper, by office.  We have staff who assist partners with the analysis side as well as the ongoing monitoring.

We offer online tracking of all the matters we are handling, so that someone in-house can go to a secure extranet site that allows him or her, just by clicking, to check on the status of any one of these matters. That makes it incumbent on us to keep the site updated very regularly, and to know where we stand on all active matters.  Such updating allows us to report where we are and also to assure that none of them becomes a runaway project or goes off on a tangent.

We report other substantive matters as well, [such as] where a case stands procedurally, [and] what settlement offers we have had. We set these up as interactive sites.  It varies with what each client wants and the types of cases or deals involved, but we want them to know what has gone on most recently and to be able to respond. For example, in a lawsuit, if people are out in the field taking witness statements, they will enter a report on the extranet site, and in-house counsel can see that report immediately by just clicking on it. [The client reaction] varies. Some really love that immediate interaction, and some [just] want to talk once every week or so.
This post was reproduced from The LegalBizDev Survey of Alternative Fees which may be purchased online for $395 per copy (with volume discounts available) or by calling (617) 217-2578.

January 06, 2010

Project management and alternative fees (Part 1 of 3)

After I reviewed the results of our survey of alternative fees, I came to the conclusion that the single most important factor affecting profitability for alternative fee projects will be project management training.  I believe this so strongly that my company has made a significant investment in developing project management workshops and webinars that are specifically designed for lawyers.  (At noon today, I will teach a project management workshop to a group of senior partners at a 200 lawyer firm in the Midwest.)  Today’s post is the first of three based on what our survey report says about project management.

When law firms decide to increase efficiency, one of the first things they must do is to improve the way legal matters are managed.  Here’s what several decision makers said about the management process:

We need to be better managers of what we do for clients.  If law firms do not take the lead in getting clear agreements with clients about the work we are expected to do, what the client will be doing, and then manage our resources carefully to meet those agreements, we will be doing the same work for a lot less net income.

For most of the past decade, I was a senior executive at a publicly-traded real estate company, and I like to say that the two most important people we had in the company were the estimator and the project manager. Law firms historically have had no one play either of those roles. It’s very dangerous to move into a world of fixed fees if you don’t have somebody who’s capable of estimating and you don’t have somebody who’s capable of project managing it.

Partnering with the client is the key; that’s what makes it work, whether the fee arrangement is alternative or not. But when it is an alternative arrangement, [firms] particularly need to track our progress as we go and manage to the agreed arrangement, always with top-flight legal work as the standard.
But it is not easy to teach lawyers to be managers:
One skill that lawyers are way, way behind on is project management – bidding, monitoring, and managing – because they’ve never had to do it. It’s an untapped area, and they could learn a lot from going to work for a construction company for a while.

When you go to these other types of arrangements – fixed fees, partial fixed fees, contingent fees, partial contingent fees – it becomes imperative to keep track of [budgets].  [Lawyers] don’t know how to do that [and] they don’t want to do that. And truthfully, our systems make it hard to do that.

Lawyers are not known for being the greatest project management folks in the world.  If they are going to try alternative billing methods, they have to be able to deliver what they are offering.  This is a fundamental change in the industry, and lawyers will have to improve their project management skills in order to succeed in this area. 

It seems like a large number of lawyers do not know how to manage.  For the first x years of their existence, the more hours that got charged, the more money they made. And so they’ve never really had to manage [effectively].

It can be tough for some firms to do alternative billing, because they don’t know what they are going to do or are not willing to spend the time to plan it.  There’s a built-in bias against it because it goes against the normal course of the way they work.

When I first started working for this law firm, I was anxious to figure out how lawyers did these kinds of things.  I asked, “What’s your methodology?” and they said, “What’s a methodology?”  The idea runs against lawyers’ DNA.  They see every deal as customized and unique.

It really requires you to think about what you absolutely have to do at different stages of a matter and what you can defer without impairing the work you’re doing for the client.

For alternative billing to be successful for both the client and law firm, the partners have to re-think their approach and try to decide the most efficient way to approach matters.  For example, instead of sending an associate off to research 50 issues that could come up in a litigation, you might focus strictly on the small number of issues that are likely to be most important.

Lawyers have been trained to prepare for every eventuality, but with alternative fees they need to think more clearly about staffing, engaging with the client, and attending to billing in real time.
Law firms can learn a great deal from other professions:
Both law firms and clients have a lot to learn about how to make [alternative fees] work well. Other fields have used them and developed methodologies that work; lawyers should be willing to learn from them.  For example, in the world of construction, architects, engineers and contractors have been working on a fixed price basis for a long time. There is a body of learning about how to estimate, how to contract, how to define scope, how to manage changes, how to allocate risk, how to manage fee disputes, and [how to deal with] delays and changes in scope.  It could probably be adapted to the legal profession, without our having to go through the long history of disputes, litigation and losses that the construction industry did to get to their current state.
Some firms are taking the lead in developing this new body of knowledge:
We are incredibly focused on project management, and the client reception to this has been fabulous. They don’t [usually] hear law firms talk about project managing and putting tools in people’s hands. I do think that a movement towards alternative fees without a cultural shift, and putting tools in partners’ hands to manage projects effectively will have dire economic consequences to law firms. It’s a lot easier to come up with an alternative fee than it is to teach somebody to project-manage.

This post was reproduced from The LegalBizDev Survey of Alternative Fees which may be purchased online for $395 per copy (with volume discounts available) or by calling (617) 217-2578.