Legal Business Development

Why the project management literature can be confusing

The participants in our new Certified Legal Project Manager™ program are analyzing how to apply best practices from other professions to their individual practices.  In the first part of the program, they read key selections from six widely used reference books (including my Legal Project Management Quick Reference Guide).  Several have noticed that the six authors organize the field of project management somewhat differently.  Worse yet, these experts sometimes use different words for the same concepts. 

In The Fast Forward MBA in Project Management, Erik Verzuh gives one example when he notes that the term “project charter can have two meanings” (p. 57).  Some experts use the Project Management Institute’s definition: “a document that formally authorizes a project…and documents initial requirements” (A Guide to the Project Management Body of Knowledge, p. 45).  But other experts use the term project charter to refer to what Verzuh calls the statement of work, a list of “the goals, constraints, and success criteria for the project – the rules of the game” (p. 60). 

This type of inconsistency can be frustrating to lawyers.  That’s why we tell participants at the beginning of our program to forget about mastering the correct terminology.  Where the experts disagree, there is no correct terminology.  We recommend that people ignore troublesome discrepancies, and instead focus unrelentingly on identifying the ideas that could make the biggest difference to their individual practice.

Another challenge to participants in our program, or to anyone else who wants to understand legal project management, is inherent in the very nature of the field.  As noted in a recent article in ACC Docket:

The concept of project management can apply to a multiyear construction project, involving…hundreds of suppliers and thousands of employees…[or] it can refer to a law firm’s simple commitment to "get you a draft contract by Friday, reflecting the term sheet you sent through yesterday, for a fixed price of $5,000."

The good news is that, as the ACC Docket article goes on to say, “project management has the breadth and flexibility to offer value in both of these scenarios and all points in between.”  The bad news is that when you try to understand how the project management literature is relevant to your practice, it is easy to get distracted by concepts that do not fit the size or nature of the challenges you face.

Many widely-used project management textbooks were written to help prepare for the Project Management Institute’s exam for the Project Management Professional (PMP) certificate.  But, according to the book PMP Exam Prep by Rita Mulcahy, that:

...Exam tests from the perspective of a large project…that involves 200 people from many countries, takes at least one year, has never been done before in the organization, and has a budget of US $100 million dollars or more (Sixth edition, p. 17).

Not exactly analogous to a typical matter for most lawyers.

So if you plan to read the project management literature from other fields, keep reminding yourself that legal project management is not a well-defined static body of knowledge.  It is an evolving discipline, which is actively searching for new ways to meet legal needs more efficiently. 

It can be frustrating to be a pioneer.  But as the legal marketplace changes, there will be winners and losers.  My money is on the pioneers to win.

Why alternative fee revenues will keep going up

In 2010, 60% of Tucker Ellis & West’s revenues came from non-hourly fees.  In the seven years since the firm was founded, alternative fee arrangements (AFAs) have been growing in importance year by year.  The firm currently has 160 lawyers in Ohio, California and Colorado, and AFAs now account for the majority of their income.

Managing partner Joe Morford expects that AFAs will continue to grow in the future, because this is a one-way street.  While it can take time for a client to take the leap and try non-hourly fees, once they do so they become converts for life. “Once we started working for a client with AFAs, not a single one has ever wanted to go back to hourly.”

When I interviewed AmLaw 100 decision makers for the LegalBizDev Survey of Alternative Fees, many commented on clients’ initial reluctance to make the switch.  As one senior partner put it:  “At least half of the time, maybe more, when the client says alternative fee, what they are really saying is, ‘Give me a larger [hourly] discount than you gave me before.’”  Another survey participant said: 

What we hear regularly, probably every week, is, "Wow, that was such an innovative fee proposal. It was really good to see that your firm is thinking outside the box and is willing to take risks and partner up with us, and put skin in the game.  Now let’s talk about how much of a discount you’ll give us."

Lawyers who would like to believe that non-hourly arrangements will go the way of pet rocks and Britney Spears often quote this type of client reluctance as a reason to believe that AFAs are just a passing fad.  But it is important to distinguish between the difficulty of taking the first step away from hourly, and the ease of continuing down that path.

According to national survey data, AFA revenue is growing, albeit rather slowly.   According to Altman Weil’s survey of Chief Legal Officers, the percent of non-hourly fees went from 11.9% in 2009 to 14.5% in 2010.  Similarly, when The American Lawyer asked the heads of AmLaw 200 firms “what percentage of your matters included a value-based/nonhourly fee component,” the answer was 14% in 2009, and 16% in 2010.

Tucker Ellis & West is on the leading edge of this movement, and other firms may never get to the 60% they have already achieved.  I agree with the AmLaw 100 chairman in our LegalBizDev Survey of Alternative Fees who predicted that “You’re going to see a very wide spectrum, a much greater differentiation among law firms as to how they do business than you’ve ever seen before.”

In the future, some firms may be very successful offering nothing but traditional hourly arrangements, and some clients may take a very long time before they will conduct their first non-hourly experiment.  I predict that journalists and bloggers will continue to quote case studies and anecdotes from these firms and clients to support the argument that hourly arrangements will never change.  But I also believe that all of the momentum is away from hourly arrangements, and towards alternative fees. 

Once clients cross the border, they won’t turn back.  They will see for themselves that, as Morford put it, “If you pay for hours you get hours, and if you pay for results you get results.”  Alternative fee revenues will therefore continue to rise, slowly at first, and then more quickly as the movement reaches a tipping point.

If you are skeptical, consider the situation from a client’s point of view.  If you hire someone to redesign your kitchen or fix your car, would you prefer to pay by the hour or to get a fixed price you knew you could count on?  In our experience, law firms love to sell services by the hour, but they almost never buy them that way.  When I asked LegalBizDev principal Steve Barrett about his twenty years of experience working for AmLaw 100 firms, he told me that he could not remember a single instance in which they purchased services on an hourly basis.  They know better.

When I asked Joe Morford whether he had any advice to other firms that are just starting out on this transition, he said: 

"Project management is the key to success, and it is very hard to roll out to attorneys.  People think if they get a computer program they will be doing project management, but in fact it is much harder than that… We discuss project management at every partner meeting. But aligning interests and working smarter have benefits both to our clients, and to us.  It is simply a better way to practice law."

Next week, I will talk about this trend and others in a Manhattan presentation for the New York State Bar on Alternative Fee Arrangements.

Overcoming lawyers’ resistance to change (Part 4): Find the bright spots

In this post, I would like to review the tactics leading law firms have used to complete the transition to what Paul Lippe described last March as “the new normal,” a world in which law firms deliver enhanced services with predictable pricing, and generally do more with less. 

There’s just one problem: no firm has completed this transition.  Lawyers want precedents and proven solutions.  But in this case, there are none. 

Firms that want to promote change are therefore reviewing tactics that have worked in other professions, and analyzing how they could be applied in the legal marketplace.  The first three parts of this series described key concepts from the book Switch: How to change things when change is hard, by Chip Heath and Dan Heath, including find the feeling, create short term wins and raise the urgency level.  To that list, today I will add a fourth tactic: find the bright spots.

The Heaths illustrate this principle with an example from the work of the charity Save the Children on the problem of malnutrition.  When Jerry Sternin went to Vietnam in 1990, he had limited resources and few ideas of how to tackle this huge problem.  So he started by doing some research in rural villages “searching for bright spots,” things that were already working and that might be spread to others for a relatively low cost. 

Sternin found that in every village there were always a few bright spot children who seemed better nourished than the rest.  When he interviewed villagers about their eating habits, he found that most children ate twice a day along with the rest of their families.  But bright spot mothers were feeding their children four small meals each day rather than two large ones.  The children’s stomachs were better able to digest these smaller meals, and they ended up better nourished.

There were other differences as well.  In most Vietnamese families, the children fed themselves.  But bright spot mothers actively fed each child, which encouraged them to eat more.  These mothers also added some foods to the diet – shrimp and crabs from the rice paddies, and sweet potato greens – which other mothers did not consider appropriate for kids. 

You might think that Sternin’s next step would be to make an announcement to publicize his findings and recommendations.  But Sternin knew that “knowledge does not change behavior.  We have all encountered crazy shrinks and obese doctors and divorced marriage counselors” (p. 30).  So instead he took more active learning approach in which groups of families prepared food together, with the assistance of a Save the Children representative.

This assured that villagers tried the new procedures, and saw that they worked.  Within six months later, 65% of the children who had been through the program were better nourished.  Within a few years, Save the Children had spread the program to 265 Vietnamese villages with a total population of 2.2 million.

As the Heaths summed it up, “The solution was a native one, emerging from the real-world experience of the villagers, and for that reason it was inherently realistic and inherently sustainable” (p. 30).

The application of this “find the bright spots” approach to law firms is obvious.  Almost every law firm has some partners who have already started adapting to the new normal and finding ways to meet client needs more efficiently.  These solutions have instant credibility, because they have already been shown to work with the firm’s clients and within each firm’s culture.

One of the things we do in our just in time training workshops is to look for bright spots, such as lawyers who have developed checklists to streamline work processes.  Lawyers often operate so independently that they don’t know what their partners are doing, especially if they work in other offices.  So we collect and share this information as part of our process, and can sometimes produce short term wins quite easily.

Uncovering best practices may also prove to be a secondary benefit of our new Certified Legal Project Manager™ program.  The primary purpose of that program is to help lawyers master basic project management principles from other professions, to improve client satisfaction and deliver legal solutions for a reasonable cost.  To date, many of the lawyers who are signing up already have some background in project management and come to the program with tools and tactics that can have significant benefits to others in their firms.  So we are working with these pioneers to help them promote change by spreading this knowledge to their partners.

On Tuesday January 25, I will give a talk on this topic in New York City as part of the Ark Group workshop on Overcoming Lawyers’ Resistance to Change, which I am co-chairing with Patrick McKenna.

Six steps to better budgets (Part 2 of 2)

Step 4: Look for ways to lower costs

In the current competitive environment, if your budget perfectly reflects past history, it may not be low enough to win the work.  For many years, there was little pressure on lawyers to lower costs or to work more efficiently.  Then the economy headed south, and all heck broke loose: a price war has broken out, with some firms racing to the bottom to offer ever better deals.

In the LegalBizDev Survey of Alternative Fees, we asked chairmen and senior decision makers from AmLaw 100 firm about their experience.  The exact question was:

There is a lot of price pressure these days, and some say it is leading firms to bid on projects as loss leaders, in a way that is not sustainable.  Have you seen any examples of this?

Every single respondent said that they had, and a number of examples can be found in a previous post.

The best way to bid in this hyper-competitive environment is a matter of considerable debate.  But it is obvious that if you can offer clients lower costs, it is likely to lead to more business.  And you may be able to do this without lowering hourly rates or profitability by identifying the factors that drive cost up, and finding ways to control them. 

For example, in an article entitled “Alternative Fees for Litigation: Improved Control and Higher Value,” James D. Shomper and Gardner G. Courson argue that in fixed fee work it is important for all parties to be aware of the factors that:

Make one case more costly to litigate than another. It may be motions practice in a class of cases in which motions to dismiss or for summary judgment are frequently used. It may be depositions in a class of cases in which gathering the testimony of numerous witnesses is necessary. Whatever the cost driver, inside and outside counsel need to consider it carefully and think creatively about ways to achieve the desired result at a reduced cost.

If depositions are driving the cost of litigation, inside and outside counsel might consider whether fewer depositions can be taken. For example, some third-party witnesses could be interviewed, if willing, instead of deposed, with a resulting lower cost. The cost of depositions can be reduced by making an intelligent and informed analysis of the risk involved in not taking depositions of certain witnesses. Rather than turning over every stone in an effort to find every possible piece of relevant information, the client may be willing to take a small risk of an unpleasant surprise later in the litigation in exchange for cost savings now.

So before you set your budget, consider what you can do to reduce the total cost of meeting the client’s true need, ideally while also realizing your standard hourly rates or more. 

Step 5: Assess budget risks

With large matters it can be useful to do a high level analysis of the risks that could increase cost, before you make a commitment to a fee.  The key phrase in this statement is “high level;” it would be overkill to conduct a thorough analysis before you have won the work.

The Legal Project Management Quick Reference Guide includes a Project risk analysis template.  Instead of doing a complete analysis of all the things that could go wrong and ways to prevent them, consider just the top few events or factors that could increase cost substantially.  Then consider whether you should increase your contingency fund or tighten your statement of scope before defining your final budget.

Step 6: Finalize your estimate, and move on

At some point, you will reach the moment of truth and be forced to make a decision: what will you charge for this work?  Recognize that you can’t be 100% correct, stop analyzing, and take your best shot.

How can you improve your pricing the next time?  Practice, practice, practice.  In a white paper entitled “Creating the Law Firm of the Future,” Ralph Palumbo, founder of the Summit Law Group, says:

To be truly innovative, you have to learn to make your mistakes faster.  Every Summit lawyer has authority to propose any pricing system that the lawyer believes will match the Firm’s incentives to the customer’s goals. If an innovative pricing arrangement works well in one matter, we use it again. If a pricing arrangement doesn’t work, we change it to one that does and don’t repeat our mistake.

And don’t forget that putting a budget in place is the easy part.  The hard part is getting the work done within that budget.  Much of the discipline of project management is devoted to what comes after you win: how to manage the work.

This post was adapted from The Legal Project Management Quick Reference Guide: Tools and Templates to Increase Efficiency.

My New York presentations on January 25, 26, and 27

If you work in Manhattan, I hope you will have a chance to attend one of my three public speeches the week of January 24.

On Tuesday January 25, I will give a talk entitled "How law firm leaders can promote change more effectively."  It is the opening presentation in an Ark Group workshop on Overcoming Lawyers’ Resistance to Change which I am co-chairing with consultant Patrick McKenna.  The other panelists in this all day event are Julious P. Smith, Jr., Chairman, Williams Mullen, Lisa Damon, National Chair of Labor & Employment, Seyfarth Shaw, and Tea Hoffmann, Chief Business Development Officer at Baker Donelson.

On Wednesday January 26, LegalBizDev Principal Mike Egnatchik and I will give a presentation at the New York City Bar entitled "Legal Project Management: The Keys to Success."  This will be a 90-minute summary of the Introduction to Legal Project Management course, which we frequently offer as a customized in-house workshop.  This program provides 2.0 NY CLE credits in Practice Management.

Finally, on Thursday January 27, I will participate in a New York State Bar panel on "Alternative Fee Arrangements."  The other panelists will be William Perlstein, Co-Managing Partner of WilmerHale, Henry Miller of Clark, Gagliardi & Miller, Professor Gary Munneke of Pace University School of Law, and LegalBizDev Principal Kirk Forrest.

If you get a chance to attend one of these sessions, please drop by and say hello.