Task codes and budgeting: What works and what doesn’t (Part 5 of 7)
In our work coaching lawyers about how to use task codes, one of the most interesting innovations we’ve seen was from firms that have created a special code to internally track work that fell outside the scope defined by each engagement letter. This led to the sixth and final recommendation from our research: Create an internal code for work that is out of scope.
At the beginning of every matter, lawyers should be asking clients about their goals and expectations so that the legal team delivers what the client needs and is willing to pay for. A failure to get a clear understanding at the beginning of a matter can lead to unnecessary work, strained client relations, and ultimately to reduced realization and profitability if clients refuse to pay their bills.
Anyone who has ever worked at a law firm knows that a clear definition of scope at the beginning of a matter often simply does not happen. Many lawyers are impatient problem solvers and they like to just jump in and start working. In our Legal Project Management Quick Reference Guide, we quote the executive director of an AmLaw 100 firm (who preferred to remain anonymous) about the ambiguities in a typical engagement letter:
The scope of work often contained in our engagement letters is generally no more than one or two lines. Lawyers are missing an opportunity to clearly specify the scope of what is included in each matter and what is not.
And even if an engagement letter is well defined, there is the question of who sees it. A senior executive at a different AmLaw 100 firm (who also preferred to remain anonymous) recently did an informal survey of senior associates during a talk he gave on LPM. He asked very simply, “How many of you have seen the engagement letter for the matters you’ve worked on lately?” Only one in four raised their hands. To put it another way, three out of four of these lawyers had no way of knowing what was in scope and what was not. When this executive later shared those results with a group of partners, “they were horrified.”
Any system that requires lawyers to classify some hours as out of scope starts with a huge benefit, simply by requiring lawyers to be clear about the distinction.
At the beginning of key matters at Bilzin Sumberg, they now post the statement of scope on their intranet, where every team member can review it. Then lawyers are required to record each hour worked under two different codes in their accounting system: one for work within scope and the other for work that falls outside scope.
As Bilzin Partner Al Dotson summed it up:
Keeping the scope of work top of mind has many benefits. The tactic of tracking out of scope work requires:
- An understanding by all billers to the file as to what the scope of work is
- An ongoing recognition of the status of the matter and when a task is out of scope
- An understanding of the protocols to be followed when out of scope work is requested or done
This benefits both the client and the law firm and often is the basis for clearer communication.
The idea of having a separate code for work that is out of scope is directly related to one key goal of the entire task code movement -- to improve cost estimates before similar matters begin:
If the codes are in place for long enough, the firm can start using them for practical purposes. For example, the litigation department may be able to carve out certain components of litigation that are conducive to fixed fee work. They may then be able to go to a client and say, for example, that they will do a series of depositions for a certain fee.
But this isn’t easy. As another interviewee summed it up:
It takes a long time to build a reliable history of transactions. The more often lawyers use this system, the more data there will be and the more useful it will be. At the start, we thought it would enable us to just give our clients an estimate right on the spot, but every experience and every deal is different and has its own story. Not all transactions will develop the way you expect them to happen.
How well are firms using the data they do have? Several noted that there is room for improvement:
Our firm right now does not do such a good job of leveraging the fee data that it has and tracking all the trends. For example, we should have enough data to answer the question of how many hours are typically needed to respond to a motion to dismiss. But this process is usually being done only on an individual basis, where a lawyer will compare a present case to a past case. The firm could be using “Big Data” gleaned from its past experiences more effectively. In fact, that is one of the firm’s current projects. We have perhaps 1,000 cases and matters with phase code information, so there are resources to generate comprehensive data from those cases and matters…. All of that data is in the firm’s hands to slice and dice. Just seeing the range, the highs and lows, would be quite eye-opening.
Based on our experience, we would recommend resisting the urge to “slice and dice” the data and instead focus on a “less is more” approach that makes it extremely easy for lawyers to get the big picture quickly. This could be as simple as a one-page summary for each type of matter listing the total costs of all similar matters in the last few years, with quick comments on any factors that appeared to raise or lower the cost.
The shorter that each summary document is, the more likely it is that lawyers will use it. Several pages of task summaries will have much less impact than one page listing key recent matters and the total cost. Even if people see only the wide variation, it will move the conversation forward.
Of course, even if a firm had a crystal clear understanding of what a motion to dismiss would cost at its standard rates, that does not mean that they can charge that price in the current highly competitive marketplace:
The task code system lets you know what the deal is worth and how it should be valued in an ideal world, but you don’t always bid that. You will often need to bid lower to try to land the business.
Nevertheless, phase and task code analysis can also be helpful in other ways. As one expert put it:
Ultimately, it’s not just a matter of adding up the numbers. The firm can use the data to add ideas and to maintain and increase profitability by learning to work more efficiently.
This series was adapted from the Fourth Edition of the Legal Project Management Quick Reference Guide which will be published this fall.