Tracking and controlling costs (Part 2 of 2)
Step 3: Compare planned spending against actual spending at regular intervals
If the firm does have timely information going into the system, the next step is to get it out.
Whatever accounting package your firm uses -- whether it is Elite, Aderant, Juris, Rippe Kingston, or another -- it already has a number of built in features to assist budget tracking. The exact details vary not just from one program to another, but also depend on the version your firm is running, and any add-ons they purchased. Since features are also constantly being updated and enhanced by software vendors, the best way to find out exactly what your firm’s software can do is to talk to your finance staff.
There is no one best solution for tracking. The best answer for you will depend on client needs, the way you like to work, the features of the software your firm already owns, and how much time is required and available for assistance from finance personnel. (Depending on your software, your finance department may simply not have enough staff available to implement a solution which is technically possible but time consuming to set up or administer.)
The need to talk to appropriate personnel is especially strong if you work at one of the many firms that has developed, or is in the process of developing, its own individual custom applications to track and report spending.
During your discussion, you may want to talk about how practical it is to set up features in advance such as:
- Initial budgets for a matter, phases, tasks within phases and/or work in progress (WIP) on individual tasks by each timekeeper.
- A set of specific tasks and phases (whether the standard UTBMS set or a custom developed set).
- A standard set of prose descriptions to identify tasks, with uniform nomenclature. (In many packages, you can enter a task name in the pre-designated user-defined task field, typically with a 60- or 80-character field text limit.)
- The ability to limit which timekeepers are allowed, or not allowed, to bill time to a particular matter.
Then you should discuss the most practical way for you to review the data, such as:
- Summary reports by matter – The finance department may be able to set up a simple report that can automatically be generated every week, every month, or at whatever reporting interval you specify.
- Summary reports by client – It may be practical to track and report on overall client charges (by percent, absolute amount, retainer or credit limits), as well as the phase, task or individual timekeeper reports.
- Excel spreadsheets – If you like to work in Excel, reports can often be delivered in this format at your request (e.g. simply showing three columns: the initial budget, actual spending to date, and remaining budget).
- Alarms or flags can be set to warn you – via computer-generated automatic e-mails – if a matter is running beyond its budget for a period, or any time a certain number of dollars have been spent, or whenever a matter has spent any pre-defined percentage of its budget. For example, you could request that emails be sent to you automatically when you reach 25%, 50%, 75%, 90%, and 100% of spending).
In addition to the features in standard accounting packages, and the custom programs some firms have developed, there are a number of related software tools that firms use to track and analyze financial metrics, such as Redwood Analytics and DataFusion’s Intelliquest family of analytic tools. In the last few years, legal project management software has also started to emerge as a new category, including Prosperoware’s Umbria, the Cael™ app suite from Elevate, and Randy Steere’s Budget Manager. A few years ago, Engage was the leading software in this space, but late in 2014 Thomson Reuters announced that they would stop supporting the product in 2017.
In summary, there are so many options and variations in this area, and they are changing so rapidly, that if you want to know the most practical way to track budgets in your firm, you will need to talk to the appropriate staff.
Step 4: Define a plan in advance to address critical gaps between planned spending and actual costs
We’ve discussed this critical step before in several blog posts. For example, see the guest post by Stacy Ballin, a partner and General Counsel at Squire Patton Boggs, entitled “Scope changes in litigation.” Another related post in this blog is entitled “How to track legal work that is out of scope” and describes how some firms are using special task codes for out of scope work to make lawyers more aware of the issue. The fourth edition of our Legal Project Management Quick Reference Guide, which will come out in October, includes some new resources on this topic, notably an article by JT Stuart Dodds, the Director, Global Pricing and Legal Project Management at Baker & McKenzie, entitled “Establishing a change control process.”
At the end of the day, the details of the system you use to address gaps is less important than the simple fact that you have set some rules in advance.