105 posts categorized "Alternative Fee Arrangements"

September 30, 2015

Legal project management: An opportunity for firms to gain a competitive advantage (Part 2 of 4)

Note:  This series is adapted from a chapter I wrote for a new book just published by the Ark Group entitled 2020 Vision: The Future of Legal Services.

Why is LPM so important?

In the current highly competitive environment, many law firms are struggling with two key issues:

  1. Pricing: How do we bid high enough to make an acceptable profit, but low enough to get new work?
  2. Managing: After we win work at a particular price, how do we manage the work to make a profit?

Another chapter in this book discusses how law firms are addressing the first question. While both are important, we would argue that management holds the keys to success. This is an era of dog-eat-dog competition in the legal profession, and firms often have little control over pricing or whether a matter is to be handled on an hourly basis or under an alternative fee. But once the price is set and the fee is structured, they CAN control how the work is done.

When I interviewed managing partners, chairs, and other leaders of 50 AmLaw 200 firms for my book Client Value and Law Firm Profitability, several talked about the importance of implementing LPM:

One of the problems that we have, and frankly that most firms have, is just teaching lawyers how to manage a project, getting them out of the habit of just automatically starting out with some rote process. Just because the client says “I think I might have a lawsuit” doesn’t mean you go off and conduct 40 depositions. Lawyers need to sit down and talk about what the client is trying to accomplish. It might turn out that we are able to accomplish the client’s end goal without taking any depositions. Or we might be able to do an M&A transaction, not by going through all the traditional steps, but stopping and thinking critically first. That’s something that we spend a lot of time trying to get across to our younger lawyers.

Project management is the next great horizon we need to reach. Historically, I believe that legal matters have been handled largely by just forging ahead with the project team leader directing various team participants to address this or that task without any formal checklist in sight. That has led to the bills for legal services being larger than one might otherwise expect or desire.

Most of our clients are no better at understanding or applying legal project management than we are. But in the future, the fact that you can actually do something on time and within budget is going to become an important indicator of whether or not you really are a good lawyer.

If you apply all its principles, LPM is not that scary, and it’s not that hard. Just getting people to understand it and do it is the biggest challenge.

According to the ALM Intelligence survey, firms that have begun to apply LPM, even in very limited ways, have already seen benefits. When the survey asked “Which of the following 13 benefits has your firm realized from its project management effort?” every single benefit in their list had been realized by at least 20% of the group. The most common benefit was “More productive relationships with clients” (achieved by 62%).

The ALM survey concluded that:

LPM can help bring increased effectiveness, reduce wasted time, and manage client expectations… Law firms can overcome [the] hurdles by targeting initial efforts in areas that would be most receptive, incrementally rolling out initiatives, and getting experienced help. Those that can successfully implement LPM will find over time that they gain a competitive advantage.

Altman Weil’s 2015 Law Firms in Transition survey has presented the most systematic evidence to date that greater efficiency pays off. They found that firms that had changed their approach to efficiency were more likely to report that revenue per lawyer was up (76% of firms that changed had increased revenue per lawyer vs 62% of firms that had not changed) and that profits per equity partner were also up for a higher percentage of the firms that had changed (76% vs 61%).

September 23, 2015

Legal project management: An opportunity for firms to gain a competitive advantage (Part 1 of 4)

Note:  This series is adapted from a chapter I wrote for a new book just published by the Ark Group entitled 2020 Vision: The Future of Legal Services.

For the previous edition of this book, I wrote an article entitled “Legal project management: A trend that is here to stay.” In the years since, all signs have pointed to its continued growth. But genuine progress in changing lawyers’ behavior has been slowed by controversy about the best way to implement legal project management (LPM), and even how the term is defined.

One thing is crystal clear: firms that improve LPM will have a competitive advantage because its growth is being driven by clients. In its 2014 Chief Legal Officer Survey, Altman Weil asked, “Of the following service improvements and innovations, please select the three you would most like to see from your outside counsel.”  They listed a number of concepts, including preventative law strategies, non-hourly based pricing structures, improved communication, alternative project staffing, and technology efficiencies. The three that clients picked most often were greater cost reduction (58%), more efficient project management (57%), and improved budget forecasting (57%). Since LPM leads to improved budget forecasting and to cost reductions, you could say that the top three client requests were LPM, LPM, and more LPM. 

And clients are frankly not impressed with what law firms have accomplished to date. The same survey asked participants to rate how serious law firms are “about changing their legal service delivery model to provide greater value to clients” on a scale from 0 (not at all) to 10 (doing everything they can). The median answer was 3, a ringing indictment of clients’ views regarding the inadequacy of the current level of effort.

From the law firm perspective, progress is being made. You know a topic is important when people start selling opinion surveys about it. That happened for this topic in 2012 when ALM Legal Intelligence released Legal Project Management: Much Promise, Many Hurdles, a survey report that included data on software, training, pilot programs, firm culture, influential stakeholders, staff, and much more.   

The first question they asked was, “Does your firm employ legal project management processes in its casework?” 51% said yes, 26% said no, and 22% were not sure. Is the glass half full or half empty? By the glacial standards of law firm change, this is significant progress. Just two or three years before, if you had asked this question, most lawyers would probably have replied “What is ‘legal project management?’” So the fact that a majority of this group was using LPM in casework reflected a significant change in a few short years.

Other surveys have found similar results. In the American Lawyer’s December 2014 report on its “Law Firm Leaders Survey,” Michael Heller, Cozen O’Connor’s CEO, summed it up very simply: “Law firms are being forced to completely change the way they practice law.”

When Altman Weil’s 2015 Law Firms in Transition Survey asked managing partners for their opinions on which of 14 current trends were most likely to be permanent, 93% put an increased focus on practice efficiency at the top of the list. That’s right, 93%. When have you ever heard of 93% of lawyers agreeing about anything?

But when the same survey asked, “Has your firm significantly changed its strategic approach to efficiency of legal service delivery?” only 37% said yes. (36% said no and the remaining 28% said changes are “under consideration.”)

93% of firm leaders think change is needed, and only 37% are doing something about it. What’s wrong with this picture?

As negative as these figures seem, in our day to day experience the reality is much worse. In many cases firms that say they have “changed their strategic approach” have done so only for a small sub-group within the firm or in a strategic plan which has not yet been implemented. In the trenches, the vast majority of lawyers are still practicing the way they always have. This should not be surprising, since LPM requires lawyers to change habits they’ve developed over decades, and no one likes to change.

In 1962, Professor Everett Rogers analyzed the forces involved in changing business behavior, and summarized his conclusions in an influential text entitled Diffusion of Innovations, which is now in its fifth edition. In this context, the most important idea is his argument that the people who adopt a new idea are distributed in a normal curve in several sequential categories which he called innovators (2.5%), early adopters (13.5%), early majority (34%), late majority (34%), and laggards (16%).

While it is impossible to prove exactly where LPM stands on this continuum, based on our experience talking to a wide number of firms, we strongly believe that LPM is at the early adopters’ stage. A small group of innovators has successfully proven its value, but the spread to others remains slow. Many law firms have done an excellent job at putting out press releases announcing that they are leaders in LPM. But when it comes to changing the way an entire practice group or firm does business, they have fallen far short.

The bad news is that clients want faster progress. The good news is that to win new business you just have to be a little better than your competitors, so law firms that have started down the LPM path have an enormous opportunity to get ahead of those who have not.

Glacial progress can produce new business when you are competing with firms that are making no progress at all. We were reminded of this when one client contacted us two years after we offered just-in-time LPM coaching at her firm. She reported that they had just won some new business as a result of using LPM. She went on to say that she had been frustrated by the slow pace of change in her firm, but in this case it did not matter because their competitors were even slower. “If you move like a turtle but you're racing a bunch of snails,” she said, “it all works out in the end.”

July 29, 2015

Overcoming Resistance to Legal Project Management

A guest post by Gary Richards


“The difficulty lies not in the new ideas, but in escaping from the old ones.”  - John Maynard Keynes


It is natural for people to resist changing their normal way of doing things, and many lawyers resist the change of approach and mindset required by legal project management (LPM).

This post was written for internal LPM champions who see the value of LPM to their firm.  It lists six common objections to LPM.  Each is followed by questions and statements that could be used to guide a conversation to overcome resistance.

  1. Clients don’t always know what their objectives are.
    1. Do you have a list of typical questions you ask to help a client define their objectives?
      • Asking relevant questions shows the client that you are interested in what is important to them.
      • Your questions can also help the client think about issues they normally don’t consider.
    2. Do you and your client draft a written statement of objectives for discussion and mutual agreement?
      • Without clear, agreed upon objectives that the client is willing to pay for, you are more likely to have trouble agreeing at the end of the matter on what should have been done, and what will be paid for.
      • It’s easier to discuss client objectives if they are written
      • A draft can more easily be marked up during a discussion than taking notes without a draft for reference.
    3. Do you seek to determine whether other decision makers or stakeholders in the client’s organization share those objectives once defined?
      • A written statement of matter objectives is handy for your client contact to use in his/her internal discussions.
  2. Planning is often a waste of time. My cases evolve so quickly and have so many surprises that things never work out the way I expect. Besides, I don’t have time to plan and budget.
    1. Does the fee incurred ever exceed your quoted budget estimate?
      • Matter plans and budgets allow more accurate fee estimation.
    2. How do you tell if you are ahead or behind in work on the matter?
      • Matter plans help you to monitor progress
    3. What would suffer if you spent 30 minutes planning your next matter immediately upon accepting the representation?
      • Planning time is frequently billable, since the client benefits from increased efficiency, thoroughness, timeliness, etc.
    4. Do you ever run into:
      • Last minute crunches?
      • Missed deadlines?
      • Unavailable staff because they are already committed to another matter?
      • Task-level matter plans help avoid all three of these problems.
    5. Were there ever any problems with scope creep after you started work?
      • It is easier to show that the newly required work was not included in the initial plan/fee estimate if, in fact, an original plan/budget exists.
      • Otherwise, the client may feel it is legitimate to say something like “You are the expert… I thought you would have foreseen this!”
  3. My clients don’t require budgets.
    1. Do they just pay in full whatever you bill them? Or is there sometimes pushback on fees?
    2. Do you ever have conversations with clients that include fees?
      • Those discussions go better when you have a basis for your estimate, such as a matter plan and a clear scope statement.
    3. How do you determine what fee and/or timing to tell the client in the engagement letter?
      • At some point very early in the engagement, clarifying the fee expectation is important.
    4. Do your initial fee estimates ever prove to be too low?
      • (If “yes” because of scope increases…) It is easier to show that the newly required work was not included in the initial plan/fee estimate when, an original plan/budget exists.
      • (If “yes” is because of simply underestimating…) Matter plans allow more accurate fee estimation. Discussing the plan with clients can help shake out exactly what should be included in the work to accomplish their objectives.
  4. I have done this kind of work for years… I know how to provide my services.
    1. Of course I recognize that you would not be working in the firm if you had not been successful for years. But competitors are becoming more efficient and we want to stay ahead of them.
    2. Do you ever have any tasks you have delegated either come in late or get completed differently from what you expected?
      • Matter plans improve the clarity of delegated work, and the likelihood that it will be performed successfully.
    3. Do clients ever push back on fees/require write-offs to keep them happy? If so, how do you handle that?
      • Matter plans and communication plans help avoid fee surprises and related client dissatisfaction.
  5. My problem is that there is just more work to do than I can handle.
    1. Is it possible that you could delegate more of the tasks you are now doing that don’t require your level of skill knowledge and training?
      • (If “Yes”…) Having a solid matter plan/budget makes it easier to identify and hand off tasks that could be done by others.
      • (If “No…there’s no one to delegate to.) If you ask and are refused, then you have data to provide management about the need for more staffing. If you don’t ask, then vital information is being hidden from the firm, and client service may be suffering.
  6. If I become more efficient, won’t my hourly revenue drop?
    1. Is it possible that competitors could take the work away by offering the same quality for lower fees, due to greater efficiency?
    2. Is it ethical and/or a good business practice to have the client pay for your lack of efficiency?
      • When you are able to show that you are you efficient, it increases the likelihood of additional business and referrals from that client.
    3. Do you already have all the new business generation that you can handle?
      • If you reduce the time it takes for you to deliver quality services to a client, you can invest that “found time” in seeking new business, or other activities.

June 24, 2015

How to change law firm culture (Part 4 of 5)

 By Jim Hassett and Tom Clay


In addition to the difficulties with change management described earlier in this series, at law firms there is an additional challenge: the lack of strong central authority leads to a lack of accountability. It’s a lot easier to get things done when someone is in charge; someone who can penalize people if they fail to execute. The non-hierarchical structure of most firms makes it very difficult to hold people accountable.

In change efforts for complex situations like the evolving marketplace lawyers now face, Kotter and Cohen found that successful managers relied on the sequence SEE-FEEL-CHANGE. Instead of trying to appeal to the rational mind, they focused on making an emotional connection – which is exactly what Bilzin Sumberg did as it gradually expanded successful LPM initiatives to create a new LPM-based culture.

It would be nice to be able to report that, once a majority of Bilzin’s partners had completed their coaching, their LPM work was done. In fact, it was just beginning.

It is true that the firm’s clients quickly saw significant benefits in reduced costs and greater responsiveness, which in turn led to new business. But when LegalBizDev interviewed firm leaders for follow-up reports over the next few years, they consistently used phrases like “baby steps,” “infancy stage,” and “aspirational rather than obligatory” to describe the firm’s current use of LPM. 

Well, they should see the other guys! We spend our lives looking behind the curtain at a wide variety of law firms as we work with them to increase efficiency. Many firms have individual lawyers or practice groups that are quite advanced in LPM but, in our opinion, there is unfortunately not a single firm on the planet that can say that LPM has truly taken hold among all its lawyers.

There are dozens of firms that have put out more press releases than Bilzin announcing their LPM success. But in our experience, none has achieved behavior change more quickly or more cost effectively than Bilzin. LPM aims to change habits that have been reinforced over decades, and that kind of culture change will always occur one small step at a time. 

According to Paul VanderMeer, Bilzin’s director of knowledge management, “The more successes we have gotten the more converts we obtained, and the more that LPM has permanently changed the way we do business.”

One of the most important steps that Bilzin took to monitor and sustain progress was the formation of an LPM committee chaired by Michelle Weber, the firm’s chief operating officer. Practice group leaders are required to report regularly to the committee and to the managing partner about how they are applying LPM and what works best.

“We’re following this so tightly because it’s an enormous priority,” says Weber. The result is that best practices are spreading. Many changes have been quite simple but still extremely effective. For example, she noted that:

As matters come in, we routinely have a discussion at the outset with all team members, including paralegals, so that everybody understands what the scope is. At the same time, we discuss the task codes that everyone’s going to use so we don’t have major problems with consistency later.

Al Dotson, who was one of the three lawyers in the initial pilot test of LPM coaching, recently said he is now using LPM principles “in just about every matter that I have here. These principles are flexible and important enough to apply to nearly everything that I do.” For example:

I routinely set up non-billable team meetings to ascertain the status of the work at any given stage to avoid duplication of effort, to identify issues sooner rather than later, and to communicate quickly with the client if there are any issues. This is done early and frequently throughout the project.

A number of other proven tactics for changing behavior have also accelerated success at Bilzin Sumberg and other of our clients. When LPM first became popular around 2009, some firms experimented with training every lawyer in the firm in the hope of spreading innovation like jam across the entire firm at once. It is a common approach among firms and is part of the “CLE syndrome” that’s especially pervasive among professional development directors. It allows the firm to check a box and put out a press release proclaiming success.

However, from a broad behavior change point of view, almost all these training programs were failures. Typically a few lawyers changed their approach but the vast majority just finished the class and went back to work the way they always had. As the managing partner of one firm that invested in extensive LPM training put it:

Project management will probably have the longest-term positive impact but it’s been the biggest challenge, because when busy lawyers start scrambling around, the inefficiency creeps right up.

It is much more effective to start by identifying a small group of lawyers who are most likely to be early adopters, by virtue of both the challenges they face (e.g., those who must manage fixed fee matters) and their personal openness to change.

The “tone at the top” is also extremely important. Enthusiastic support for LPM from senior management is very helpful in assuring acceptance. We have seen some firms succeed with a “bottom-up” effort that spreads LPM from the trenches with only lukewarm leadership support. But things go much faster if leaders are enthusiastic enough about LPM to keep pushing the effort past the inevitable speed bumps.

You may want to take a look at the third edition of the Legal Project Management Quick Reference Guide for additional examples of how proven tactics from the change management literature can be applied to law firms. In terms of what we’re talking about here, the most important point is simply that law firm cultures can be changed relatively quickly if you carefully apply proven principles from other professions.


A slightly edited version of this series was originally published in the April 2015 issue of Of Counsel: The Legal and Management Report by Aspen publishers.  A pdf of that complete article “Strategies to Successfully Change Law Firm Culture: The Example of Legal Project Management” can be downloaded from our web page.


May 20, 2015

New national survey links legal project management to financial benefits

Altman Weil has done it again.  Every spring they publish the most important survey of the year, and the 2015 Law Firms in Transition Survey they released last week is more thought provoking than ever.  (Full disclosure:  LegalBizDev is a strategic partner of Altman Weil, but I’d write this blog post even if we weren’t.)

Their 124 page report can be downloaded for free and summarizes the opinions of 320 managing partners and chairs on topics ranging from leadership to market forces.  I turned right to the section entitled “Efficiency of legal service delivery” and found data unlike anything I’d seen before.

For the last seven years, Altman Weil has found that the vast majority of law firm leaders say that there has been a permanent change in the legal profession increasing the focus on practice efficiency (this year 93%).  On the other hand, their surveys have consistently found that only a minority of firms are doing anything about it (37% of firms said that they had “significantly changed their strategic approach to the efficiency of legal service delivery”). 

What’s new this year is data correlating this strategic change to financial results to suggest that firms benefit financially by becoming more efficient. This can best be seen in profits per equity partner (up for 76% of firms that changed their approach to efficiency vs 61% of those that didn’t) and revenue per lawyer (up for 76% of firms that changed vs 62% of firms that didn’t).

While there is a great deal of anecdotal evidence that legal project management (LPM) improves financial results, this is the first national survey data verifying the link.

Similar results were found in this year’s data on AFAs.  Altman Weil reported that 68% of the firms that used non-hourly billing described it as “primarily reactive (in response to client requests),” while only 32% said it was “primarily proactive (arising from your belief in the competitive advantage of alternative fees).”  Interestingly, when the profitability of AFAs was compared to hourly work, the proactive firms were far more likely to say they were more profitable (29% vs 10%) and less likely to say they were less profitable (12% vs 41%).  Proactive firms have also been getting better at it.  When this question was first asked in 2010 only 17% of proactive firms said AFAs were more profitable than hourly work, compared to 29% this year.

While the survey did not directly ask why profitability was improving, there are only two possible answers:  either matters are being priced better at the outset, or the work is being performed more efficiently within budget.  We have no doubt that both are true for proactive firms.  And given the intense competition that is often driving prices below desired levels, our guess is that LPM was the more important of the two.  

As a reformed academic, I feel it is necessary to add two caveats to our claims about LPM and profitability.  The first is that there is still some controversy about exactly how to define LPM, and our statements above apply to the broad definition we use, as described in my book LPM, Pricing, and AFAs.  When Altman Weil asked firms how they were increasing efficiency, seven of the eight factors they mentioned come up routinely in our LPM coaching:  technology, knowledge management, training, contract lawyers, paraprofessionals, using non-law firm vendors, and re-engineering work processes.  (The eighth efficiency factor is usually not involved in our coaching, but is extremely interesting:  an amazing 49% of firms now say that they are “rewarding efficiency and profitability in compensation decisions.”)

The second caveat could come from my brother the mathemetician, who likes to remind me that a correlation does not prove causality.  Of course, technically he’s right.  But if I were a managing partner in this highly competitive profession, I would not wait for a long term double blind experiment to prove that the link was cause and effect.  I would just start promoting greater efficiency through LPM, and see for myself if it seemed to improve my bottom line.

Another thing managing partners will want to do is to improve efforts to understand client needs.  I found it quite interesting that of the ten tactics to improve client understanding in this survey, post-matter reviews came in dead last at 24%.  In our LPM coaching, this is often one of the first things we recommend, since it is so revealing of how clients feel about your work, and can be as simple as asking “what did we do well” and “what could we do better.”  (For a review of more sophisticated techniques, see the third edition of my Legal Project Management Quick Reference Guide.)  But in this survey, post-matter reviews finished far behind other tactics that are extremely useful, but far more difficult and expensive to implement such as participating in client industry groups (75%) and formal client interview programs (49%).

I was also interested to note that 61% of firms said that overcapacity is diluting their profitability.  Equity partners in 47% of the firms, and non-equity partners in 41%, simply need more work.  That’s one of the most common reasons behind what Bruce MacEwen has described as “suicide pricing” in his book Growth is Dead:  “Bids from name-brand firms… that are so breathtakingly low one wonders how they could possibly make any money. The short answer is they can’t.”  As the chair of one AmLaw 200 firm put it in my book Client Value and Law Firm Profitability (p. 80) “Lawyers will look at a case and say ‘I know you don’t want to get 70% realization on a $200,000 matter. But 70% of $200,000 is a whole lot better than 100% of nothing.”

There’s a whole lot more to be learned from this survey beyond the core topics of this blog.  So if you have any interest in how the legal profession is changing, I would strongly recommend that you download your own copy today.

If you don’t find it useful I’ll send you double your money back.  Oh wait.  It’s free.


April 29, 2015

Six challenges in defining law firm profitability (Part 4 of 4)

Law firms’ problems measuring profitability cannot be attributed to lack of trying. A growing number of software programs are available to handle the calculations. The two long-time leaders in the field—Intellistat Analytics from Data Fusion and Redwood Analytics from Aderant—have been providing sophisticated tools to quantify law firm profitability for several decades. But to use these tools, one must make a series of assumptions, and that’s where the trouble starts.

At the 2014 LMA P3 conference, Jeff Suhr, vice president of products at Data Fusion, noted that his company had 91 clients actively using their tools, including 10 of the top 35 AmLaw firms (Jeff Suhr, “Best Practices in Leveraging Profitability Analysis to Better Price, Staff and Manage New Engagements,” presentation at the LMA P3 conference, Chicago, May 13, 2014).  Exactly how did these 91 clients calculate profitability? Ninety-one different ways. The fundamentals are the same, but there are important differences in the details, which can have significant implications for the way profitability is interpreted and used to motivate changes in behavior.

Suhr distinguished between the relatively straightforward science of calculating profitability and the art of determining the exact methods that best fit the needs of each firm. He also discussed the different challenges of “macro strategies” for analyzing profits for a firm, an office, or a practice group, vs. “micro strategies” for analyzing a book of business or a particular matter. These sometimes require different assumptions and different approaches.

For starters, you would think it would be easy to measure the revenue associated with a matter, but it’s not. John Iezzi’s Results-Oriented Financial Management: A Step-by-Step Guide to Law Firm Profitability (p. 132) noted that:

There are three different revenue numbers you can use. One is the accrual basis revenue number, which is hours worked multiplied by hourly rate. The second is the bills rendered number. And third is the cash receipts number.

The first two numbers reflect theoretical revenue. After client write-offs and write-downs, a significant amount of this may never be received. So a profitability system based on either accrual or bills rendered rewards lawyers for putting in more hours even if they produce no revenue. This is particularly troublesome with fixed fees and other AFAs, where lawyers with too little to do may pile on the hours “since it costs nothing and could help the client relationship.” Not to mention that in many firms attorneys get paid more if they bill more hours, whether the client ever writes a check for the hours or not.

In my LegalBizDev Survey of Alternative Fees (p. 118), one AmLaw 100 decision maker told us that:

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.

As one chair in this research put it:

What you’re trying to do internally is change the mindset of the attorney who is used to billing hours. In the past, if you billed 2,000 hours, you were better than somebody who billed 1,200 hours. But with an AFA, you have to be more efficient and more concerned with delivering the value to the client in a way that makes this a productive relationship.

That’s why the best measures of profitability must ultimately be tied to cash received. But there’s no way of knowing that figure until a matter is completed and the bills are paid. In a large firm with tens of thousands of simultaneous matters, each on their own schedule, comparisons between matters must be based on a long list of assumptions about what will happen in the future, or postponed until the end of a case, which could take years to resolve. And this can lead to arguments and gamesmanship.

One senior executive at a firm that bases compensation partly on accrual-based profitability highlighted one such problem:

We use dashboard tools including Redwood Analytics and Intellistat to track key metrics and responsibilities for each attorney as a working, billing, and originating attorney. This information is directly used in each person’s annual review and compensation setting, along with qualitative and subjective elements. They have visibility to this key information every day, and it begets a whole different sense of responsibility and accountability.

Determining cost is even harder. In order to truly determine the cost of delivering services for a particular matter, one must answer two basic questions: what was the cost of the direct labor of performing the work, and what overhead indirect costs (such as rent, clerical staff, etc.) should be allocated to that particular matter?

The problems start with how to estimate the cost of each hour of a partner’s time. If a rainmaker partner was paid $1 million last year, how much of that was her direct cost for working on legal matters vs. origination fees, payment for time spent on management, profit distribution, and other factors? A number of different systems of “notional compensation” are used to split compensation between the amount allocated to billable activity and the amount allocated to everything else. The details of how to do this could easily go on for many pages, but in this context the most important fact is that every single system includes arguable assumptions. And if there is one thing that lawyers do well, it is argue, especially if a calculation affects the way their financial results are perceived. And if matter profitability is tied to compensation and perhaps even to job stability, the debates on how to calculate these figures will rapidly get louder and more passionate.

If you think that since associates are on salary, it would be easier to calculate their direct costs, you’d be right. But even there, important decisions must be made. For example, suppose two mid-level associates earn the same $300,000 salary, but Associate A billed 2,000 hours last year and Associate B billed 1,500 hours. To keep this example relatively simple, we will ignore the cost of their health insurance and other benefits and focus strictly on salary. Some firms say that the direct cost of Associate A is $150 per hour ($300,000 divided by the 2,000 hours she billed) while Associate B is more expensive at $200 per hour ($300,000 divided by her 1,500 billable hours).

Now suppose that relationship partners are rewarded for managing matters more profitably. Of course they will try to assign more work to the busy $150 per hour associate than to the $200 per hour associate who has more time available. In this case, the attempt to measure profitability to develop a more efficient system rewards behavior that is actually likely to reduce efficiency by overworking the busiest associates.

Discussions of other aspects of overhead can also get into heated debates about such details as:

  • If one practice group heavily uses the services of the marketing department and another doesn’t, should the first group pay more marketing expenses through higher overhead?
  • If one lawyer has office space in a high-cost city like New York, and another has an office in a lower-cost city like Cincinnati, do they have different overhead rates?
  • If one lawyer in New York has a 600-square-foot office and another has a 300-square-foot office, should that be reflected in different overhead rates?
  • If one lawyer’s assistant makes more than another’s, should that be reflected in their personal overhead?

The questions go on and on, and they raise the kind of awkward issues that sow resentments and dissension. As one partner interviewed for Michael Roster’s article noted:

Many of us have long believed that the non-attorney costs of the various practice groups are wildly different. At most firms, no one wants to hear that, probably because it might open Pandora’s Box.

Some experts believe that this box should be opened, and when it is it will reveal that different practice groups can afford to charge different rates. One expert we consulted, who preferred to remain anonymous, put it this way:

Cost accounting should be kept very simple lest the lawyers argue about it forever more. That said, it should not be the same for the higher cost of production groups that need a lot of work rooms, support services, etc. (such as litigation) versus the very low cost of production groups that can work in a cubicle and only occasionally might need a conference room (such as trusts and estates). GM charges a lot less for a Chevrolet than for a Cadillac, and yet the overall Chevrolet division may be far more profitable that the overall Cadillac division.

Others disagree and feel that analyses that compare relative costs will become divisive by focusing lawyers on their short-term individual interests rather than the long-term benefits of working together. The labor and employment group may come to question the wisdom of belonging to the same firm as the M&A group that needs more expensive space. Lawyers from the Cincinnati office may begin to ask whether it is really worth having a New York office with much higher overhead.

To explore the real-world solutions that law firms are using most often, Jonathan Groner  contributed to my research by interviewing two of the leading consultants in the field: Russ Haskin, director of consulting services at Aderant Redwood Analytics and Jeff Suhr, vice president of products at Data Fusion Technologies/Intellistat.

According to Haskin:

If a firm has hired a pricing director but does not look carefully at profitability in a sophisticated way, it is doomed to fail.

Haskin said that very few large firms do more than pay lip service to the concept of profit margin—and those that do are far ahead of the game. Among other things, they are ready to respond to AFA proposals in a way that will be profitable for them. A firm that looks at profitability in the “old” way by examining gross revenue rather than profit margin as seen at the client or engagement level is simply not equipped to respond intelligently to an AFA request.

Both consultants agreed that the key to success is to simplify assumptions, and one way to do that is to look at gross margin (revenue minus direct costs). Suhr argued that at the matter level, gross margin is a better measure than any that includes overhead because issues like office space can’t be controlled at the matter level.

Haskin suggested that to simplify the cost analysis, the firm should allocate a standard cost rate to each lawyer or group of lawyers, for all clients, like the senior partner we interviewed who said:

We have a model that takes into account cost not based upon actual draws or salary, but it takes into account junior associate, mid-level associate, senior associate, junior partner, partner, and senior partner typical costs.

At the end of the day, there is a reason why Data Fusion’s 91 clients use 91 somewhat different methods to measure profitability. Companies like Data Fusion and Aderant Redwood work with each client to come up with a consistent approach that has grass-roots support within each firm.

As John Iezzi summed it up in Results-Oriented Financial Management: A Step-by-Step Guide to Law Firm Profitability (p. 145):

The subject of profitability at [the matter] level is one that is very difficult to grasp for those not fully versed in cost-accounting concepts. Whatever methodology is used, it should be agreed to by a consensus of the partners so that the results are accepted once the methodology is applied.… Make certain that everyone buys into how the process is going to be done, and more importantly, why it is being done and what decisions will be made from the information once the analysis is completed.

Jeff Suhr made a similar point more succinctly:

The right way to measure profitability is one that is accepted in your firm. The art is to measure it in a way that keeps everybody happy.

And as one managing partner in this study summed it up:

You can argue all day about what the right profitability metrics are or what you’d include. We argue about it a lot.

Many participants, like this senior executive, think that the cure is worse than the disease and that firms should stick to more traditional measures:

We’ve used realization as a surrogate for profitability to this point. True profitability has been reserved for senior management analysis. We haven’t wanted lawyers arguing about indirect allocations and whether they only use 10% of a legal administrative assistant’s time versus 33%.

The profession may never find the perfect solution that some lawyers seem to want.  But it is absolutely clear that firms which want to survive and prosper in the current environment must find an answer that fits their culture and allows them to clearly distinguish between the matters that make money and the matters that lose it. 

This series is an excerpt from my book Client Value and Law Firm Profitability.  An edited and abridged version of this series appeared in the March 2015 issue of MP magazineThe MP article can bedownloaded from our web page


April 22, 2015

Six challenges in defining law firm profitability (Part 3 of 4)

Challenge #5 The problem with leverage

As Toby Brown and Vincent Cordo explain in the book Law Firm Pricing: Strategies, Roles, and Responsibilities (p. 18):

[Leverage can be defined] as the percentage of partner time worked per matter or per client.… The basic economic concept of leverage is that the more [non-equity] workers work, the more owners (partners) benefit. Workers generate the profits that pay partners. Therefore, the more work is pushed down to them, the better leverage you have and the more profit is generated.

Software programs that are designed to help lawyers bid in a way that maximizes profitability often do so by encouraging partners to push more work down to associates.

This concept is tied to the “old normal” pyramid model of profit, in which it was assumed that clients would have all their work performed on an hourly basis and would generally pay all their bills. But the legal world has changed to a “new normal” in which these assumptions are often incorrect.

For example, in a fixed price environment, efficiency is king and leverage can lead to higher costs and more unbilled time. Suppose a $1,000-per-hour senior partner can solve a problem in one hour, but a $300-per-hour associate will require 10 hours to come to the same solution. If the firm is paid the same fixed fee regardless of who does the work, it is obvious that solving the problem at the unleveraged partner “cost” of $1,000 is more profitable than at the leveraged associate cost of $3,000. (Of course, billable rates are a very approximate indicator of cost, but they are used here to keep this example simple.) 

Some critics have long questioned the value of leverage. In 1993, Bartlit Beck was founded on a totally different model, as Fred Bartlit explained in a 2012 ABA Journal piece:

Experienced lawyers can clearly do a task more efficiently than untrained rookies. So, why not choose a model based on low turnover, where only a very few high potential lawyers were well trained and mentored in order to dramatically increase experience levels? Our philosophy has turned the typical law firm structure upside down. Most large firms have few true partners and a large number of inexperienced associates. A typical ratio is 3.5 associates to each partner. Our experience metric is dramatically different: instead of the usual 3.5 associates/partner, we have 3.5 partners for each associate. This reversal of the typical large firm partner/associate ratio gives us a major competitive advantage in experience.

The result has been an award winning and highly profitable organization that Bartlit describes in the same article as:

The only firm in the world that does billion dollar litigation for Fortune 100 firms and is never compensated based on the hours expended.

One member of our Research Advisory Board summed up this view:

Leverage is a goofy concept sold by management and consultants. Ultimately, except maybe for some of the elite New York firms, high leverage will fail. There’s a reason Bartlit Beck operates with 3.5 partners per associate and Munger Tolles operates with slightly more partners than associates. Leverage and turnover have always been a disaster, except for the “golden era” (1980 to 2005) when clients weren’t paying attention, and thus it looked like a great business model for law firms to be inefficient, with high leverage and high turnover.

At this moment in time, the role of leverage in profitability depends on the client and the fee arrangement. For clients on a fixed fee basis or for hourly clients who refuse to pay portions of their bills due to inefficiency, greater leverage may decrease profit. If you have hourly clients who don’t question their bills and pay in full, greater leverage will still produce more profit. But it seems reasonable to ask how long this will continue.

Challenge #6 Problems applying cost accounting

The obvious way out of all this confusion is to move toward the approach used in almost every other business: applying cost accounting to measure profit. The basic formula looks deceptively simple:

Profit = Revenue – Cost

Cost accounting establishes rules for defining both revenue and costs, but it’s not as simple as non-CPAs might think.

Before we started working with law firms, my company spent almost 20 years developing training programs for financial services clients and for government agencies. Many of the government contracts we worked under were “cost plus,” in which an hour of a person’s time must be billed at its “true cost,”—as defined by many pages of government accounting rules—plus a negotiated fixed fee. (Note:  In our experience, the negotiated fixed fee on government contracts was typically between three and five percent of cost, which seems laughable by the standards of many law firms.) So you’d think that if anyone could identify the true cost of labor, it would be a government contractor.

But we gradually learned that government contractors have a number of options for calculating both the direct cost of what a person is paid per hour and allocating the indirect costs of benefits, rent, general and administrative overhead, and so on, to different groups within the company. So there was no single number for the “true cost” of a particular hour of labor, despite all the rules and regulations. The answer depended on a number of assumptions and interpretations.

Many law firms see cost accounting as the Holy Grail, with potential benefits to both themselves and their clients. As ACC Value Co-Chair Michael Roster summed it up in an article entitled “Facing Up to the Challenge: Law Firm Metrics”:

Once a firm or practice group shifts to a true profitability set of measurements, the firm finally has incentives to:

  • Keep reducing its cost of production—meaning moving matters to those with appropriate expertise while lowering leverage and hourly rates, where hourly rates are now used to monitor the cost of production, not how to maximize what can be billed
  • Measure and deliver better outcomes and be rewarded for that
  • Learn how to fix the cost of any given type of work
  • Along the way, improve profitability

However, in the widely quoted text Results-Oriented Financial Management: A Step-by-Step Guide to Law Firm Profitability, CPA John Iezzi explained that in working with law firms, he learned that this is much, much harder than it sounds:

My first article [on law firm profitability was]… written in 1975… after I had recently left public accounting, convinced that one could apply the same cost-accounting techniques to the service profession as one did to any other industry. [However], this was not the case, as I later determined once I began attempting to apply various cost-accounting practices to the legal profession.

The result for many firms is that, as one managing partner in my research admitted:

We struggle with a standard profitability model, and we don’t really have one right now.

Another managing partner pointed out the underlying problem:

There’s really more art than science as to what you count as revenue, and similarly what the cost allocations are going to be. Lawyers will debate all day long about those things. So it’s important to have uniform or reasonably well-accepted best practices for profitability analysis. I don’t think our practice is there yet.

As far as we can tell, neither is anyone else. When I talked to several members of our Advisory Board about this, Don Ware, chair of Foley Hoag’s Intellectual Property Department, said:

I’ve never heard of a law firm that has a good way to measure matter profitability. Many say they do, but when you push on the details it becomes clear that they really don’t.

In the final part of this series, we will describe what firms doing to get closer to this goal.

This series is an excerpt from my book Client Value and Law Firm Profitability .  An edited and abridged version of this series appeared in the March 2015 issue of MP magazineThe MP article can be downloaded from our web page.


April 15, 2015

Six challenges in defining law firm profitability (Part 2 of 4)

Challenge #4 The varieties of realization

A better approach to profitability starts with realization, as typified by this chair we interviewed:

We have made a big point to our attorneys that the focus is not revenue, it is profitable revenue. We try to get to realization. We start with the standard rates on a person’s time, and then we can determine, when bills are rendered and receipts are achieved, what percentage of the standard value we collect. It could have been a discount at the beginning. It could have been a write-off along the way. It could have been a billing or payment adjustment, whatever. But we look at the relationship between the standard value and the collection. If you spend $3 million worth of time to produce $5 million worth of revenue, that’s a hell of a lot better than spending $4.5 million worth of time to collect $5 million.

But realization is a lot more complicated than most lawyers think, because it comes in many flavors and goes by many names, each with their own strengths and weaknesses. The best summary of the underlying issues appears in an article by Jim Cotterman of Altman Weil, one of the leading consultants in this area, which explains seven key components that underlie various definitions of realization:

  1. Timekeeper discounting at the timesheet
  2. Write-downs of unbilled time
  3. Client adjustments resulting in write-offs ofreceivables
  4. Pricing variance
  5. Efficiency variance
  6. Turnover of unbilled time
  7. Turnover of accounts receivable

One result of the complexity is the fact that a number of different realization rates could be used to summarize a single situation, as shown in the table below. 

 Five Different Realization Rates for a Single Situation

The facts: A lawyer has a standard billing rate of $500 per hour and bids on 2,000 hours of work at a discounted rate of $400 per hour. She works 2,000 hours but before the bill goes out, she writes off 100 hours of inefficient time, so she only bills for 1,900 hours at $400 per hour. The client refuses to pay for 100 hours of this, so the firm is ultimately paid for 1,800 hours at $400 per hour.

Version number

Revenue paid to the firm

Realization formula

Realization calculation

Realization rate



Revenue bid/ Revenue at standard rates

$800,000 (2,000 hours at $400) / $1,000,000 (2,000 hours at $500)




Revenue billed/ Revenue at standard rates

$760,000 (1,900 hours at $400) / $1,000,000 (2,000 hours at $500)




Revenue paid/ Revenue at standard rates

$720,000 (1,800 hours at $400 / $1,000,000 (2,000 hours at $500)




Revenue billed/ Revenue at bid rates

$760,000 (1,900 hours at $400) / $800,000 (2,000 hours at $400)




Revenue paid/ Revenue at bid rates

$720,000 (1,800 hours at $400) / $800,000 (2,000 hours at $400)


Note that in all five cases, the firm is putting in the same amount of work (2,000 hours by a single lawyer) and bringing in exactly the same amount of revenue ($720,000). But the realization rate could be as low as 72% or as high as 95%, depending on which realization formula is used. And there are many other ways that some firms define realization, so there are far more than five options.

If all these formulas and examples seem confusing to you, you are not alone. Indeed, the two major conclusions of this brief overview are:

  1. Firms’ different definitions of realization can lead to considerable confusion when people try to compare results across firms
  2. The definition that a particular firm chooses may affect lawyers’ behavior in unintentional and unproductive ways

When it comes to confusion, it is important to note that this can affect law firm leaders’ views of their own and other firms. We recently heard one story about two firms that were considering a merger, in part because one firm was impressed by the other firm’s 90-plus percent realization rate. But when they later looked deeper into the figures, they found that the realization rate would have been much lower if both firms used the same formula.

Cotterman’s article also included a number of examples of ways these differences have important business implications for firms as a whole:

We had a law firm client that was thrilled with their near perfect overall realization. Upon examination we discovered that their high realization was due to unbelievably low billing rates resulting in lost revenue overall. At the other end of the spectrum, large accounting firms have been known to have realization figures in the low 80%s due to routinely large discounts off high standard rates. These are two examples, one unintended and the other planned, where realization is affected by pricing decisions.

When Cotterman reviewed an earlier draft of this chapter, he noted that it “shows how easily one can become confused in the conversation and the need to examine realization on its individual components—that is where the real work is.”

Another reviewer offered this anonymous example of the problems one can get into when using realization as a measure of profitability:

I had one huge litigation where realization was not great, probably 80%. But all the associates worked long hours on the case, including nights and weekends. Effectively they were working overtime, at no additional cost to the firm. Also, the client had a policy that you could not bill for travel time, and there was a lot of it. I felt, in fairness, that they should record all their travel time and I would just write it off as billing lawyer. Other partners would have told them not to write it down at all, so their realization would have looked better, although profitability would have been exactly the same.

This confusion is one of the reasons firms are moving away from realization as the sole measure of profitability. As one chair said:

A lot of times, there is confusion that profit is just realization.

For an extreme example, consider an associate who earns $400,000 and bills 2,000 hours in a year. Now imagine that for competitive reasons that have nothing to do with the associate himself, the work was bid and paid at an average of $175 per hour. This does not cover the associate’s cost under any definition. Revenue of $350,000 (based on 2,000 hours times $175) does not cover a $400,000 salary plus benefits, no matter how you calculate cost. However, under definition 4 or 5 in the table above, that associate’s realization rate would be 100%.

When it comes to influencing behavior, the differences between definitions are not just mathematical subtleties that only a CPA would care about. You get what you pay for, and the realization approach a firm chooses can shape lawyers’ behavior, since firms often measure lawyers’ success and award their compensation based on realization. The lawyer in our table above could be rewarded for high realization if it was calculated at 95% (Version 4) or penalized if it was considered 72% (Version 3), despite the fact that both versions have exactly the same impact on the bottom line from a business point of view.

In today’s rapidly changing environment, the problems can be especially challenging for firms that use standard rates as the base for computing realization. In that case, to improve your realization all you need to do is lower your standard rate, as this senior partner implied:

When you look at those realization rates and you compare them to the actual profit margins based on standard hourly rates of the underlying timekeepers, it’s all over the board. There is no consistent profit margin in those rates anymore and hasn’t been for years, because nobody’s gone back and sunsetted them and started them all over again. So what’s happened over time is, as rates have been adjusted, some up, some down, you’ve lost that connectivity. So realization really is no longer an effective measure of profitability.

If partners are rewarded for realization rates based on what is billed rather than what is collected, it will drive them to put in more hours, even when that produces no revenue for the firm, as this senior executive noted:

For evaluating partners we’ve always looked at realization and realized rates, among other things. And some of our internal experts are concerned that those are the wrong numbers to be looking at because they can drive the wrong behavior, especially in an age where they allow people to price low and it doesn’t matter what we charge for it. They’re very concerned that if the project isn’t done on time and on budget, lawyers can be rewarded for putting in more hours, even though we don’t make any money.

Or, as a senior executive at a different firm put it:

I think we've been much too focused on realization and that partners have a skewed view of what’s really profitable. They assume low realization means not profitable and high realization means profitable, and we’re just starting to get them to come around to the idea that that’s not always the case. I think we can go a lot farther down the road of getting partners to understand the impact of leverage on profitability.

The next post in this series will discuss the concept of leverage.

This series is an excerpt from my book Client Value and Law Firm Profitability.  An edited and abridged version of this series appeared in the March 2015 issue of MP magazineThe MP article can be downloaded from our web page 


March 18, 2015

LPM workshop: Experts from five firms discuss how to change behavior

On June 8 in Chicago, five law firms that have made significant progress in LPM will frankly discuss what has worked and what hasn’t at the fifth session of one of the Ark Group’s most popular events : “Legal Project Management Showcase and Workshop: Changing Behavior within the Firm.”  I look forward to chairing this session and discussing the latest developments with:

Andréa Danziger, Director of Business Development and Practice Management, Loeb & Loeb

Stuart J T Dodds, Director of Global Pricing and Legal Project Management, Baker & McKenzie

Michael Nogroski, Director of Knowledge Management, Chapman and Cutler

Scott Wagner, Partner, Bilzin Sumberg

Matt Wahlquist, Director of Practice Management, Stinson Leonard Street

If you are planning to attend this year’s Legal Marketing Association’s P3 conference (the three Ps stand for Project Management, Pricing, and Process Improvement), you may notice that the  Ark conference is scheduled one day before P3, which is also in Chicago.  That was not an accident.  I hate to travel, and Ark was kind enough to agree to schedule this workshop the day before P3 to save me a trip.  I wouldn’t miss P3. 

Implementing LPM is more critical than ever.  In Altman Weil’s 2014 Chief Legal Officer Survey, the top three things that clients wanted were greater cost reduction (58%), more efficient legal project management (57%), and improved budget forecasting (56%).  Since LPM will help meet the first and last requests, you could say the top three things clients want are LPM, LPM, and more LPM.

From the law firm point of view, when I interviewed AmLaw 200 chairs, managing partners and senior partners and executives for my book, Client Value and Law Firm Profitability, LPM was identified as the single best way to provide greater client value while protecting profitability.  But many firms have learned the hard way that while it is easy to offer awareness training to lawyers focused on LPM theory (and put out a press release announcing all their lawyers have now been trained in LPM), it is very difficult to get them to change their behavior.  The managing partner of one AmLaw 200 firm that invested heavily in traditional training and was disappointed in the results put it this way: 

I think project management probably will have the longest-term positive impact [on value and profitability], but it’s been the biggest challenge, because it’s something that hasn’t been easily absorbed by a lot of the lawyers. When busy lawyers start scrambling around, the inefficiency creeps right up. At our firm, project management has not met expectations.

After previous sessions of this program, audience members said:

This workshop did an excellent job of offering practical suggestions for dealing with the issues law firms encounter when they implement legal project management. The frank discussions between partners and executives at firms that have successfully changed lawyers’ behavior would be helpful to anyone who is trying to get their arms around this challenging transition.

Delilah Flaum, Partner in Charge of Knowledge Management and Legal Project Management at Winston & Strawn LLP


This workshop is a great way for any law firm to jump-start an LPM initiative. Jim Hassett has the experience and credentials to be THE leader in this area. His approach is directly applicable to achieving greater efficiency, competitiveness, and client satisfaction and the workshop panelists described how they used LPM to increase revenues and repeat business. I was truly inspired and enabled by this program to achieve higher profitability for my firm.

Pete C. Elliott, Director of Legal Project Management, Benesch, Friedlander, Coplan & Aronoff LLP

For more details about what these five firms have done so far, and on the workshop, download the brochure, visit the Ark Group’s web page or contact Ark’s Peter Franken at pfranken@ark-group.com or (312) 212-1301. Readers of this blog qualify for a special 15% discount.  Simply write “LegalBizDev Discount” on your order form and subtract 15%, or ask for the discount when you register by phone.


February 18, 2015

LPM at Stinson Leonard Street – A course on defining scope and much more (Part 1 of 3)

By Jim Hassett and Jonathan Groner

Stinson Leonard Street has nearly 500 attorneys in 14 offices, with major operations centered in Minneapolis and Kansas City. It was formed in January 2014 by the merger of two firms that had previously made independent commitments to legal project management (LPM), including educational presentations by several leading consultants, hiring LPM staff, developing a task code system to track the cost of work, and more.

When he became one of two co-managing partners of the newly combined firm, one of Lowell Stortz’s top priorities was to accelerate this progress:

LPM is a great tool to provide more value and predictability to clients. From the time I started practicing law over 30 years ago there have always been lawyers who were good at this. But we are now devoted to spreading these practices throughout the firm. For example, thinking through how you are going to break a matter into phases, how you are going to charge the client for each phase, and whether an alternative fee arrangement is in order really helps clients to see more clearly the value you can deliver. LPM also encourages us to strategically participate in a little risk sharing now and then, which only makes sense to the client and to us if we’re really transparent about what’s going on.

For example, we had one client that looked at multiple transaction opportunities every year, although not all of them proceeded to a closing. So we agreed to perform due diligence, up to the “go/no go” phase, on a fixed fee basis. We know that we did not recover our rates on the transactions that did not go forward, so there was a clearly identified value to the client when a transaction didn’t proceed. They spent less and had a lawyer’s help in figuring out whether to proceed. From our side, however, we had the opportunity to get a look at every new deal. We feel like we had more deal flow because we were willing to help them on the front end. What does that have to do with project management? We could not have set a reasonable fixed fee unless we properly analyzed our internal data and accurately defined the scope for the project.

The firm’s other co-managing partner, Mark Hinderks, explained the importance of this new area in a similar way:

Project management is just a term for some things that are pretty basic on the wish lists of clients. Clients want to know what something’s likely to cost and how long it will take. Assuming we continue to do good legal work, the better we are at those things, the happier clients will be. Lawyers have notoriously avoided being pinned down on cost and time, due to the potential existence of factors beyond their control. But in other businesses, such as construction, there can be delays or disruptions from matters beyond a contractor’s control, such as material shortages, unanticipated site conditions, poor weather, and more. Yet, professionals in that arena have learned to project time and cost in a reliable way while accounting for risk. Increasingly, we as lawyers need to do the same whenever possible.

A few months ago, when LegalBizDev announced a new half-day workshop entitled “How to Define Legal Scope and Negotiate Changes,” Stinson Leonard Street became the first firm to sign up.

The reason we developed this course was that in interviewing chairs, managing partners, and other leaders of AmLaw 200 firms for the book Client Value and Law Firm Profitability, we had heard over and over that defining scope was the single most important factor in LPM success. As one chair put it:

The critical issue is sitting down with the client at the beginning and deciding what their goals are with the matter. Is it getting it done quickly? Is it getting it done so that nobody ever brings a matter like this again? Is it getting it done in advance of the big merger on the books a year from now? There are all different considerations as to what will lead a client to think this was a successful representation. And the more you push your client to think through what they care most about, the better off both of you are.

And when scope changes as a matter proceeds, as it so often does, lawyers need to know when and how to talk with the client about the best way to proceed, rather than just jumping ahead now and sending a bill later. As a senior executive at another firm we interviewed put it:

We have people who recognize that the scope of a project has changed, but you would think they were 15 years old again and asking a girl to a dance. They never get around to making the phone call.

Defining scope and negotiating changes had always been important parts of our introductory workshop, “How to Increase Client Satisfaction and Profitability with Legal Project Management,” but after analyzing our research results, we decided it also needed a course of its own.

LegalBizDev Principal Gary Richards took on the task of developing a highly interactive workshop built around six hands-on exercises, leading up to an action plan designed to immediately change behavior in each lawyer’s practice.

At the time of the merger that formed Stinson Leonard Street, Matt Wahlquist, the director of practice management at the firm, had been charged with accelerating LPM progress and building LPM principles into lawyers’ day-to-day practice. When he heard about LegalBizDev’s new scope course, Wahlquist thought it was a great example of the “very practical approach” he had been looking for, and he helped arrange the first session, which was held last fall in Kansas City.

Fourteen attorneys actively participated in the workshop and 10 firm leaders sat in as observers. Their presence was living proof of the importance the firm places on LPM.

Both co-managing partners were among the observers because, as Mark Hinderks noted, the concept of “defining expectations clearly right from the start of each matter is critical. Very often, when there is friction between law firms and their clients, it is based on a disconnect between expectations and what actually happens.” This course was designed to minimize that friction by helping to clarify expectations upfront.

The post-workshop evaluations were extremely positive, with one participant calling it the “best presentation by a consultant that I can remember.”

Next week’s post will describe the specific benefits several participants achieved from the course.