ALTERNATIVE FEE MODELS - SAYING GOODBYE TO THE TIME SHEET
The alternative fee model isn’t new – just an increasingly common model. Firms are throwing out the billable hour all together. Other firms have moved to hybrid framework where they fixed fee, but still require their lawyers to time record. The argument being that this preserves reporting around WIP, profitability, budgets and accurate fixed fee quotes.
Fixed fees place an emphasis on the value received by clients, rather than the time taken to produce advice. There are many obvious advantages in moving to this model and it appears the direction that firms are (slowly) heading. But it’s not easy changing the way legal firms have always worked.
The aim of this post isn’t to promote why fixed fees make sense. But if you would like some very articulate arguments on that point, this LinkedIn video by Karen Finch is worth a look: Myths around the billable hour
We come to an obstacle when we hit traditional law firm technology. Most practice management system reports assume the use of time cards. That leaves firms needing to create their own reporting models or forced into the hybrid approach expressed above. Typically practice management systems and reports are difficult to customise. In addition, if your firm isn’t recording time, you may want to utilise other metrics that exist outside of your practice management system. And you need a way to gather that information in one place.
How Power BI can help
When firms talk about removing the billable hour altogether, the counter argument is often – “But how will you know much the advice costs?” Let’s leave aside whether time is particularly good way to measure cost or value. There are plenty of ways to achieve this outside time cards.
Power BI offers almost limitless customisation and perspectives on your data. It can also bring a variety of data sources, enabling a more holistic view of client/matter profitability and lawyer performance. Let’s look at some of the metrics we normally rely on time recording to provide and how they can be measured without time cards.
File Management and Fixed Fee Projects
A fixed fee approach to legal problems necessitates well though out workflow and project management. Power BI can assist with managing both.
Using Power BI, you can create reports that indicate where each project is at, how long the steps are taking to get there and quickly identify any issues. If you want to use KPIs around how long each stage should take, you can implement that using Power BI.
You can also get a sense of the average time projects and their steps take to complete. It’s also possible to identify any common stumbling blocks or trends. For instance, more client contact or time at the lead of a matter, may result in a smoother project later on. You can also use Power BI to bring that initial scoping information into reports.
You might use a product outside your practice management system, like Monday or Trello, to manage your legal work. You can bring this information into Power BI. I have a post coming up discussing this very thing.
In addition to your project management tools, it may be relevant to bring client feedback into the mix when determining pricing. Results from survey tools like Survey Monkey can also be brought into Power BI.
Once you have a good data set to work with, you can start using it to determine your fixed fee models. Using a variety of data – rather than just time – will give you a robust fixed fee structure.
WIP
Let’s take a step back and think about what measuring WIP allows us to do. It predicts upcoming income. It indicates the meeting of targets and the progress of work. Clients can be contacted when WIP creeps up to estimate. Monitoring the age of WIP allows us to understand if we are holding onto stale WIP that will never convert to billings.
Upcoming income can be measured if you have project steps tied to fixed fees at certain stages and you are aware of when that stage is likely to complete. In fact, this is a more accurate measure of upcoming income because it’s unlikely write offs are going to occur. There is no estimate – rather an actual fixed fee. The number of matters, their type and their associated fixed cost will also provide an indication of WIP.
If you use your practice management system to track enquiries and conversions, you can also use that sales pipeline to predict likely cash flow.
Budgets and Targets
Without time cards, targets are going to be primarily around fees billed. However, there are other metrics that can be brought into play with Power BI – allowing you to define your own measures. You might look at the number of matters opened, number of clients introduced, invoices per client, how a lawyer has improved on processes and reduced project step time, conversion rates of enquiries into substantive matters, client satisfaction and so on. The list is practically endless. If you recorded it somewhere, you can report on it with Power BI. I have discussed how Power BI can assist with complex bonus structures and a similar approach can be adopted here.
Profitability
The tools used to manage projects and measure targets above can also be utilised to understand matter, client and lawyer profitability. However, there may be some touch points that are under-reported that speak to profitability. For instance, if there is a larger than usual volume of email traffic between a lawyer and client. You can actually connect Power BI to Outlook and measure those exchanges. Lawyers often under-record time and by harnessing this kind of data you can understand potential issues. If you want to delve deeper into your email for all kinds of relationship information, I would recommend looking at a product called Client Sense.
Capacity & Well Being
Time recording can assist in understanding capacity and managing well being. Capacity can be monitored by time recording (too much or too little). Capacity can also be measured via workload makeup – project type and project status. Power BI can be used to write reports against those metrics. As mentioned earlier, one of the issues with time cards is that they rely on lawyers recording all their time. I know plenty of lawyers who work well beyond their clock off time who do not record that “extra” time. But it’s still important to understand if that effort is being applied. Power BI can also connect to Active Directory (depending on the version you use) and give visibility over log on and log off times. This might help with managing well being and understanding if people are working constantly beyond expectation.
The above is just a selection of ideas on how to manage a legal firm without time cards. If you’d like to explore how to set up fixed fees further, I would highly recommend looking at Clarissa Rayward of Happy Lawyer Happy Life’s (fixed fee) packs – here.
The reporting tools necessary to implement those ideas are unlikely to exist within your practice management system. However, Power BI could be the answer.
