November 15, 2005
Accidentally Successful Law Firms
I recently shared the podium with Debbie Foster, president and founder of INTOUCH. She is recognized by LawCommerce.com as one of the top legal technologists in the country and speaks regularly on several topics, including Practice Management Software, Time/Billing/Accounting Software, general law practice management issues and computer management.
She began her remarks by saying that she has worked with many “accidentally" successful law firms. What she meant by that is that the partners of those firms were not paying attention to the numbers. Their only barometer for measuring success was the firm’s bank account. As long as there was money in the bank, things were okay in their book! Of course, the problem with accidental success is that there can be a train wreck coming just around the curve and they have no idea that the end is approaching.
Intentionally successful law firms pay attention to the numbers. They keep the train on track by setting goals, measuring performance against those goals and holding people accountable.
That doesn’t mean they spend time with their nose buried in reports. Quite the contrary—best management practices have replaced “reports” with “measurements”. They track 6 to 10 “key” indicators that provide them with “situational awareness”. Like the pilot of a fighter jet - everything they need is displayed in front of them. The information is actionable and instantly digestible. Busy professionals (including managing partners) don’t have time for reports. Reports are for the accounting and administrative teams so they can answer the “why” questions.
What are some of those key indicators that need to be on the managing partner’s radar screen at all times? Some of the logical ones include the factors that determine partner income and cash flow:
- Productivity or utilization: The sum of billable hours for fee earners
- Blended rate: The dollar value of worked billable hours divided by the total billable hours worked
- Realization: The percent of billable dollars worked that actually gets paid, i.e., what is left after write-downs, adjustments and bad debts. It is collected fees divided by the original billed value of the hours worked related to those collections
- Days of Work in Process: Worked fees not yet billed to clients divided by the average fees billed per calendar day (annualized fees divided by 360 days).
- Days of Receivables: Billed but uncollected fees and expenses divided by by the average fees and expenses billed per calendar day (annualized fees and billed expenses divided by 360 days).
There may be additional Key Performance Indicators for your firm. For those additional items and for the above five items, set goals for them. Have actual performance compared to goal measured for you and the results given to you in immediately digestible form (for example, graphically). Then hold people accountable for achieving the goals.
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Filed under Law Firm Bus Model, Management by Tom Collins