The latest post from Jim Hassett’s blog Legal Business Development.
When it comes to offering fee estimates at the start of a matter, far too many lawyers still rely on ballpark estimates that they sometimes pull out of thin air. But even if you follow the “high detail” estimation techniques described in our Legal Project Management Quick Reference Guide (p. 152), the fact that you have a budget does not necessarily mean that you have a price which should be quoted to a client.
Wikipedia lists 25 different pricing strategies suppliers use in other businesses, ranging from loss leaders to premium pricing. The two that are used most often in law are cost-plus and value pricing.
Cost-plus pricing is similar to the traditional hourly billing approach and is exactly what it sounds like: a price is based on the cost of delivering a service plus a markup or profit margin. Normally the markup is already built into the hourly rate, so with this approach you could in fact quote your budget as the price.
Some of the most popular new alternatives for lawyers are built around the idea of value pricing, where the client’s perception of value is the most important factor. The best-known proponent of this approach is Ron Baker, author of several books on the topic. In practice, value pricing is much harder than it sounds. (For details, see chapters six and seven of my book, Legal Project Management, Pricing, and Alternative Fee Arrangements.)
In today’s highly competitive marketplace for legal services, where some firms seem downright desperate for new work, price competition is a giant wild card.
The bad news for most law firms is that low prices are the new normal.
When Altman Weil’s Law Firms in Transition survey asked 356 managing partners and chairs of US law firms about current trends which represented a permanent change in the legal landscape, the top trend was “more price competition.” Ninety-five percent of respondents said this was a permanent change in the legal profession. (Interestingly, number two on their list was a “focus on improved practice efficiency” or LPM, which was rated as a permanent change by 93% of respondents.)
Another challenge is posed by the growing popularity of alternative fee arrangements. When the same survey asked, “Compared to projects billed at an hourly rate, are your firm’s non-hourly projects more profitable or less profitable?” 28% said non-hourly matters were less profitable. Of the remaining respondents, 18% said non-hourly arrangements were more profitable, 42% said they were about the same as hourly, and 13% were “not sure.”
Would you invest in a company that didn’t know which deals were profitable? Of course not. But if you are a partner in a US firm with 50 lawyers or more, there’s a 13% chance you already own one.
A few years ago, an AmLaw 100 firm that was just beginning to think seriously about pricing invited me to speak at a practice group leader meeting about pricing trends. When one participant asked what I thought was the most critical issue, I said it was determining the difference between low prices that are acceptable and prices that are simply too low to make business sense for that firm. “Where do you draw that line in the sand?” I asked. The chairman replied, “We don’t even know where the sand is.”
But that was then. Now that same firm has a pricing director and a number of new pricing and management initiatives in place.
This post was adapted from the recently published fourth edition of The Legal Project Management Quick Reference Guide.
Some other Agile concepts have proven less useful, at least at our firm. For example, some experts have written about the potential value of Agile sprints to law firms, but that has not been our experience. (An Agile sprint is “a well-defined period of time during which specific work must be completed. Each sprint begins with a planning meeting in which the person requesting the work and the development team agree upon exactly what work will be accomplished during the sprint. The development team has the final say when it comes to determining how much work can realistically be accomplished during the sprint, and the product owner has the final say on what criteria need to be met for the work to be approved and accepted.”)
In our legal work, it is very difficult to place WIP limits on people since it is tough to gauge how much time each task will take to complete. In addition, in many cases the work listed on a task board is just one of their assignments and their time is limited by their assignments to other legal matters at the same time. At our firm, a WIP limit is better dealt with by simply asking each individual whether they have capacity for a particular task or not.
Some Agile experts are a bit more dogmatic and argue that you have to strictly follow the complete system to reap the benefits. We’ve found that starting with the core ideas in their simplest form is the most effective way to get that buy-in early on while also being flexible to pivot to other ideas as needed. I see real value in utilizing traditional project management methods simultaneously with Agile, particularly with respect to developing and managing budgets and estimates, setting scope, and so on.
Background on these guest posts: When we published the fourth edition of our Legal Project Management Quick Reference Guide a few weeks ago, some of the most important articles were the new sections on Agile, a flexible approach to managing projects that is well-suited to the rapidly changing nature of many legal matters. Two of the book’s Agile articles were written by Paul Saunders, the author of these guest posts. While many experts have written about the potential value of Agile to lawyers in theory, Paul is one of the very few who has actually applied and tested the concepts in his firm. A few weeks ago, when Ivan Rasic of LegalTrek contacted me to provide input to his “How to Make a Strong Legal Team with Agile Project Management,” I suggested that he also contact Paul. Paul wrote a long and informative email which evolved into the guest posts below.
I wrote in our fourth edition that I “expect the fifth edition to include many more examples [of Agile, as the approach] continues to spread” (p. 25). This prediction is already becoming true. At this time, the evolving fifth edition is available only to firms that subscribe to our new on-line version. (The printed fifth edition will be published in a few years.) However, in the meantime, LPM is growing so rapidly that occasional sections from the fifth edition will appear in this blog, starting with these posts. – Jim Hassett
I then schedule review meetings (perhaps every month or two) to see how things are going and try to reach team consensus around three other questions:
When trying something differently (say, for example, transitioning to a digital Kanban tool), we come back to the minimal solution again. Change something, get feedback from the group, and change it again until it works well for the team.
By Jim Hassett and Tom Kane, LegalBizDev
Approach #3: Five steps to improve any business process
Step 1: Make a very quick list of the most critical processes that you want to consider.
If you don’t know where to begin, use the standard task codes described on page 183 for a starting point. For example, a litigator focused on the discovery phase of cases could begin with these six tasks:
Step 2: Pick one process to focus on first.
It is important to begin with the process that is most likely to allow you to meet your goals, which of course means that you have to be very clear about what your goals are. When you have several goals in mind, you could start by constructing a “process selection matrix” like the one below to make your choice.
(Note: The format of the table in this example is based on the book Improving Business Processes (page 22). The rows are from the Uniform Task Based Management System and the column values are for a hypothetical mid-sized law firm.)
In this example, there are three different goals, all are rated on a scale from 1 (low) to 5 (high), and the lawyer considers them equally important in selecting a process. Therefore, the last column, the total rating, can be used to determine that your process improvement should begin with the deposition process because it has the highest total rating.
Step 3: Define exactly what is included in the process. Where does it begin and end? Then break it down into five to 10 high-level parts.
Step 4: Decide which step to redesign first.
Again, the step you choose depends on your goals. The following questions from Improving Business Processes may help you to make your choice (p. 32):
Step 5: Think through the details of the step you will redesign and look for ways to increase efficiency, e.g. by simplifying the process, creating a checklist, and/or focusing more clearly on the factors that the client values most highly. Define action items and implement them.
Approach #4: 10 steps to improve critical business processes
These 10 steps are explained in detail in Susan Page’s book, The Power of Business Process Improvement. Here, they have been adapted and simplified for legal matters.
Step 1: Develop the process inventory. List all the big picture processes within a particular legal area, establish criteria for prioritizing them, and pick the one you want to start with. (The discovery tasks in the table above provide a good example.)
Step 2: Establish the foundation. Write a scope definition document that defines the problem you need to solve and provides a blueprint for the start and the end of your process improvement.
Step 3: Draw the process map. Identify each activity with a specific action word (e.g. create, review, develop, approve, update, or communicate) and then diagram the steps in a form that can be communicated to everyone involved. (Chapter 4 of The Power of Business Process Improvement includes standard flow charting symbols and several sample process maps.) Be sure to include handoffs to lawyers, staff, clients, and others.
Step 4: Estimate time and cost. Specify what is involved in each stage or activity in the process, how long it usually takes, and what it costs.
Step 5: Verify the process map. Ask other stakeholders to review the process map for accuracy. This provides a baseline to begin improvement.
Step 6: Apply improvement techniques. This is where the rubber meets the road. Eliminate bureaucracy, evaluate value added activities, eliminate duplication and redundancy, simplify processes, reports, and forms, reduce cycle time, and more.
Step 7: Create internal controls, tools, and metrics. Create controls to avoid errors, tools to support the new business process, and metrics to quantify improvements.
Step 8: Test and rework. Pilot test the new process, identify any issues, and rework them before introducing the new and improved process on a wide scale.
Step 9: Implement the change. Just as businesses develop marketing plans before they introduce a new product, they must plan how to implement business process changes, including “who has to know about the change, what they need to know, and how to communicate the right information to the right people.” (See page 14 of The Power of Business Process Improvement).
Step 10: Drive continuous improvement. After the change succeeds, you will still need to invest in maintenance. Evaluate, test, assess, and execute to sustain any required change.
All four approaches have value in different situations, and all take advantage of the 80/20 rule to maximize the benefits you will receive while minimizing the time it will take.
If you want to use these approaches in your own personal practice, you should be able to identify improvements quickly. But if you want to get other lawyers in your group to do the same thing, that’s a lot harder.
Whether you use approach 1, 2, 3, or 4, or you go out and buy Page’s book for more detail, or you hire an outside consultant, figuring out how to improve legal business processes is not the hard part.
The hard part is getting lawyers to do it. For more about that, see Chapter 9, “How to implement LPM throughout a firm,” in the fourth edition of the Legal Project Management Quick Reference Guide.
This post was adapted from the recently published fourth edition of The Legal Project Management Quick Reference Guide.
If you fail to promptly deal with a problem that could affect client satisfaction, schedule, or budget, it is likely to become a bigger problem later.
The first Wednesday of every month is devoted to a short and simple reminder like this to help lawyers increase efficiency, provide greater value to their clients and/or develop new business. For more about this tip, see Chapter 5 in the recently published fourth edition of our Legal Project Management Quick Reference Guide.