This three-part series previews results from my book Client Value and Law Firm Profitability, which will be published this summer. All quotes are from managing partners, chairs, and other senior decision makers at AmLaw 200 firms. Each participated in 30-minute in-depth interviews and spoke freely based on the understanding that they could review their quotes before publication, and they would not be quoted by name.
In 2009, when many firms first started talking about how to apply traditional project management techniques to legal matters, we proposed that lawyers think about the field in terms of these eight key issues:
- Set objectives and define scope
- Identify and schedule activities
- Assign tasks and manage the team
- Plan and manage the budget
- Assess risks
- Manage quality
- Manage client communication
- Negotiate changes of scope
When we coach lawyers on LPM, we always start by asking which issue is most important to a particular client or matter, so that we can focus on the low hanging fruit. Not surprisingly, the answer depends on the situation, and each of the eight has sometimes been rated as most important. However, in this research we wanted to get a sense of which issues seemed most important to the profession as a whole, and so one of the questions we asked was, “Which of these eight LPM issues do you consider most critical for client value and/or profitability in the short-term and why?” Of the 37 people who answered that question, 8% said that they were all basically equal:
It’s very difficult to rank order them. They are all important. There may be subtle variations, but these all work together, and I really can’t differentiate in terms of which is most important and which is least important and what’s in the middle. They all have to come together.
However, 92% were willing to single out one or more issues as particularly critical, as in the following quotes, the first from a managing partner, the second from a C-Level executive:
There are two that I would rank the most critical: the setting of objectives and scope, and managing client communication and expectations. Those, to me, are linked at the hip. You really have to understand what the client’s expectation is, and you also have to have a good relationship to be able to tell them whether or not their expectation is real and achievable. A lot of things can happen in litigation that can change the scope of an engagement. You can run into difficult parties and unforeseen problems, and that’s where an understanding between you and the client has to be solid enough that you can have those kinds of conversations and work your way through it.
There are three things I don’t think we do very well. The first thing is negotiating changes of scope up front. The second is clearly setting and understanding the objectives and the scope from the beginning. Lawyers think they do it, but I don’t think they get the right level of detail. The third is assessing risks to budget and schedule. They don’t wear the project management hat and think through what might go wrong.
When we analyzed the answers from people who saw some issues as more critical than others, they were ranked in the following order:
| Most critical short-term issues in LPM
|Set objectives and define scope
|Manage client communications and expectations
|Plan and manage the budget
|Assign tasks and manage the team
|Negotiate changes of scope
|Identify and schedule activities
|Assess risks to the budget and schedule
The top two – defining scope and communicating with the client – are especially interesting because they have nothing to do with software or Gantt charts or anything a relationship partner should delegate to an outside project manager. Instead, they come down to understanding what clients want, and giving it to them.
In this three part series of posts, we will briefly discuss each issue, arranged in this order of importance.
Set objectives and define scope
The short-term issue that was mentioned most often as critical starts on the very first day of each new matter, or before:
Setting objectives and defining the scope are crucial. You can budget. You can do anything you want. But if you don’t know what those objectives are, and what the client is willing to do or wants to do, you’re just putting stuff on paper. – Senior partner
Defining scope is the most critical in my mind. That’s where we struggle the most on the front end. – COO
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 I find that the more you push your client to think through what they care most about, the better off both of you are. – Managing partner
Obviously clients have got to know what they’re paying for. How many times in a litigation matter do the clients say, let’s beat the guy, and then after you spent the money, they have buyers’ remorse? – CFO
I think the lawyer really has to understand what the client’s objective is, and manage to that objective, which is a hard thing for a lot of litigators to learn, in particular those who are from the win-at-all-costs school. – Chair
However, defining scope properly can be quite difficult. As I noted in our Legal Project Management Quick Reference Guide (3rd ed., p. 20), lawyers who are trained to prepare for every possibility can get in trouble if they try to be too specific:
If a list of carve-outs gets too long or too specific, it can annoy the client and lead to lost business. Unfortunately, there is no simple general way to create assumptions that balance client needs and firm needs. The details must be worked out case by case. This can be especially difficult in a highly competitive environment.
One way to deal with this challenge can be seen in the following comments from a C-level executive:
I counsel people against a three-page list of assumptions, because it just drives clients crazy. I tell them to pick the big ones, and I say, “If you’re assuming very limited document review under 300,000 documents, and then it comes in that you’re going to have to review two million, you’ve got to be able to identify that that’s a huge variable and cost driver, and you’d better make sure that you’ve been very clear in your assumptions, so that if that happens, you can quickly pick up the phone and say, ‘We’ve got a major change in scope. Let’s talk about how to deal with it.’”
Another major complicating factor in defining scope is that with large clients, different stakeholders may have different objectives:
There is sometimes less than optimal communication within some of our client organizations, between the legal department and the corporate higher ups, as to objectives, priorities, timing, and budgets. We often receive our work directly from the legal department. The legal department at times may not quite understand what top management wants done, at what cost and in what timeframe, and that leads to inefficiency.
There’s no question that this is an art that needs to be developed further. We find sometimes with clients that the people we work out the sale with aren’t the same people that we work out the delivery with, so whether the scope has been properly defined or not becomes a really big deal, and changes in scope needing to be negotiated depends upon how well you defined the scope in the first place. This is something law firms have not historically done well, compared to, say, contractors and others who are used to a fixed fee type environment. So there’s a lot of room for improvement on that.
Finally, it is worth noting that the emphasis on scope does not apply to all clients and all law firms. In the statement below, one AmLaw 200 chairperson argues that it applies to only a small percentage of his firm’s clients:
In a world where your client is cooperative and just as accountable as you are, then I would say that setting objectives and defining scope would be the most important. We just haven’t found clients to buy into that, for the most part. For our firm, about two-thirds of clients use the word value just as a polite way of asking for a discount. Right off the bat, those two-thirds are not interested in setting objectives and defining scope. They’re just interested in price. Another sixth of my practice has no need for this at all, because they’re completely price insensitive. They just want really good work. They trust us. So it’s only that last sixth that actually cares about scope.
In Parts 2 and 3 of this series, we will discuss the remaining seven issues.
Today, we are announcing a new half-day legal project management workshop entitled “How to Define Scope and Negotiate Changes.”
This workshop will substantially expand on a key portion of the content covered in our more basic course “How to increase client satisfaction and profitability with Legal Project Management,” which LegalBizDev has successfully offered since 2010. It has been added to our curriculum in response to client needs highlighted in our research for the book Client Value and Law Firm Profitability, as explained in the post above.
The skills taught in this workshop are especially critical for fixed fee work. They also apply to any hourly arrangement that has a capped fee or a well-defined budget.
For more information, including a two page summary of proprietary details of how the course is structured, email us at firstname.lastname@example.org or call 617-217-2578.
On May 22 in Chicago, five law firms that have made significant progress in LPM will frankly discuss what has worked and what hasn’t at the fourth session of the Ark Group’s most frequently repeated event - Legal Project Management Showcase & Workshop: Changing Behavior within the Firm. I look forward to chairing this session so I learn what these experts have to say:
Sari M. Alamuddin, Partner, Morgan Lewis
Vincent Cordo, Global Director of Client Value, Reed Smith
Stuart J T Dodds, Director of Global Pricing and Legal Project Management, Baker & McKenzie
David Schaefer, Deputy Chair, Loeb & Loeb
Donald R. Ware, Partner, Foley Hoag
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, the Partner in Charge of Knowledge Management and Legal Project Management at Winston & Strawn LLP
"The greatest benefit of the workshop was hearing from others about what they are doing and how they are responding to the same market challenges that we are facing. Brainstorming solutions together was useful because it helped me to walk away with some ideas that could be adapted for our firm." - Christine Johnson, Director of Client Matter Management at Quarles & Brady LLP
Implementing LPM successfully is more critical than ever. For years, clients have been asking firms to apply LPM to produce more predictable costs, and lower costs. (For example, see my recent post about two client surveys.)
But many firms that have invested heavily in LPM awareness training have been disappointed by the results. Here’s what the managing partner of one AmLaw 200 firm I interviewed for my new book Client Value and Law Firm Profitability had to say:
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.
Many firms have learned the hard way that while it is easy to teach lawyers about LPM, it is very hard to change their behavior. On May 22 in Chicago, five experts in implementing LPM will discuss how they have succeeded. At the end of the day, they will lead interactive small group discussions on: “How to Identify the Most Effective Action Items for Your Firm.”
For more details, download the brochure, see the Ark Group’s web page or contact Ark’s Peter Franken at email@example.com or (312) 212-1301. For a special 15% discount, just write “LegalBizDev Discount” on your order form and subtract 15%, or ask for the discount when you order by phone.
Using existing staff to perform these functions
Some firms have adopted a different approach, preferring to utilize the skills of people already on their staff to run project management and pricing:
Pricing has become a big part of our portfolio, but it’s done by an MBA who has been here for a long time, who studies pricing and speaks about it.
For some time, we’ve had a group within the firm that we refer to as our practice economics group. They have been tasked with serving as a resource to practices, client teams, relationship lawyers, and the like, to help with the kind of analysis that is important at the front end, figuring out how to respond to an RFP or to price a project. But as time has gone on, the services that the group provides have expanded to include various types of knowledge management and process management efforts as well. They can help design reporting systems, feedback loops, and the like, so that a team can stay current with real time data as the project proceeds, to know how they’re doing against a budget or a bid. We think that capacity has been extraordinarily valuable to us. More than 20% of our revenues at this point come from alternative fee arrangements, including some very large fixed fee engagements. Our comfort in moving more significantly into that arena, particularly taking on some of the engagements where clients have used fixed fees in conjunction with a very strong push to reduce costs, has been very much influenced by having not just the up-front analytical ability, but a team that can work with the client and engagement team to help successfully manage those types of projects.
We hired a new CFO within the past few years, with a focus on identifying someone who could really help us do this kind of stuff. So we haven’t really created a new position but we’ve begun to focus on that type of analysis.
Recognizing the need to do more in this area
Eighty-six percent of the firms that commented on this issue reported that they plan to do more in this area. The exact details vary from firm to firm:
We are thinking about making the process more formal, centralized around a pricing director. A lot of law firms, ours included, have administrators embedded in larger practices. But we need to recognize that if you have, say, a $200 million corporate practice by revenue, you should probably have someone acting like a CFO for a $200 million subsidiary of a $600 million enterprise. Therefore, you want someone who can help drive pricing, process efficiency, technology, and balance sheet management – the sorts of things that a CFO would do in a subsidiary in corporate America. I think that role needs to be morphed out of the general administrative function. The issue is that the skill sets are very different, and that leads to difficulty, because you’ve got long-tenured administrative staffs who have been very helpful over the years but who don’t necessarily have the skill set needed today. So then it can become a question of whether you add incremental cost to the enterprise to fill these new roles.
We haven’t added any new internal staff positions. What we’ve done in all of those areas is to have existing people engage as best they can on a catch-as-catch-can basis. The problem is time management and just getting it all done otherwise, but it is what it is.
I don’t think we’re where we want to be, because we’ve got to hire somebody. As much as I try to do it, I’m just too busy.
Clearly, this trend is growing and evolving quickly, especially in relation to pricing.
This two-part post previews results from my book Client Value and Law Firm Profitability, which will be published this summer. All quotes are from managing partners, chairs, and other senior decision makers at AmLaw 200 firms. Each participated in 30-minute in-depth interviews and spoke freely based on the understanding that they could review their quotes before publication, but they would not be quoted by name.
As law firms compete aggressively with their peers by offering more value to clients, many are establishing new staff positions to oversee pricing, legal project management, and other aspects of the “new normal.” A few weeks ago, we reviewed the book Law Firm Pricing: Strategies, Roles, and Responsibilities about the rise in pricing directors. In our research, we asked more generally about new staff positions in several related areas and found:
|Do you have new internal staff positions in pricing, value, legal project management, and/or related areas?
|Hired new people
||Used existing people
||No one devoted to these functions
Hiring new staff members to meet new needs
Many firms reported it was a very successful move for them to hire people with the right business backgrounds and to empower them to use their skills to help the firm make crucial decisions on pricing and on efficiency. Consider this testimony from the managing partners of two AmLaw 100 firms:
I think what’s had the greatest positive effect is our business managers. They can much more impartially sit down and analyze profitability. They build up a database of what it costs us to do things, and they’re just invaluable. They work with enough lawyers, they’re able to focus on the numbers and their minds work differently. I think we’ve been very effective at actually developing tools to help people price things. It’s a pretty basic tool, but the lawyers say it is very sophisticated and very helpful. I see it as Finance 101, but I’m glad the lawyers like it. So I think what’s had the greatest effect is the non-lawyers who really are focusing on the business side of the equation and what it costs to do things; pushing back, and helping lawyers have a little bit of backbone. They can now show them a model and say, No, that’s too low, you’re going to lose your shirt.
I think that the role we’re asking our client value director to play, which is part consigliore, part expert, part preacher, is going to have a very positive impact, not just on the project management, but on the pricing side, including a better understanding among the partners about what agreeing to certain conditions means. I think we’ve made a lot of progress on this because we’ve had to, but we still have a long way to go.
Senior managers from three other AmLaw 200 firms added this:
On the pricing side, it’s been one of our great successes. We have three people working on pricing. Two of them are analysts who initially were hired just to be analysts, but we’ve now developed them to the point where they communicate directly with clients. They’ve become fairly sophisticated in understanding not just the pure data side, but also recognizing the differences among clients and how they view our relationship. And that triggers what price arrangements they are or are not willing to offer. As the firm’s CEO, I spend five or ten percent of my time on pricing issues, either working directly with clients or dealing with our lawyers in trying to think about how we should price something. It’s worked out well for us.
We now have a pricing director, and he and I really split the work. He’s incredibly effective with my partners and very good. It’s an interesting job that we both have, trying to facilitate partners’ entrepreneurial instincts and helping them to get business, while guiding them in the transition into this new world of pricing. But we’re also the police for bad deals. He’s fantastic. He has a staff, and we do this function of reviewing every non-standard pricing matter, checking the assumptions, checking the projected profitability. And that’s a critical part of having a strong value-based billing program, especially as clients are expecting, really demanding, alternative fee structures.
We’ve added three positions in the last two years related to pricing and value. The person who heads our group has experience doing program and project management in the software industry, but also has a finance background. So we’re starting to get into the project management side. I think it has been successful, because three years ago we had a lot of difficulty in winning fixed fee and other alternative fee cases, and now we’re getting more of them. We never really did that before.
Part 2 will appear next week and will include quotes from senior management at firms that are assigning new responsibilities in this area to existing staff rather than hiring new people.