12/1/09

AFAs: Inputs vs Outcomes

I thoroughly enjoyed Steve Levy’s ITLA web seminar this Monday on Legal Project Management. Of course the subject of Alternative Fee Arrangements (AFAs) came up and the inter-connection between them and legal project management was discussed. A noteworthy point from Steve was the need to focus on outcomes. He highly recommends that any legal project developed a thoughtful ‘done’ statement which clearly describes what it means for the project to be … done. By doing this you focus your resources (inputs) on getting things ‘done.’ To illustrate the point Steve shared a classic economics story about how the Soviet Union measured success by the amount of inputs being used and not by the outcomes. Factories were rewarded for using materials (inputs) instead of supplying needed products (outcomes). His point is that trying to change outcomes by tinkering with inputs is not a good approach. If you want a different outcome, start by re-defining that, not by fiddling with the inputs. To their misfortune, law firms reward inputs. And you get what you reward – in this case billable hours. Although clients are rightly upset with this situation, they are equally culpable as they focus their attention primarily on hourly discounts and lower billing rates as a means for changing the outcomes. If clients truly want to change this situation, they should follow Steve’s advice and shift their attention to outcomes. Tinkering with rates and hours may save a little money in the short run. But if they truly want to change things, lower their costs and drive value, clients will need to sit down with law firms and redefine their outcomes. Happily there are some exceptions and good examples for clients who get this. But the vast majority are currently content to ask for discounts and rate freezes. Albert Einstein defined insanity as “doing the same thing over and over again and expecting a different result.” Clients and law firms would do well to heed the advice of Steve Levy to focus on outcomes and in the process avoid the insanity described by Mr. Einstein.

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