Greg and I were talking over lunch recently about the role of Legal Project Management (LPM). The more I have dug into this topic, the more skeptical I have become about its role with AFAs. The common wisdom is that the fixed fee aspect of AFAs will drive the need for LPM. On its face, this common wisdom makes sense. But after facing the issue head-on in recent dialogues, I have come to a different conclusion.
LPM should be directed at unprofitable work, regardless of the type of billing arrangement. Pointing LPM at all AFAs is like saying all oil leaks come from cracked engine blocks, therefore all oil leaks require engine replacements. Having seen 100’s of AFAs, I can tell you most of them will not benefit that much from LPM.
But LPM does have value. The real question is where is LPM best deployed? To answer that question, let’s talk law firm econ 101. Two primary factors impact law firm profitability: Realization and Leverage. For this discussion, we will focus on realization. Realization is the difference between standard rates billed and money collected. So if 10 hours of work is done, but a firm only collects on 80% of that fee – realization is 80%. Three things impact realization: 1) Discounts, 2) Write downs (before the client sees the bill), and 3) Write-offs. Of the three, write-offs become an obvious place to start, because that is time billed that the client saw on the bill but obviously found no value in. Or in other words, the client is saying that work should not have been done.
Bingo! That is one of the primary roles of LPM – making sure only the right tasks are done.
My advice for getting the most out of LPM efforts: Large and consistent write-offs are strong indicators of cracked engine blocks, so pick your large matters with the biggest write offs and point LPM at those.