[After receiving some valuable input from a pricing person I trust and have great respect for – I made some edits to this article. Thanks Eugenia.]

I have had several epiphanies of late, and they reverberate back to almost everything I have been doing to drive innovation in the legal industry over the past many years. At its core, what I’ve realized is that I’ve been missing something fundamental about measuring value.

The legal industry has struggled to put its arms around value. Implicit in this struggle is the idea that the data we have been collecting contains something of value to measure. But if that’s true, then how do we explain the many, mostly futile, attempts which have been made to measure value? One prominent example is task codes, those magical bits of metadata that are somehow supposed to divine value from thin air. As we all know, the promise of task codes has been largely unrealized.

Many other, similar attempts have been made to measure value. None delivered.

Before I share my epiphanies, I want to disclose that I am now the CEO of NextGenLPM, which provides Legal Project Management (LPM) coaching and consulting services. In my previous life as a Chief Practice Management Officer at a 1,200-lawyer firm, I had hired NextGenLPM because I viewed them as the best option for LPM training, primarily because they provided in-line coaching with real client engagements. NextGenLPM takes a practical approach that helps lawyers and LPM professionals solve actual problems in their practices, producing real-time, real-world improvements. Since most of my LPM team had direct client interactions, I wanted the best-in-market education for them. I also wanted to demonstrate my commitment to their careers. It was a good investment: Not only did our LPM team develop best-in-market LPM skills, but the firm was able to retain a highly skilled and valuable team.

Back to my epiphanies

When I looked at the scoping/budgeting process within a law firm, I realized that attorneys, as well as pricing and LPM teams, struggle to develop functional scope for each engagement, which means the fees they establish lack a certain foundation. The problem is that even though attorneys are the legal Subject Matter Experts (SMEs) and have interaction with clients who ultimately determine value, they do not have – or are willing to spend – the time to develop scope for a meaningful budget in collaboration with pricing and LPM teams.

So, what do pricing and LPM teams do to support attorneys?  They try to establish scope by extracting some level of information from lawyers (the SMEs), then they do their best to instill confidence in the lawyers, so they are willing to set their fees at a realistic level. Even this backwards approach can deliver a very high ROI. A case study by one of my former pricing managers revealed an annual ROI of $7m per pricing manager.

But two problems persist:

Problem #1 – Subject matter expertise rests with lawyers, so most attempts by pricing or LPM teams to define scope are highly challenged without attorneys’ active participation.

Problem #2 – A budget without scope and a work plan is meaningless.

And that was my first epiphany: No Scope = No Real Budget.

Scope defines value: It identifies what the client wants, and ultimately how much the client is willing to pay for that. The work plan details what work must be delivered, and it forces the team to be thorough in their analysis of how best to provide value before the work begins.

As I thought about this more, I had a second epiphany: Lawyers (SMEs) must establish scope and a comprehensive work plan at the beginning of each matter to have something to measure against.

For years, we have been looking at historic data thinking we could find some magic in the numbers. But I see now that looking at past matters is an ineffective way for determining scope for future matters, because we are literally measuring against nothing.

After-the-fact scope does not – and never will – determine the scope of the next engagement. Using this outdated approach does not offer the type of precision we truly want, because every legal matter is unique. Lawyers must scope out each project, or set of projects, at the beginning.[1]  Only then do we have a true foundation to measure against.

It’s not in the data

To better describe the current situation and the importance of these insights, consider the following axiom I’ve been hearing for years: “It’s in the data.” We have presumed that law firms are sitting on piles of useful data, and they merely need to analyze that data to discover ‘truths.’

However, I can categorically say, ‘it’ is not in the data. For years lawyers have challenged me to analyze data to determine what price should be set for a given engagement. I remember the first time I was assigned this task. Back then, I was naive enough to think there was gold in the data, so I enthusiastically jumped at the chance. The challenge was to analyze single plaintiff employment litigation cases to determine how these types of matters should be priced.

First, though, there was a fundamental data problem: I was unable to pull matters of this type from the system. Why? Because the metadata codes in place were C.R.A.P. (a technical term meaning … ‘Codes Reimagined As Poop’). The data wasn’t useful because the people who were responsible for assigning the codes didn’t care which codes were used – only that matters were opened promptly.

So, the only way I could find a baseline set of matters was to ask the practice group partners directly. The partners were given basic parameters for the type of case we wanted to analyze. I received 35 matters in response to my request. I then dove into the analysis, only to be greatly disappointed. What I discovered were fees ranging from $9k to $900k with no useful median. Not to be deterred, I started calling partners to better understand how such a wide range of fees could come from this well-defined, curated set of matters.

The disappointment continued. The $9k matter was a result of a deceased plaintiff. Otherwise, the matter met our constraints. Next, I called on the $900k one, thinking it would be some high-level employee as the plaintiff. Nope. It was a frontline worker. In this case the client was concerned about setting an unfavorable precedent with a court loss, so a $900k fee was fine by them.

Given what I now know, I look back at my efforts and feel stupid (not a technical term). What I was trying to do was set a price by analyzing scope after-the-fact. But what I had truly discovered – and failed to recognize at the time – was that there was ‘no scope.’

I’m embarrassed to admit that I continued to analyze matters in this way for several more years. It was roughly 6 years ago that I stopped doing that, telling partners it was a waste of time. But even then, I failed to realize the real, core problem:

Without scope and a work plan, there is nothing to measure against. There is no way of defining value for the client. It is impossible to manage to a budget unless the budget is based on scope and a detailed work plan because, without those things, there is no foundation. Without a foundation, we are measuring against nothing but thin air.

That, in a nutshell, embodies my epiphanies. No definition of scope and no work plan equals useless budgets, leaving no way to manage to a budget or to identify scope changes.

Adding fuel to the fire is the fact that 99% of client outside counsel guidelines (and I’ve read hundreds of them, by the way) require budgets, but they do not require collaborative scope setting, statements of work (SOWs), work plans, or a process for addressing scope changes.

So, what needs to change?

Lawyers need to substantially enhance their LPM skills in scoping, planning, managing to a budget, and identifying and communicating scope changes.

Consider something as simple as a scope change. The work that needs to be done on matters frequently changes, yet lawyers rarely discuss these changes with clients in real-time. I suggest that if you’re a corporate client and your outside counsel doesn’t proactively come to you with scope changes on a regular basis, you have a problem. These lawyers are not engaging in LPM, and that’s costing you money. Regardless of how good these lawyers are, you will continue to have uncomfortable, after-the-fact discussions about write-offs because your outside counsel lacks sufficient LPM skills.

Okay, I may sound harsh, and please don’t get me wrong: Lawyers have some LPM skills, and they do, in fact, use them. The problem is that their LPM skills are extremely limited because most lawyers have never been effectively trained in LPM…ever. So, what do these lawyers do?  Typically, they develop matter plans, which include components of scope. I’m not sure we can say they manage to these matter plans. It’s more of a changing landscape where they are always adapting their matter plans as the situation evolves, and then they subsequently communicate these changes to the client after the fees have significantly increased, much to their client’s dismay.

At this point in the story, I fully expect that any lawyers who might be reading this article will suggest that this LPM skillset should reside with the pricing and LPM teams, since LPM is not a “lawyer skill” in their minds.

And now it’s analogy time. Project Managers (PMs) in the broader sense are not expected to be SMEs in all or any of their projects. In fact, they can’t and shouldn’t be. Instead, they rely on SMEs’ knowledge for developing scope. A PM in residential construction, for example, is not an SME in electrical, plumbing, or finish carpentry. PMs work with SMEs to develop a functional scope.

In the legal world that same approach works … provided lawyers have baseline LPM skills to define scope and are willing to leverage their unique subject matter expertise.

But you should also consider that not all engagements rise to the level of needing a dedicated LPM person but are better suited to practicing lawyers who have sufficient LPM skills which, as an additional bonus, also makes LPM scalable.[2]

Or you might think of it another way: Whenever a partner writes down significant fees, there’s a major failure somewhere along the line, whether it’s improperly scoping the matter, failing to develop a well-thought-out work plan, or failing to notify the client of scope changes. When a lawyer writes down a large fee, it reflects that lawyer’s LPM knowledge gap. Essentially, write-offs are the penalty (the “damages,” if you will) that law firms pay because their lawyers have insufficient LPM skills. 

A bonus epiphany

LPM is a collaborative process. To successfully deliver value, in-house lawyers and law firm lawyers must enhance their LPM skills and collaborate together. A collaborative LPM process might look something like this:

A law firm partner leverages her LPM skills and firm resources to develop a proposed SOW for the matter. The partner then schedules a meeting with the client lawyers and operations people to review the proposed SOW. The client team shares input and suggestions. The partner accepts the changes, as appropriate, and then returns an updated SOW, including any adjustments to the budget. Finally, the two parties sign off on the budget and SOW.

Now the partner finalizes a work plan with her team to execute on the SOW. This plan is also shared with the client lawyers, so they know what to expect and when. Work then begins with the outside counsel performing tasks. Best practice dictates that the two sides are meeting and communicating regularly, so the client is aware of the status and efforts being made and how they are aligned with the plan and timeline.

Invariably, scope changes occur. But with this new collaborative process, these changes are obvious when they occur because scope is widely known and understood by all parties who are communicating regularly. Most importantly, client lawyers make decisions about whether they agree to scope changes (and how much they’ll pay) before additional work is performed and fees incurred.[3]

This pragmatic, collaborative approach is much better for the project and the relationship. Instead of tension and friction, firm lawyers and client lawyers engage in upfront communication using a proactive approach before a significant deviation in price occurs.

The result

When lawyers enhance their LPM skills, everyone wins.

Clients know what they are getting and how much it will cost – exactly what they have been requesting for years.

Law firms create improved client relationships and better realization.[4]  Firms move the discussion away from “reducing costs” and “increasing discounts” to client value, where the discussion truly belongs.

Both in-house lawyers and law firm lawyers need to enhance their LPM skills. Admittedly, law firm lawyers need more LPM expertise than in-house lawyers. However, in-house lawyers need sufficient LPM skills to effectively manage outside counsel.

Lawyers with superior LPM skills are better lawyers. They are more effective at defining and meeting their clients’ needs. They communicate more effectively about matter progression and desired outcomes. And they create better financial outcomes for their firms. For lawyers to represent their clients’ best interests – and deliver real value – LPM skills are now a necessity, not a luxury.

[1] It’s relatively easy and not overly burdensome to define scope at the beginning of each matter.

[2] Scalability is significant because it means the LPM team is better able to implement LPM throughout the firm, and the pressure on the team to provide support to all firm lawyers is greatly reduced. Also, the LPM team does not have subject matter expertise, so the SME lawyers will be responsible for establishing scope and creating detailed work plans, as they should be. As lawyers become more proficient in LPM, the LPM team will play an even more prominent role in the firm as lawyers gain a better understanding of LPM’s importance to the bottom line.

[3] Without LPM, scope changes frequently occur, but no one raises the issue because there is no well-defined scope at the beginning of the matter. Then, 3 months later, the client receives a higher-than-expected bill, they are dissatisfied, and the law firm writes off fees, all of which can be easily avoided.

[4] In one case study, Baker McKenzie found a 6% increase in realization when utilizing LPM in engagements.