Based on comments from the prior post, “The End of Write-offs?” I thought it would be a good idea to peel back another layer on this onion. The prior post was purposely over-simplified, to focus on the issues of AFAs and LPM. This post will better explore the impact of realization on profitability.
First-off – why is realization important? One comment to the post talked about 50% realization on $2000 per hour is still $1000 per hour. Although $1000 per hour sounds like a high rate, if the timekeeper involved is compensated as if they bill at $2000 per hour, that’s a different matter. The real issue is the relationship between compensation (comp) and billing rates. Rates need to cover comp, overhead and profit. This follows the basic rule of three where rates are broken down into three components: 1) comp + benefits, 2) firm overhead, and 3) profit (a.k.a. partner income). The general rule states that each of the three comprise about one third of the rate.
Functionally this means that every point off of realization means 3 out of profit, since comp and overhead remain the same. This also means that as you approach 67% realization on a timekeeper, a firm’s ability to make a profit disappears. So – $1000 per hour is fine if the timekeeper is compensated at a rate relative to that number. If the timekeeper is compensated relative to the $2000 rate, then 50% realization means the firm is losing money on this person. Since I don’t know many firms who run with rates that high compared to comp, it’s unlikely that $1000 per hour is a profitable rate for a firm in that scenario.
Another point made is that write-offs can come from clients that just don’t pay. This is absolutely true. I focused on write-offs in the prior post, since they are client-identified candidates for no or low value effort. However, write-offs occur for other reasons. It is also true that write-downs occur for multiple reasons. These may be ‘back door’ rate discounts or more likely recognition by the partner of low/no value work by timekeepers on the team. This is yet another prime target for LPM to tackle as it is typically time billed by associates but deemed not worthy of the client bill. LPM would suggest it’s a better idea to direct resources to certain tasks instead of condemning no-value tasks as worthless after the fact.
This was the main point of the prior post. Instead of targeting AFAs, LPM should be focused on eliminating and reducing no and low value efforts by lawyers regardless of the type of fee arrangement.
(The other, actually more important driver of law firm profitability is leverage. But that’s a topic for another post.)
On a final note – Anonymous comments “One additional point, write offs often come from clients that have no money. The client intake process is what needs to be addressed not LPM.” More importantly, I would argue that profitability needs to be addressed. Once that is a firm’s goal (instead of billables/revenue), then LPM, client intake and pretty much every other function at a firm will change. LPM is focused on a symptom – meeting budgets. The better focus is on profitability. That focus will drive real change for firms.

I sat in yesterday on an event hosted by LexisNexis on the webinar/virtual panel entitled “The Discipline and Benefits of Project Management.” The two panelist were Bruce MacEwan, Founder, Adam Smith Esq., and Tom Birsic, Partner and Litigation Practice Leader, K&L Gates, and both had a lot to say about the current state of Legal Project Management (LPM) for in-house and outside counsel. It was interesting to hear both MacEwan and Birsic discuss how LPM is basically still in its infancy and that currently there is a ‘fuzzy’ distinction between what lawyers consider case management, and what lawyers need to change in order to accomplish Legal Project Management. Subtle though it might seem on paper, MacEwan went on to say that the law firms that figure out that distinction and are the first to act and explain the value of LPM will be at a serious competitive advantage over their peer firms.

I’ll list some of my notes that I took while listening in below, but wanted to reprint the overview of the discussion first, as I think it lays out a good overview of LPM and what the panelists were focused on discussing.  Note: It was actually a video panel – vpanel – but the video was quite disappointing because it tended to freeze and make the panelists look like they were in the middle of a painful medical procedure. Apologies to Kevin, Tom and Bruce for posting this snapshot of the vpanel… but the video was pretty bad…

Overview of Panel:

Project management is nothing more than rationally supervising the process of 

  1. deploying resources 

  2. which have associated costs 

  3. against tasks 

  4. to accomplish specified objectives. 

Viewed this way, disputed matters and transactions are simply types of projects, albeit sophisticated ones. Learn more about how project management can help make alternative billing models more predictable, transparent, and effective, including:

  • Why your firm needs to focus on continually improving project management skills

  • Developing ways to more readily provide budget updates to clients

  • Ensuring that lawyers are skilled at clarifying and communicating expectations and guiding the engagement process

  • Implementing processes to review performance at the end of an assignment, or sooner, if need (“Lessons Learned”)

  • Applying the appropriate staffing model that provides the needed skills at an acceptable value.

My Notes:
Project Managers – Should it be current lawyers or should firms bring in actual project managers?
I was surprised right off the bat when Birsic mentioned that he thinks that firms that try to convert one of its existing lawyers into a Project Manager is not as effective as bringing in a “real” Project Manager. This made me wonder if this is one of those situations where this is a ‘factually correct statement’, but one that if you attempted to implement would fail due to firm culture? Kind of like the fact that cars with mid-engine, front-wheel drive chassis are the most efficient… but no one mass produces this type of model because no one buys them? 
Key to LPM is to have a process for rigorous “early case assessment”
Partners that establish procedures for creating early case assessment documents are working in the right direction for implementing LPM processes. The early case assessment document should be initiated within the first 45 days of the matter, and should be viewed as a ‘living document’ that will change over the life of the matter. This reminded me of Jeff Carr’s talk at the Texas Bar Association meeting where he said that he wouldn’t even talk with outside counsel unless they presented him with an early case assessment document that explained how the firm was going to handle this matter, and what the lawyers anticipated were going to be the overall goals and objectives for this matter over time.
Electronic Billing is one of the greatest tools of case management
MacEwan mentioned that the implementation of electronic billing is one of the best tools ever for managing cases. I’ve also heard this statement before when the issue of LPM is discussed. Why is electronic billing so important?? Most likely for two reasons. 1) It creates another logical process that shows the tasks, and the costs that those task create. 2) It is a de facto communication between the client and firm. Clients get a chance to see costs as they are created, and perhaps the ability to question those costs.
Are there trade offs between the quality of work and cost controls when it comes to LPM?
This is a question that is asked a lot when firms think about LPM. If costs are cut, doesn’t that essentially mean that quality will suffer? Birsic said that quality is not compromised when LPM strategies are used because your improving the efficiency, not reducing the quality of work performed. He did throw out the caveat of reducing quality at the Request for Proposal (RFP) stage by the client. If the client is pressing for price over quality of firm, then there might be a trade off at that point. However, Birsic specifically mentioned that LPM does not increase the overall costs for the client. If it does, then the client has either hired the wrong firm, or the wrong in-house counsel.
LPM is not stressed during the RFP stage — unless the RFP is asking for Alternative Fee Arrangements (AFAs)   
Birsic mentioned that he doesn’t really use LPM as a selling point for most RFPs. That changes if there is a request for AFAs, however, because the firm and client need to understand the overall process and costs of matters when deciding the fee structure on AFAs. Firms that have structured LPM processes in place are better equipped to handle AFA negotiations successfully, and to structure the metrics needed to evaluate how well the firm does in handling AFAs (did we lose money, break even, make money, make too much??) Birsic also noted that in-house counsel are very bad at these types of metrics in trying to determine how well firms have handled AFAs for them. 
LPM is here to stay… learn it, practice it, live it, or get left behind
Both MacEwan and Birsic didn’t hesitate to say that LPM is not a ‘favor of the month’ idea. LPM is here to stay and those in-house and outside counsel that understand and require/perform LPM practices will have a significant competitive advantage over those that pretend that the status quo is “good enough”. Just as with any other skill, the more you practice your LPM procedures, the better you will get at it.
Legal matters are expensive… LPM will help somewhat, but not make it cheap
MacEwan mentioned that sometimes outside counsel need to be realistic with clients when it comes to the cost of litigation or other legal issues. He mentioned that clients complain that outside counsel don’t understand the pressures that they are under to cut legal costs from the corporate hierarchy. Sometimes outside counsel need to frank with their clients and remind them that legal issues are expensive.
Case Management is not Legal Practice Management… but the differences are ‘fuzzy’
Birsic discussed the belief that most attorneys believe that they are conducting ‘case management’ on all of their matters, and that most attorneys believe that they are excellent case managers, thus do not need to do any LPM processes. MacEwan chimed in that the difference between case management and LPM is fuzzy, but that the firms that distinguish the difference, implement the processes, and act first will have a serious advantage in the marketplace.

In response to Mark Medice’s post – Yes, it is past time for law firms to re-think expenses. There have been a lot of discussions about firm’s cutting expenses. And an equal or greater number of discussions on being more efficient (even here on 3 Geeks). What is needed is a re-thinking that merges these two concepts in a thoughtful way.
Using my traditional car analogy – cutting the costs of the landscaping service around the car assembly plant and reducing travel by admin staff will certainly improve the bottom line for Ford. However, that approach does not address the real question of lowering the cost of producing the cars. This challenge requires re-tooling and modifying the production process. It also requires conversations with suppliers about the costs for their component parts of the car (think Westlaw).
Law firms (for the most part) have not dove in on these types of discussions. The way I challenge lawyers on this topic is by asking how they can lower the cost of providing a specific legal service (e.g. a patent prosecution). What would they do differently in order to delver the same or better product at 60% of the current price?
This question changes the nature of the “re-think expenses” question. It’s not about the attorney-to-secretary ratio or the leverage between non-partners and partners. Instead the conversation should focus on doing things differently. This method brings a sharp focus on choice of technologies, number and type of personnel and on how the service is actually performed (think legal project management, ala Hassett, Levy and others).
At the core, law firms are experiencing a shift from a ‘cost plus‘ business model to the ‘profit margin’ model referenced in Mark’s post. The law firm business structure still reflects a ‘cost plus’ world. So I give a resounding YES to the idea of re-thinking expenses.
‘Cost plus’ behavior in a ‘profit margin’ world equals failure.

Interesting topic going on over at the Hildebrandt blog on whether it is time to develop new ideas for measuring performance at law firms. In Lisa Smith’s post “Time for New Metrics“, she lays out some interesting new categories that law firms should develop to show how they are managing their business:

  • Firm Performance – what are the relevant measures of firm performance, including the profit margin idea above?
  • Expense Management – how do we measure the impact of changes in staffing models, leveraging technology in delivering services, outsourcing?
  • Practice Management – how do we compare the performance of practices who may have very different profit drivers and pricing models?
  • Partner Performance – how do we move from a billable hours and originations driven approach to measuring partner performance?
  • Client Development/Market Strength – how do measure success in strengthening client relationships?
  • Balance Sheet/Risk – can we assess the strengths and weaknesses of a firm’s financial practices?
  • Management and Leadership – can we measure the effectiveness of strategic, talent management and other initiatives? 
I’ve seen a lot of talk lately about how firms and clients are wanting to find ways to improve overall efficiency effectiveness of how matters are handled, and I’ve seen a lot of charts from consultants on methods to follow to improve efficiency and effectiveness. However, it doesn’t seem that anyone is putting these ideas into motion.
It reminded me of a story that a secretary once told me when I worked at a law school. She said that the people she worked for were very good at “getting their ducks in a row.” Unfortunately, they were not very good at “kicking the last duck in the ass to get them to go into the water.”  When that happened, she took it upon herself to do a little kicking to get things moving. 
Once again, someone has come up with a new method of looking at measuring performance, but it doesn’t look as if anyone is lining up to put this type of tool into action. If law firms don’t kick themselves in the rear and get moving… then they might find their clients putting on their boots and getting ready to do a little kicking in order to get their firms into the water.

Thanks to a tip from Jim Hassett, I had the opportunity to see a demo of the new beta version of Onit Project Manager. This system fits nicely with Jim’s “low hanging fruit” approach to Legal Project Management (LPM). Eric Elfman, a founder of the company, was nice enough to come by our offices and show us this new application.
First impressions: Simple and easy to use. Per my low hanging fruit comment, this is not your overkill project management software system. Instead it’s designed to fit within the existing work-day of a lawyer. As such, it has good potential to provide the first step into LPM for a lawyer or firm.
As a SaaS application, it also has a low threshold for adoption. As a free application, it’s something even Greg would use. So if you are looking for an easy, obvious first step into LPM, take a look at Onit.
Going forward, Onit will introduce an enterprise version with more administrative capabilities. Onit will also introduce a spend management system to complement the LPM offering.
Eric, as a founder of Datacert, understands this market and appreciates the needs of lawyers, firms and corporate legal departments. The application has some room to grow, so I will definitely keep an eye on it. Per Paul Easton, Onit is also looking for input from users, if you want to dive in even deeper.

Let’s assume for a moment that Legal Project Management (LPM) exists and we have an LPMer ready to go. Now let’s assume we have just acquired an Alternative Fee Arrangement (AFA) matter on a fixed fee. So … we’re ready to go?
Hold on there scooter. Not so fast.
Although the LPMer is the right tool, we haven’t given them enough information about the work yet to turn them loose on it. Even with a defined scope (which is typically quite vague in the legal world), the LPMer needs a bit more information before deciding how to allocate resources on the matter.
What needs to be decided is the matter legal strategy within the context of the budget. By this I mean the lawyer and client need to sit down and talk about ‘how’ these limited resources should be allocated. For instance, in an employment case should more money be spent early in the case to discourage the plaintiff and push for a quick settlement? Or should the case be drawn out leaving resources for the end of the matter when the plaintiff is desperate for a settlement check? Each option will fit a different client and circumstance. The LPMer will not know how to allocate and focus limited resources without this knowledge in hand.
This need for strategy information further highlights the growing need for lawyers to talk to clients about fees – early and often. Recognizing that lawyers generally do not like to talk about fees, in this situation they may have a higher comfort level. This puts a fee discussion in the context of legal strategy – something they LOVE to talk about.
Perhaps firms and clients should start talking about this case and fee strategy as a precursor and primer for LPM. It could serve as a middle step, where people are more comfortable. And it will provide knowledge critical to the success of our first LPMers.

Some recent posts on the hot and getting hotter topic of Legal Project Management (LPM) somehow reactivated some dormant college brain cells. After ‘enjoying’ 10 years of Economics I did my best to suppress those memories, but yet they still seem to pop up at the oddest times.
The concepts that came to mind were market requirements and differentiators. A market requirement is an asset or skill required to be a participant in a given market. If you’re a ditch digger, a shovel and the ability to dig would be market requirements. A differentiator might be an extra sharp shovel for digging in hard rock. In a market – a requirement gets you in; a differentiator gets you hired.
LPM, as such a new concept is an obvious differentiator – for the future. But my thought is that there is actually an immediate differentiator to consider when buying legal services. In my experience, some lawyers have innate project management skills, or they may have picked them up in a prior professional life. In any event, these lawyers know how to manage a legal matter to a budget and thus have a significant market differentiator right now.
If you’re a client, now is the time to look for these differentiated lawyers. You probably already know some, but may not have thought of them in this way:
Requirement: Excellent legal skills
Differentiator: Good project manager
As a client – recognizing and rewarding this differentiating factor may do more to reach your goal of saving on legal fees than discounts and AFAs will – especially in the short-run.

I had the privilege and pleasure of serving on the “60 Sites in 60 Minutes” closing panel for the 2010 TECHSHOW held last week in Chicago. This 60 Sites session is always fast-paced, fun and funny. Along with Debbie Foster (TECHSHOW Chair), Adriana Linares and Ernie Svenson, we dashed through web sites ranging from hard core legal tech to just plain funny. Check out the TECHSHOW site in the next few days for the complete list. For now, here’s my 15:
Above and Beyond KM is a blog about how law firms work and how knowledge management (KM) can help improve their efforts. Mary Abraham’s observations are based on her experience practicing law and then practicing knowledge management in a New York City firm. A “go-to” legal KM blog.
Steven Levy’s blog covers the emerging and dynamic legal project management space. For lawyers and firms looking to understand and incorporate project management into their practices, this blog is the one to watch.
Originally a legal marketing/selling blog, Jim Hassett has taken on Alternative Fee Arrangements (AFAs) in a big way. After surveying a large group of managing partners, he has produced the “The LegalBizDev Survey of Alternative Fees.” His blog posts include excerpts from the survey, making it a premier site to stay current on AFAs.
The legal research space is experiencing a dynamic shift. This site will keep you more-than updated on the current trends and resources in legal research. Joe Hodnicki has an interesting sense of humor and keen insight into what matters for legal research.
In the Fall of 2009, Google unveiled its free legal research offering, which got everyone’s attention. The site contains case law back to 1950 and you can even search by jurisdiction. For those times you just need to “pull a case” this is a simple and free site to do it.
Too often IT projects are all about technology and not about the business. InformationWeek is a great site that brings the business issues up ahead of the IT answers. It is self-described as covering “The Business Value of Technology” and does that very well.
The next time you need a basic understanding of a technology, come to this site. Or better yet, check it everyday to stay up on all the newest stuff. Additionally the site has excellent How-To Tips and Technology Guides.
Bruce Schneier on Security
When it comes to Security, Bruce Schneier is The Man. His site and blog give excellent threat updates, tips and ideas for staying ahead of the security game.
Free CLE is popping up in a number of places. One site for finding these programs is 4FreeCLE. The site indexes free offerings from numerous providers. The existence of this site highlights the trend and availability of free CLE from a number of sources.
American Marketing Association: Especially the Houston Chapter
Lawyers do well to look outside the profession for tips and ideas. One great source related to growing your practice is the American Marketing Association (AMA). A great example of an AMA chapter is Houston’s. The quality and number of resources and events is staggering. As well participation provides networking opportunities outside the legal market.
Did you know you can access the entire archive of Law Practice Magazine issues online? This treasure-trove of practice management articles has what is likely the most comprehensive list of law practice management resources any where.
Humanity produces some VERY interesting stuff. And OffBeatEarth is the site to see it. Check in everyday to see some of the oddest displays of human creation. You’ll find everything from “Awkward Family Portraits” to the art of dirty car windows at “Wash Me.”
Pretty much any question you might have about Internet stats will be answered at Royal Pingdom. This site captures all of the interesting internet trends and demographics. Questions answered: How much email traffic is spam? How does Facebook traffic compare to Google’s – world-wide? And, What are the age demographics for social network sites?
10 Minute Mentor from the Texas Bar
This site contains about 400 10 minute videos on a variety of legal topics. Although some substantive law topics are Texas-based, many are not. As well, more general topics like law practice management and technology are covered. And the best thing about these high-quality mentoring videos: they are free. [Hat tip to Jim Johnson for this one.]
Significant Cases Analyzed: Wikipedia
Next time you need quick access to an explanation of the law and issues involved in a major court decision, look no further than Wikipedia. Most major decisions have been fully explained, including the legal issues touched on, the lawyers involved, commentary and even links to relevant follow-up decisions and articles.

I always enjoy reading project management articles that are written for specific industries, and then seeing if they also apply for managing projects outside of those industries.  This morning I came across one such posting on one of my favorite blogs, Heavy Mental.  Although the post describes the ten keys of project management for an enterprise 2.0 project as presented at the Paris forum, many of these rules could be used verbatim in KM projects or IT projects or even Library projects.

1) Manage risks from the early stages of the project
2) Seek Executive supports
3) Know your business needs and address them
4) Knowledge sharing in complex and fast paced changing environment for distributed workforce is a common motive
5) ROI may be complicated to evaluate but some benefits are unassailable
6) Usability is key for quick adoption
7) Cross functional participation is critical
8) IT support is critical but IT Governance is crippling
9) Don’t use the S word
10) Top-Grassroot-Down is the new Bottom-up

Rules 1-7 are pretty straight forward project management rules that can be used in almost any project you’re managing.  Rules 8-10 are pretty specific to the Enterprise 2.0 project topic, but with a little modification could be used in almost any PM topic.  I do love how IT is specifically called out for being a necessary evil in this project, but let’s face it; almost everything we do needs some type of IT support these days, but doesn’t need to be run by IT.  This topic was covered in a post on the Cloud Ave blog called “The Art of the Enterprise: Marketing Shrugged.”  In that post, there is a hypothetical (at least I assume that it was a hypothetical) where one department did its best to boycott IT altogether because they did not want the project to go into the black hole of IT Governance.  

Rule 9 specifically uses the “Don’t use the S (social media) word” for this Enterprise 2.0 topic, but there are many taboo words when it comes to project management in specific areas.  I heard some KM managers say that they specifically no longer say “This is a Knowledge Management Project” to their attorneys or administrators.  We all know there are certain words or phrases that raise the hackles on the back of some necks around our firms, so the best thing to do is to come up with another way of presenting the project without using the taboo words that cause such negative reactions.

Rule 10 is worded a little strangely, but basically says that Top-Down and Grassroots-Up are both essential to managing successful projects.  Buy-in is needed on all levels and no longer can you force a project upon the end-users (no matter how great the project), nor can you make an unusable project work (no matter how enthusiastic the end-users are about the idea.)  

Regardless of your project, these are ten good rules that can be adopted to fit your needs.

Great post from Lisa Rohrer (actually Lisa told us it was from Carla Landry) at Hildebrandt Blog on “Is It Possible To Turn Lawyers into Project Managers? Or Will They Crash & Burn??” Toby and I have had a number of conversations on this issue and I’ve gone back and forth on this question. Lawyer know how to practice law, but do they necessarily know how much it costs to represent a matter? One answer that we got from Matt Homann, over drinks one night, was that actually if you asked a lawyer his or her “gut” feeling on how much we should charge for a matter, their gut answer usually comes out pretty close. Unfortunately, most attorneys are afraid to trust their gut, and instead ask for report after report of the ‘history’ of charges the firm has charged for similar matters, only to be overwhelmed by the data and winding up more confused, and their ‘gut’ feeling has turned into a pit in their stomach.

Rohrer Landry goes on to ask if it is possible to MAKE a lawyer a good project manager (PM)? My thoughts on the topic depended upon whether the “lawyer/PM” is a practicing member of the group, or a true project manager. If you try to pull one lawyer out of the practice group and say “Hey, you are now the Project Manager, make us efficient and tell us how much we should charge for services. Oh… and you’ll still need to keep up with your own practice at the same time.” Then this would fail. Project Management is not something that you do on the side. It has to be your primary (and sole) function.

If, on the other hand, you hire someone that happens to be a lawyer to be a Project Manager, then it could give him or her the respect from the lawyers in the group he or she is trying to manage. Of course, they’ll still need to perform a good job as a Project Manager.
If you decide to hire someone with an MBA and no legal experience and have them attempt to manage a law practice group there could be a perception from the group that the person might be a great project manager, but doesn’t know the industry. Maybe not a fair assumption, but lawyers are usually skeptical of non-lawyers trying to tell them how to do their business.
I guess in my scenario you are left with two choices for PM —
  1. Former Practicing Lawyer who is brought on to be a full-time PM
  2. PM (non-lawyer) who has some type of experience working with lawyers, or can at least speak the ‘language’ to the lawyers and prove that he or she does know how lawyers work
As firms try to wrap their heads around Alternative Fee Arrangements (AFAs) and determining the ‘costs’ of matters vs what to ‘charge’ for a matter, Project Managers are going to become some of the most valuable people in the firm. Tackling the issues of efficiency, effectiveness, return on investment, and changing some of the basic behaviors and cultures within law firms, it may take a lawyer to point out these issues to other lawyers. Kind of the old “it takes one to know one” adage.
Rohrer Landry leaves us with this question – “is it time to hire professional project managers?”
My answer is that it is definitely time to start talking about it.