26 Aug The LPM Maturity Model
The LPM Maturity Model
Five steps to transform your firm into a client-focused business through legal process management
You hear the drumbeat of the client-focused model driving you toward legal process management. Clients are looking for firms to price and deliver services that fit their tolerance for risk in the most efficient manner, while staying within budget and producing excellent results. You understand that legal process management (LPM) is critical to the future of your law firm, but you don’t know where to start.
For many practice areas, the ultimate destination is the adoption of the principles of project management and continuous process improvement (e.g. Lean Six Sigma). But for others, less will be required. The stopping point will depend on the pricing pressure being applied.
Employment law practice and patent prosecution groups across the industry have been facing downward fee pressure for years, and, as the pressure continues to mount, these groups will be forced to adopt Lean Six Sigma principles. Why does pricing pressure exist for one practice group and not another? The reason has less to do with the type of service being delivered and more to do with the client’s experience in purchasing a particular service (e.g. employment discrimination). As clients purchase the same service over and over, they begin to understand how much the matter should cost and how much effort it should take. The reason that employment and patent prosecution groups have such pressure is that most clients have been purchasing the same services year after year and have become savvy shoppers.
Merger and acquisition (M&A) work has received less pressure across the industry. However, there are some large technology companies that have been making 30 to 60 acquisitions per year. These tech companies have gained tremendous experience purchasing M&A work and are applying significantly more pricing pressure than a client who makes an occasional acquisition. A client who has less experience in purchasing a particular service may use RFPs to get competitive quotes (no different than getting multiple quotes to remodel a kitchen) or a database to get better pricing intelligence.
Model provides framework
The transition to a state where a practice area is consistently using project management and process improvement does not happen overnight. It is too large of a cultural shift. Firms need to understand that lawyers need to make transitional steps to reach the ultimate end point. The LPM maturity model provides a framework to work with your individual practice and help you to think through the transition.
Step 1: Budget and monitor at the matter level
Understand Effort to Cost
Do you know what your work costs to perform? With the billing process traditionally happening four to eight weeks after the work has been performed, the result is a disconnect between the effort and cost. A timekeeper may have spent tens to hundreds of hours on task that adds no value to the matter and must be written off. The effort of building simple budgets and then monitoring the results will begin to build a familiarity with costs and the effort required. Constant monitoring also gives lawyers the opportunity to stop duplicative work or tasks that the client considers of little value.
For many lawyers, the first step of creating a budget is intimidating. A simple starting place is with the amount the client is willing to pay for the matter. The budget is then built by identifying the people or timekeeper classes who will work on the matter. Based on these inputs, the number of hours can be calculated. If a lawyer believes that too few hours have been allocated, he or she can:
- change the resources to cheaper ones ( e.g. 5th-year to 3rd-year associates);
- make the decision that a certain number of hours need to be written off;
- discount the rate;
- increase the amount.
Another option is to build budget from the bottom, using hours and resources. This is a more daunting task for many.
Once a budget is established, the lawyers working on the matter should be sent at least weekly reports that indicate their progress against the budget.
With either approach, the goal is to get lawyers to quickly begin to look at matters through key performance indicators (KPIs). The minimum set of KPIs at a matter level should focus on leverage (e.g. non-partner hours versus partner hours) and realization (achieved or target revenue ÷ hours at current rate). Ideally, the lawyer should also look at matter profitability (cost per hour ÷ revenue per hour). Matter profitability provides a more accurate representation of the profit achieved from a matter. Realization can be highly misleading. In fact, a matter where the realization is low but the leverage is high will likely be profitable.
Step 2: Service deliveries and phase development
Going Deeper for Monitoring and Pricing.
This first level of breaking down your processes into matter types and phases is the most important step in your LPM journey. The goal is to have more granular budget and monitoring while enabling the firm to leverage past experience for pricing future matters. The two critical tasks are defining the services the firm delivers (mergers & acquisition, discrimination litigation, securities filings, etc.) and then defining what are the discrete phases that occur within each of these matter types. For litigation, here are some sample phases:
- Initial Investigation
- Motions on Pleadings
- Discovery (Written, Document, Depositions)
- Summary Judgment
- Pre-trial Prep
Clean data is the key to coming up with metrics that will guide your decisions moving forward, so it is important to get it right. In describing service deliveries, the firm should look at using a couple of different fields to describe a matter. The first is matter type (typically litigation, transaction, advisory, and regulatory). The second is area of law which describes the subject matter (employment, finance, etc.). The matter sub type is the actual service delivery or what service is the client purchasing from the firms (employment discrimination litigation). The final field should be a tag field that describes the unique elements of the particular matter (age, sex, timely filing). The advantage of this model is that you can start benchmarking shared phases between the matter types.
Step 3: Monitor and identify your obvious inefficiencies
Paying attention pays off
It is amazing what you find out when you really start looking at who is performing work on matters. From the “stupid stuff” or low-hanging fruit – is it really cost-effective to have a partner schedule that deposition instead of a secretary? – to the more complex issues that drive up the cost of a matter, simply tracking and monitoring will reveal a wealth of information.
What are some complex issues that can drive up the cost of a matter?
- Partner expansion – A partner is asked to handle a small item for a case and it gets expanded far beyond the scope, often going unnoticed until all the hours are entered and the matter is over budget.
- Failure to assign or explain a task properly – When a task is misunderstood and carried out incorrectly, it can lead to expensive re-work.
The act of budgeting and monitoring builds a learning loop that starts creating a linkage between the task and the effort. Through the process of bringing the lawyers closer to the data, they will learn more about the true effort of the work, which positions them for the next step.
Step 4: Identify common tasks across matter types and build a budget using these tasks
Know your verbs
Across different types of matters there are the repetitive “verbs” or tasks that you do. Regardless of the type of matter, the process you follow to answer a complaint should always be the same. You follow the same steps when it is time to take a deposition. The classic activities in taking a deposition would include:
- Schedule deposition
- Pull hot documents
- Review documents
- Review other depositions
- Prepare questions
- Take deposition
Once you have identified the steps in the task, the next step is defining the base amount of work. In the “take deposition” step, you would want to determine the base length of the deposition that you want to take (e.g. one-hour deposition testimony) and the increment (e.g. each additional hour of deposition). In order to take a one-hour deposition, what would be the amount of time spent in preparing for it and who would be doing the work (e.g. 3rd year, 4th year, partner, etc.)? Once you have defined the base amount work, you need to determine how much more work would be required for the increment (each additional hour of deposition testimony). Once you identify these common tasks, you can easily build a matter budget from the bottom up.
The work of defining the tasks for different matter type and sub-types is an advanced task. The investment in developing these tasks can be significant. However, the payoff is more effective budgets based on more detailed matter planning. How fast a particular practice area embraces this approach will be based on pricing pressure. Once this step has been taken, matters can be managed to a checklist.
Step 5: Manage your matters with checklists
Build a Plan. Deliver to Plan.
This is the sweet spot in your LPM process and adoption of Lean Six Sigma principles. You know what your work costs to perform. You have broken down the phases and tasks. You have weeded out the obvious inefficiencies and built templates that allow you to craft a matter budget in a snap. The next step is to use the task templates to actually drive the work process. The team will now work from a checklist of tasks and activities. This presents full visibility of the expectation of time for a particular activity and drives rapid understanding when there is a mismatch between the allotted time a for a task and the actual work. There is now a greater visibility as to the current status of the matter by simply reviewing the checklist.
This level of detail now gives the practice area the ability to truly hone and improve its process to gain greater efficiency. For most, we see the evolution to this stage of maturity will be a multi-year process. However, the benefits will result in true competitive advantage.
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