Insight #2: Measuring the Health of a Law Firm

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“Most people use statistics like a drunk man uses a lamppost; more for support than illumination”

-Mark Twain



Insight objective:  To heighten awareness and engage in an objective data driven process of asking questions that matter most, throughout the law business life cycle. Focus on sustaining and improving the health of the business of a law practice. To embrace the joy of discovery in the process of improvement and simplification.

-Enjoy the journey.

How does one measure the health of a law practice, or any business entity for that matter? What key information is necessary? What are the appropriate questions to be asking? Unfortunately, the questions we typically ask ourselves are not always the right questions. We, by human nature, will take the path of least resistance to get from point A to point B.

Mark Twain’s quote above is actionable from the standpoint of heightening awareness of our own bias in rationalizing a circumstance in order to avoid change. Twain's insight is relevant today, where people have more opportunity and incentives to make decisions that are not in their best interest. What Twain refers to as illumination requires change to ones ways and habits of doing business.

In other words, we tend to listen to what we want to hear to strengthen our own belief system. In order to ask the proper questions and for the data collection and interpretation process to be useful, we need to start by adopting a beginners mind without the curse of knowledge. Start by asking the primary first principles questions. The five whys can also help to explore the cause and effect relationships throughout the continuous improvement and simplification journey. The quagmire we fall into is in our questions, interpretation, our subjective version, of the information we are looking at. It’s like that old lawyer joke, if you put four attorneys in a room and ask them a question, you’ll get five answers.

More on The Cognitive Bias Codex

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vital signs

The health of a business is very similar to managing your own personal health. There is vital information (critical data) one needs to assess their physical condition. Heart rate, blood pressure, age, weight, body temperature, respiration, etc. Health care providers have tools (measurement systems) that measure the body’s “data”. That data, or vital signs, are then analyzed by an expert and a course of treatment is determined to correct any data results deviating from optimum efficient.

Just like the human body, activity in a law practice generates data. What kind of data?  Lots of different kinds. Data is by definition “facts and statistics collected together for reference or analysis”.  These data will fall into lots of different categories.   Tracking every single category can get pretty tedious and for the most part, unnecessary.  Just like in the human body. You don’t need to know the length of your big toe, unless there’s a problem with your big toe.

So, what data should we, as attorneys, be looking at or consider to be important to the success of our firm?  Where you are in the business life cycle of your business of the practice of law will determine which categories of data are of a higher priority for collection and analysis. Key Performance Indicators (KPIs) can be the objective evidence of progress toward an intended result and support your decision making. Focus on iterating to develop just a few KPIs in the area of Quality, Cost and Delivery (QCD).

  • Operational Quality KPIs

  • Client Referral KPIs

  • Financial KPIs

relevant data

Data can be anything from the number of clients and total revenue to something as benign as client zip codes.  For instance, If you’re just starting out in your law business the number of clients you have, the hourly rate you are charging, and the time frame needed to complete each matter are more important than demographics.   If you’ve been at this a while more pertinent data to analyze might be client cost acquisition or whether to charge hourly rates v. flat rate fees. All data has some relevance and potential intrinsic value of data, the age of each client, how they found you, the type of service they are seeking, etc. Data can be transformed into information and knowledge when it is viewed in context or in post-analysis.

The critical data for each firm will differ a bit depending on the area of practice. For instance, litigation firms may want to track court docket data and predictive e-discovery tools in their analysis. Whereas most firms will also want to use data from past billings and matter management systems to predict the cost of a matter and determine an appropriate fixed fee to the client. Analysis of this data will also provide insights that will help make decisions regarding staffing, overhead, fee structuring, and the intangible assets discussed in our Insight #1: Estate Planning for Your Law Practice - What's your end Game?, such as building business reputation, brand recognition, customer and supplier relations, employee knowledge, and other internal processes.

Asking the proper questions

At the highest level, a common objective no matter what stage of development your law practice business, is providing superior representation to clients, efficiently achieving results, and getting paid. Some data relevant to this objective is time tracking. How much time was spent on a particular matter?  How much is your hourly rate? What was the non-reimbursable cost on each matter? What was the net revenue created on each case. What was the profit margin, or loss, on each case and why? These are only an example of some of the questions to consider. Questions that help identify the performance of your law practice business in various areas of QCD.

“If I had an hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper question to ask… for once I know the proper question, I could solve the problem in less than five minutes.”-Albert Einstein

Once you’ve identified the proper questions to ask then a capable measuring system is needed to collect the data that will be used for decision making. Measurement Systems Analysis (MSA) can be used to quantify the measurement uncertainty, including the accuracy/bias, precision and reproducibility. Once you can trust the measurement system and the created data as being objective and repeatable then you can use it to help answer the questions and guide you to the next questions.


So, where should you start?

The beginning is a good place. Start by asking questions. Lots of proper questions. How did I get my clients? What can I do to get more clients? How can I work more efficiently? How much time am I spending on a matter? How do I track that time? Is there a better way? Begin with a beginner’s mind and objective self assessment by journaling

  • For example, when billing a particular task or activity, is it just time spent on the task, or does it include time identifying the task, gathering materials necessary to complete the task-files, research,etc., formulating the thought process while getting a cup of coffee, undertaking and completing the task, then memorialize and bill on the task. All of a sudden a “5 minute” task actually took 35 minutes from beginning to end, not including any interruptions or distractions.

  • As another example, documents are sent to Court for filing. The documents contain an error and are returned by the Court. They somehow inadvertently end up on a table in the back room where they sit for weeks unattended before they are discovered. The delay in re-processing the documents and getting them filed with court could prove to be disastrous to your client, not to mention other delays such as getting paid.

  • Develop and implement a specific process and procedure for receiving and processing mail focused on dramatically reducing risk of quality errors and delays. Moving to a digital storage system and notification system rather than or in addition to maintaining a physical file system can be an efficient remedy to the above example.

The key here is that all processes must be measured analyzed to gain understanding and undertake a simplification process. Start by asking the proper question, measure and analyze that data to help answer the question or lead you to the next questions. Then countermeasures can be developed and implemented.

Review prior billing history for each type of matter. Determine what the appropriate and necessary time budget and cost is for each matter. Every law firm has a mountain of data. The key is to identify the data that will help with future planning, not necessarily what you think is important. Organize the data in such a way that it will be more useful information.

Establish an objective baseline. Once you have a baseline, you can start tracking critical parameters and trends over time to help you discover approaches to simplify, automate and in some cases redesign and eliminate the process and tasks that detract from productivity.

Becoming data driven

Like everything, once you have all this data, clean objective data, you are then empowered to look at your practice with a different perspective. You'll be able to see what’s working, what’s not, and what needs to be changed. In order to obtain the reward of your efforts in gathering and analyzing the correct data, you’ll be able to identify not only strong areas, but weak ones too. Obviously, the weak ones (processes that are non -productive, or revenue-draining, for instance) need to go. Remember, a critical factor in obtaining the reward is to enjoy the practice of learning and improvement process.

The journey does require change,  a change in the way you think about and perceive your law practice. Change that is based on facts rather than hunches or personal biases. Rely on the data to help drive your critical decisions in future planning for your firm. For many of us attorneys this may be counter-intuitive. When you think about it, we went to law school and learned the law. We didn’t get a degree in law business management, and to think like a entrepreneur. That’s a whole new educational process, but it's one that we all need to embrace to truly have a successful healthy law practice.

Let’s not lose sight of the “why” we’re analyzing this data.  The goal is to build a more complete management system, and to continuously improve organizational performance.

INSIGHT CALL TO ACTION

Engage in an objective data driven process of asking the proper questions that matter most throughout your law business life cycle.

-Enjoy the journey…

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