Page 132 - Leaders in Legal Business - PDF - Final 2018
P. 132
that these nonstandard, haphazardly entered codes have created a mess, adding to the difficulty
of understanding internal data and doing effective client value management.
As new standards have not developed, a best practice approach is to develop a list of
phases. If the client uses a specific code set, you need to have the lawyers use the client’s code
and otherwise use the firm’s code set. In U.S. litigation, leading firms are using eight to nine
phases. For transactions, most firms use the new ABA Mergers & Acquisition Code Set for all
transactions. Since most client code sets are more detailed, it is possible in most cases to map the
client code back to the firm phases.
Modeling Margin
As firms continue to discover, based on annual declines in overall revenue per lawyer
figures, matters can quickly become unprofitable when simple discounting is used — see the
chart below.
Raising rates and discounting is not working over the long term. Firms have more
recently instituted approval processes to make sure that work being undertaken is profitable.
Such processes typically require modeling at the client or even matter level. Often, a highly
discounted client rate will also require each individual matter to be modeled to ensure that it can
be delivered profitably.
While firms may not necessarily share matter costing models with their partners, most
finance teams will typically create them. The models determine the cost per hour to perform
work and provide a simple mechanism for computing profit margin. The numerous different
approaches to calculating cost models require their own separate white paper. Without such cost
models, the only other mechanisms for measuring profitability are via combinations of
realization/recovery and leverage/gearing.
118
of understanding internal data and doing effective client value management.
As new standards have not developed, a best practice approach is to develop a list of
phases. If the client uses a specific code set, you need to have the lawyers use the client’s code
and otherwise use the firm’s code set. In U.S. litigation, leading firms are using eight to nine
phases. For transactions, most firms use the new ABA Mergers & Acquisition Code Set for all
transactions. Since most client code sets are more detailed, it is possible in most cases to map the
client code back to the firm phases.
Modeling Margin
As firms continue to discover, based on annual declines in overall revenue per lawyer
figures, matters can quickly become unprofitable when simple discounting is used — see the
chart below.
Raising rates and discounting is not working over the long term. Firms have more
recently instituted approval processes to make sure that work being undertaken is profitable.
Such processes typically require modeling at the client or even matter level. Often, a highly
discounted client rate will also require each individual matter to be modeled to ensure that it can
be delivered profitably.
While firms may not necessarily share matter costing models with their partners, most
finance teams will typically create them. The models determine the cost per hour to perform
work and provide a simple mechanism for computing profit margin. The numerous different
approaches to calculating cost models require their own separate white paper. Without such cost
models, the only other mechanisms for measuring profitability are via combinations of
realization/recovery and leverage/gearing.
118
