Page 12 - Law Society of Hong Kong MPMC Manual v8 - With checklists (1 March 2018)

Practice Management Course | Unit 2
Financial Management

o 48 weeks per year (to take account of leave and absences) x
o 40 hours worked per week (to take account of actual hours
worked in fee producing activity) =
o 1920 chargeable hours.
o 1920 hours x blended charge out rate = fees budget
• This formula allows charge out rates to be adjusted up or down,
depending on the number of chargeable hours calculated and the
costs and profits that need to be included in the blended charge out
rate.

8. Method 3 is an effective budget setting method for financial performance, as all fee
earners are contributing to the profit goals of the practice.

Tracking and planning
9. A major concern in the day-to-day management of a law practice is the detailed
tracking of financial and finance-related metrics. Such tracking gives you a detailed
look at day-to-day performance of the practice, and thus allows you to make
adjustments to work processes to reduce costs and improve profitability. In
particular, it improves your awareness of how changes to staffing and billing
influence financial performance, and thus allows you to adapt flexibly and quickly to
such changes.

Time recording
10. The timesheet was the traditional means of tracking work product within a law
practice. Its importance was amplified by the fact that fees were traditionally
charged on an hourly charge out basis. Clients paid for the number of hours it took
for a task to be at the determined hourly rate.

11. However, although timesheets are no longer the sole basis for charging fees, the
timesheet-based billing model remains an effective tool for measuring employee
productivity and pricing legal services. Timesheet recording is needed to account for
the labour costs of production. After all, the traditional law practice business model
largely operates by leveraging people and hours, even though it uses fixed fee and
value billing methods. Timesheets also provide a simple way for a firm to account
for unanticipated additional labour costs involved in a case, and justify these costs
to the client, if there is a prospect of them being paid.

12. Timesheets therefore remain an important management tool, and we need to
understand their impact on the rest of the ‘work pipeline’ and, more generally, the
profitability of the practice.

13. Timesheet-based billing may sound straightforward and even rudimentary, but in
fact, there are many details that may stymie its effective implementation. When
implementing timesheet recording, it is crucial that solicitors and others promptly
and meticulously record their hours. A large law firm in a recent study estimated
that one tenth of a fee earner’s time is lost, if not recorded until the end of the day.
If not recorded until the end of the week, up to four hours per week may be lost.
However, lawyers are often reluctant to update timesheets promptly due to the
disruption to their workflow.

14. There are various ways time recording can be improved. For example:

© The Law Society of Hong Kong (2018) Page 8