Page 19 - Law Society of Hong Kong MPMC Manual v8 - With checklists (1 March 2018)

Practice Management Course | Unit 2
Financial Management

lawyer
3. Explain how this affects I now think you (the client) are:
the client • at risk
• at a disadvantage
• presented with a new opportunity
4. Outline a course of To prevent that from happening (or to make that happen), I
action or alternative think we need to …
courses of action
5. Listen to your client. What do you think?
6. Outline probable If we don’t do it, I think …
outcomes of not
undertaking extra work
7. Propose a revised What I propose is …
course of action based [Rephrase what you think you need to do, picking up on
on your client’s input what they value from step 5.]
8. Get the client’s Do you agree?
agreement [Check that they understand and that they really do agree.]
9. Specify the extra costs The extra costs of this will be:
[Set out the amount and explain the value from the client’s
perspective attached to the extra work]
10. Document their Do you still want to go ahead?
agreement and the
revised estimate

Impact of leverage and growth on financial performance
54. Leverage is the ratio of senior to middle to junior staff in a practice. This may seem
like a relatively mechanical issue, but in fact it is perhaps the key strategic choice
that a law practice faces. The choice of leverage ratio has far-reaching implications
for short-run and long-run financial performance and on the quality of work
product. How a practice is leveraged will have an impact on:

• Recruitment strategy – the level of expertise required.
• Business development – the type of work they need to win to suit staffing
ratios.
• Systems development – the precedents and workflow systems needed to
suit type of work and staffing ratios.
• Operations and infrastructure – space and technology (including software
licences) needed to suit type of work and staffing ratios.
• Service delivery costs and therefore profit.

55. In theory, there is a relationship between growth and per-partner profit. Indeed,
many practices will concentrate on (and inform their decisions by using) the
formula: Hours x Rates x Heads = Potential Revenue.

56. In reality, the relationship between growth and per-partner profit is more
complicated. In David H. Maister, Managing the Professional Service Firm (Simon &
Schuster, 1st ed, 2003) 8-20, the author shows that when staffing is increased
proportionally and the mix of client matters and the leverage structure remain the
same, per-partner profits actually stay the same.

57. Often, with an increase in staff, a law practice cannot maintain the same overheads
and partners cannot maintain their hours because they need to spend more time
supervising team members and winning business. As a result, bigger is not
necessarily better with respect to profitability.

© The Law Society of Hong Kong (2018) Page 15