Tangible Advice You Can Use to Implement BI to Improve Law Firm Profitabilityaderantuser
by Richard Rawls Senior Consultant, Business of Law
It was my job to maximize collections. My former employer was a law firm, and the leadership would often ask me to predict if we were on track to meet our monthly and annual target collections.
The challenge of course, as any allied legal professional will acknowledge, was that I didn’t manage client relationships – the lawyers did. This meant any process improvement project like business intelligence (BI) aimed at forecasting and improving collections had to involve the lawyers.
We started in the finance department and began analyzing accounts receivable (A/R) balances. First, we focused on the simple aspects you might see in a typical A/R report such as the size and age of the balances. Then we started to examine more in-depth metrics such as the following:
- How quickly a client paid on average?
- How often that time varied from the average?
- How much work we did for the client historically?
- How much were we currently doing (WIP)?
- How did these compare by area of law?
- How did these compare by client industry?
As a team, we worked with the firm’s leadership and lawyers to develop deeper, more meaningful metrics. For example, we engineered a rating system for estimating how likely a client was to pay in the current period. As the lawyers rated individual client accounts, we grouped those by category: “collection opportunities,” “at risk,” and “not likely.”
The output was a dashboard-style analysis with a collections forecast to share with the lawyers – that they helped produce – that would direct their attention to specific groups of accounts. We asked lawyers to focus on the “opportunity” and “at risk” categories. It wasn’t long before the collections realization percentage began to improve – and in the course of doing so, lawyers were able to provide more specific information that helped us fine-tune overall accuracy of the forecast.
It started as a small project but quickly grew to be adopted as standard operating procedure across the firm. As we collected more and more data, we were even able to get ahead of the problem. For example, we identified trends that reduced the probability of collection, pointed these out to the lawyers, who in turn would spot these indications earlier and work to resolve them before an A/R account became problematic.
Process Improvement Rather than Software Implementation
The collections process is a good candidate for a BI project because it’s a vexing challenge for many law firms. It was among the top five billing challenges – right alongside eBilling and outside counsel guidelines – respondents cited in the 2018 Aderant Business of Law and Legal Technology Survey.
As an industry, we know a poor collections process hinders law firm profitability because if you’re not converting WIP-to-Cash, you can’t possibly make a profit. A report by the Citi Private Bank Law Firm Group found a “slowdown in collections” was the primary drag on an otherwise solid year in 2017. If you recall, that was the first truly upbeat year the industry has experienced in a long time – it saw growth in demand, revenue, billing rates and realization – but was tainted by collections.
While the collections process is a good target for a BI project, this concept can be used to analyze and improve many law firm processes. Therein lies the key; think about implementing BI not as a software implementation, but as a process improvement effort.
A Four-Step Framework for Implementing Law Firm BI
It’s important to remember BI is an environment. This includes technology and tools but more importantly, it’s the process of actively using the information to drive business decisions. Effective processes get that way through gradual improvements. It’s a cycle – a feedback loop –that spans planning, implementing, obtaining feedback and then adjusting.
Generally, it’s best to start with a small, manageable project and grow it by capitalizing on the little wins. This is because law firms tend to have long memories. If you go big with a project and falter, it can derail the effort before it ever really gets a chance to prove itself.
To that end, I recommend a four-step process for methodically rolling out a BI project to help a law firm.
1) Identify a specific issue.
Good projects begin with a well-defined problem. The more specific you can be, the better. Too often I’ve seen firms begin with a goal of improving law firm profitability. While that’s a noble endeavor, there are many factors that go into profitably. Identify and separate those factors so that you can pick one and focus your efforts.
Good examples include improving realization or gaining better leverage. A caveat I’d offer is that financial-oriented projects like profitability aren’t the only worthy candidates. I’ve seen firms use BI to improve business development, diversity and mentoring programs.
Whatever project you chose, don’t try to solve everything at once. Instead, focus on one or two specific issues, work to achieve some success, and then grow the program from there.
2) Understand the users.
The next step is understanding your users. First, consider the scope, whether you want to first approach a narrow group in one department or a broader group dispersed across multiple departments.
Your chances of success are better with a group that is both more likely to adopt the project and to benefit from it (see chart nearby). In the example at the beginning of this post, we included a specific group of what we call accounting “super users” and the lawyers with influence over collections.
Who exactly is in this group will vary based on the project, and your user understanding analysis. Key considerations for analyzing potential user groups include the following:
- Who will benefit from the project the most?
- What skills do users have and to what level?
- How do users prefer to receive and digest information?
- When will you have your users’ attention?
- What degree of influence or control do your users have over the issue?
- Are your users empowered to make decisions and at what level?
Since lawyers are likely to be a central group, keep in mind that they are trained to analyze information critically. They don’t have time to dig through reports, so it’s important to provide direction and perhaps even defined tasks.
3) Match the tools to the users.
This step is where you begin to form a pilot group and assign roles. With BI you’ll need members of the IT team, such as the data source owners. The data owner will understand the nuances of a data set and help ensure that the data is clean. It’s important to remember that people using the output of a BI analysis, like lawyers, probably aren’t responsible for entering the data or managing it.
Key considerations for this phase include:
- Provide relevant training that avoids disruption;
- Encourage and seek out feedback; and
- Identify metrics for adoption, usage, and overall success.
Success in BI should be characterized when the information outputs are driving user actions rather than when the outputs are provided. In other words, success is when users are using the information. When you’ve matched the business intelligence software to the user, you start to develop a natural feedback loop – plan, implement, obtain feedback and adjust.
4) Build on success.
Lawyers and law firms operate on precedent, so success in one practice group will be significant to another. This is why the fourth step is to build on success.
If you’ve had a successful pilot program, you need to find ways to promote and advertise that success internally. Consider other early adopters that may influence any holdouts (see chart nearby). Success provides third-party validation that helps convince the rest of the firm that the concept is not only possible but will also improve outcomes for everyone.
If there’s a caveat here, it’s to keep in touch with that original group in the pilot. As things change, be sure to continuously gather feedback and iterate.
BI as an Extension of the Law Firm
In the law firm example that opened this article, we gave the BI program a name. This might seem like a minor point, but it matters because it encapsulates all the of the steps above and more. A branded program helps weave it into other functions of the firm and shift the focus from implementing a software tool – to improving processes efficiency across the firm. That’s a tried and true path to improving law firm profitability.