Quantcast
Archive for AFA – alternative fee arrangement

Toss out the Book and Innovate

By on December 16, 2012

You already know the famous saying, “do the same old thing, the same old way and get the same old results”. This is never truer than during challenging economic times. The market is full of businesses just like yours and the customer needs to make a choice. Your same old message, based upon your same old business plan may no longer resonate and you’ll be at risk of losing out to the businesses that innovate. Innovation is clearly a method of differentiation.

Every CEO and business leader will claim that their business innovates; they will cite a few new initiatives in their annual plan. However there can be a huge gap between plans, efforts and actual results. I won’t use companies like Microsoft, Google and Apple to prove that innovation works, they might be outliers, although you might be amazed what “outliers” have in common by reading Malcolm Gladwell’s book on the subject.

Let’s instead look at Blinds.com, it started as Laura’s Draperies with Jay Steinfeld trying to sell blinds and shades door to door, a really tough gig. He built his first web site in 1993 and by 1996 was selling products over the web as NoBrainerBlinds.com. In 2004 Jay changed the name to Blinds.com and the business was growing. A defining moment came in 2007 when Jay introduced a real innovation, on-line videos explaining how to properly measure a window and then install a blind. Blinds.com now has a complete library covering dozens of “how to” video’s that make buying and using their products risk-free.

I could go on and on with innovation stories, even law firms have examples of innovations. Some are offering Project Management services to help align efforts and results with their clients. Other are offering self-help like Goodwin Procter, a Boston-based firm providing startup entrepreneurs and venture capitalists with free documents and tips on best practices on a site called Founders Workbench. Can you imagine that, free advice and forms.

Here are 5 ideas to keep in mind when deciding on innovation projects.

  1.  Get Away. The best way to come up with innovative ideas is to completely get away from your normal daily grind. Find a place to just goof off, clear you head and turn off the cell phones and email. Set-up a creative environment that allows people’s minds to ask why and why not.
  2. Plan on Failure, and Fail Early. Everything we do in business is to avoid failure, but innovation can’t exist without at least a tolerance for failure. Businesses can accept pilot project that are innovative and then structure the roll-out to test for failed concepts. Nobody should feel threatened for a failed innovation.
  3. Alignment. The best innovations are where the business aligns their core capabilities with the customers’ needs. What are your core strengths, what value can you provide your customer? In the case above, Goodwin aligned their expertise in helping emerging companies grow with an entrepreneur’s desire for self-prepared  documents.
  4. Ask Why and Why Not. Question everything, look at the client experience. When I think of Heinz ketchup I think of the bottle being upside down, makes it much easier to use. I’m not sure they invented this concept but someone there must have had a eureka moment. Turn things upside-down and see what happens.
  5. Leadership and Change. Make sure that you have CEO driven projects, or at least find a Vice President of Change in your business to help provide the leadership necessary to make innovation in your business an on-going process, not just an annual event.

When starting out, look for small “hits”, you don’t need a home-run in your first at-bat. These will come as you build a culture and track record for innovative ideas.

 

 

Comments (0)
Categories: AFA - alternative fee arrangement, Best Practices, Legal Marketing, Management, Productivity

It Wasn’t About AFA’s

By on May 6, 2012

I recently hosted a, standing-room only client discussion at Aderant’s Momentum on AFA’s. The funny thing was that the discussion turned out to be not about AFA’s (Alternative Fee Arrangements) but about Project Management and Profitability Modeling. Sure, most of the firms in attendance were already providing their clients with AFA’s, one large UK firm even indicated that about 50% of their litigation was now fixed-fee work.

What firms wanted to hear about was how they could better manage projects and use matter planning tools to predict profitability. Many of the firms that contributed to the discussion were already rolling out matter planning tools, almost like “job costing” tools to their attorneys. One can note that some industries like construction have used job costing tools for years to bid on and then manage ever-more complex projects. Law firms can learn from these experiences while using similar tools.

Here are the key takeaways from this session:

  1. AFA’s are just a pricing model for services
  2. AFA’s require a commitment to project management, most importantly resource management
  3. Matter planning tools allow the firm to use past matters to help predict both the process and staffing levels for future projects.
  4. Managing attorney resources most often involves moving work down to the lowest practical levels within the team.
  5. Partners on the team who are doing associate level work will cause problems.
  6. Project Management will allow the team, and possibly the client to see actual dollars worked vs. budgeted. However, the key
    component normally difficult to determine is, estimate to complete.
  7. An AFA fixed fee should also mean “fixed scope” of work.
  8. Most participants indicated that in litigation, Most AFA fixed fee work was all done pre-trial. Once the case went to court, firms
    operated on a traditional hourly basis.
  9. AFA’s can be used as either loss-leaders, or marginally profitable, as a way of getting more profitable trial work.

Comments (0)
Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Productivity

How Matter Planning Actually Works – Part 2

By on February 26, 2012

In my blog posting on Matter Planning – Part 1 we examined how using Matter Planning software can leverage existing information in their time and billing software to build easily a “roadmap” for revenue, hours, rates, costs and expected profit for a new matter. In this posting we’ll look at how to manage the matters and track budgeted vs. actual performance statistics to then better forecast future matters.

There are key components to managing a matter once the plan is in place, they include:

  1. The ability to report on actual to budgeted revenue, hours, costs and profit at any moment or at defined thresholds. For example, we have hit 50% of the hours budgeted for a matter, however we are only completed 30% of the work. An immediate red flag goes up.
  2.  The ability to do “what if” scenarios by, for example, swapping a lower rate attorney for a high rate attorney in the plan and quickly seeing the influence of the change.
  3. The ability to set-up workflow and alerts that notify various people when for example, a new matter intake is processed for approval and requires a matter plan, or a variation in the actual to budget has transpired.
  4. The ability to run a P&L for a matter comparing actual vs. budgeted revenue, internal costs and profitability at any point in time.
  5. The ability to run reports showing larger selections of matters, clients or other criteria to get a higher level view of multiple projects.
  6. The ability to apply a prior, similar matter plan to a new matter with few keystrokes.

The bottom line for firms is that Matter Planning software automates an otherwise almost impossible task of planning and managing a matter to a detailed budget to provide the firm with more predictable results and improved profitability.

Comments (0)
Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Management

How Matter Planning Actually Works – Part 1

By on February 19, 2012

Firms are increasingly being put under pressure to deliver alternate engagement models, such as fixed fee arrangements or discounted rates, to win new business. In addition to this clients are demanding more transparency in the on-going handling of their matters so they can see for themselves the progress being made and the justification for work undertake.

Before we start to describe the Matter Planning process let examine some benefits firms should experience by using Matter Planning software.

  1. Improve forecasting accurately by leverage historic data on like matters or tasks.
  2. Reduce the risk of taking on matters that will result in lower margins than expected.
  3. Introduce a repeatable process that provides control and discipline in the business development process.
  4.  Reduce the costs and time to respond to prepare an RFP or Alternative Fee Arrangement (AFA).
  5. Drive more new business at a known level of profit.

 Firms can attempt to do matter planning with crude tools such as a spreadsheet or Microsoft Project. This sort of planning can handle the scheduling component of any plan but completely misses the financial analysis requirements. A spreadsheet could be used along with normal time and billing software that offers matter level budgets, however this becomes the start-from-scratch method and it may take years to develop a profitability model that can be manually maneuvered to do a forecast.

 Matter Planning software provides the ability to go back in time and search for similar matters that can then link to provide an immediate historic prospective for a future matter. Convenient links include such items as:

  • Phase and Tasks
  • Specific attorneys and attorney levels
  • Matter rates and actual internal costs
  • Hours recorder and actually billed
  • Disbursements

 After using the Matter Planning software tools the firm can easily develop a “roadmap” of revenue, hours, rates, costs and expected profit for a potential new matter. The firm can now present the client with a comprehensive financial matter plan.

 This however is just the beginning, in How Matter Planning Actually Works – Part 2, we’ll look at how to manage the matters and track budgeted vs. actual performance statistics to then better forecast future matters.

Comments (0)
Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Management, Productivity

Win-Win AFA’s at Work – Stage Engagements

By on November 12, 2011

We are hearing from more and more firms, especially those doing insurance defense work, about how they have implemented an Alternative Fee Arrangement that seems to be a good compromise. We’ll call it Stage Engagements and it’s quite simple. A firm will take on a volume of matters from a carrier in trade for a fixed fee for various early stages of each case. Each stage has a start and end point, the end point is a “triggering event”. There can be multiple stages prior to outright litigation.

Here are some examples of triggering events:

  1. End of the “Presuit Period”.  This is a specific date, sometimes extended upon agreement of the lawyers.  But typically it is 90 days from the notice of intent.
  2. X dollars for all work up performed up to the first three depositions including plaintiff’s deposition.
  3. X dollars for work performed during the phase of trial preparation.
  4. X dollars for work performed during the initial discovery up to and including the plaintiff’s deposition.

 The Client Wins. Clients are looking for fixed price, especially in early case work. The early stages tend to be very low cost to the client and with a fixed price, outside counsel has no incentive to delay, or expand the scope of work required. Clients maintain the option of handing-off the case to another litigation firm if it deems the case if too complex or risky for the early-stage firm.

 The Firm Wins. Even though the firm doesn’t make a lot of money on the fixed price stages, it does position itself to inherit the case if an early settlement can’t be reached and the case goes to trial. As we all know, litigation scales up the value proposition and the billable hour normally rules. Furthermore, with the volume of work being acquired, firms can push the work down to the lowest practical level of competency, build best practices and use technology to keep internal costs down.

 Here are some tips to firms looking to take on Stage Engagements:

  1. The first key is to clearly identify what tasks are required in each Stage. Keep in mind that fixed scope = fixed fee. Any material “out of scope” tasks or turn of events requires a re-negotiation with the client.
  2. Normally a Stage isn’t billed until it is complete. Firms need to figure in the impact on cash flow when taking on a large number of new files. Also keep in mind that clients are taking 45-90 days to pay even under flat fee arrangements.
  3. Most modern legal billing systems will easily allow a firm to track all time entries in WIP for any Stage, and then simply bill them at a fixed fee amount. The timekeepers working on the matter get their utilization (hours billed) calculated based upon the fixed fee and see some sort of adjustment. More advanced systems might send an attorney a SmartAlert email when 90% of the budgeted fixed fee has been worked. SmartAlerts might also be sent to billing when a triggering event takes place from the Docketing system, notifying them it’s time to bill.
  4. Firms can run internal reports comparing profitability (or the lack of) on not just the Stages, but also on the entire matter if it goes beyond Stages and becomes hourly billable. The idea here is to look at the big picture, not just small chunks.
  5. Improving internal processes and lowering costs will give firms the inside track on their competition securing additional work, use this as a key component of your business development process.

 Fixed fee work doesn’t sound very innovative; however this Stage Engagement approach can be a simple win-win for both sides while we all invent a better set of AFA’s.

 Let me know what   you have experienced in Stage Engagements.

Comments (0)
Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Management, The Legal Market

What is Your “Rate of Change”?

By on October 30, 2011

 Jack Welsh, the former Chairman and CEO of General Electric once said:

 “When the rate of change inside the institution is less than the rate of change outside, the end is in sight.”

  It reminded me how hard it is for a law firm to make changes, especially in the areas of finance and practice management. The claim is that law firms have been trailing behind corporate America for many years in such areas as; innovative use of technology, development of business and marketing plans, and communications with clients, and now Alternative Fee Arrangements. Many times it is frustrating to see firms hang onto the status quo for no good reason. Why is this?

  One reason might be that firms don’t have a “Vice President of Change”.  Successful corporations all have these people, many times there is on-going competition among the up and comers as to who is the best or most compelling Vice President of Change. You can probably guess, of course, where I’m going with this …. there really isn’t anyone with this actual title. The Vice President of Change is the brave soul who is willing to risk rejection, humiliation and being labeled as “not understanding” by just trying to improve the way things have always been done.  

  Law firms don’t control the rate of change on the outside; they can however embrace a Vice President of Change internally. Encourage attorneys and staff to be creative and propose changes that will benefit the firm. Let them know that the Vice President of Change is a welcome position.

Comments (0)
Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Management, Practice Management

Changing the Billing Paradigm – Parts 10 (Final): Cover Letters on Client Bills

By on July 24, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss idea of adding a cover letter to the front of a bill.

The idea of drafting a personalized cover letter and attaching it to the monthly bill is just outright misguided. What is the purpose of the cover letter? An attorney should be communicating with the client on a routine basis, the client should feel comfortable that they know what’s going on.

 The idea of sending a personalized cover letter with each bill does nothing more than slow up the billing process, cost the firm cash flow and may allow the attorney to think that he/she is actually communicating with the client. The fact is, that anything important the attorney needs to communicate to the client probably can’t be put in a general cover letter that passes through the accounts payable department in any case.

 The firm might be better off setting up a policy that says a billing attorney must call a client, on every final bill after a matter has closed or any bill over $xxxx dollars to explain it personally to the client.

 In summary, cover letters on bills really don’t serve the intended purpose and only delay the firm’s cash flow.

Comments (0)
Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing

Changing the Billing Paradigm – Parts 9: Getting Bills to the Client.

By on July 17, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue getting the final bill to the client.

Here is how to improve cash flow and profitability by dealing with getting the bill to the client in the shortest possible time:

  1. The issue here is that the firm has done the work, incurred the hard costs and now wants to get paid. Unfortunately the firm can’t get paid until the client has had adequate time to process and pay the bill.
  2. Where possible, firms should try and get enough retainer in advance to cover the next month’s fees and costs. Therefore, there is never an accounts receivable.
  3. The second best option is to get the client to accept an emailed bill. Emailing a “pfd” copy of a bill is a major improvement in cash flow and profitability.
  4. Another option is to provide all client bills on a secured web site like greenlegalbills.com, send them an email with a link that will automatically take them to the site and allow them to download the bill themselves. Emailing bills is no longer a novelty, businesses are doing it everywhere. 

 In summary, the faster a client gets a bill  the better cash flow a firm will have,  and attempt to get all clients to accept email bills instead of paper copies.

 In the final post of this series will briefly discuss delays in the billing process due to personalized cover letters.

Comments (0)
Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing

Changing the Billing Paradigm – Parts 6, 7 & 8: Dealing with the entire Pre-billing Process

By on July 10, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue of the entire pre-billing process.

 Here is how to improve cash flow and profitability by dealing with both the pre-bill process and the attorneys who review the pre-bills:

  1. The entire pre-bill review process is, quite frankly a poor process to start with. Why do you need to review a pre-bill, what are you looking for? Time entered against the wrong client/matter, time that can’t be billed, lousy narrative …. this is like taking every car off the production line and having to redo poor workmanship in the QA department.
  2. Should bills be reviewed, maybe the larger, more complex ones. If the billing attorney properly supervises work done on his/her matters, a complete pre-bill review should not be necessary.
  3. Pre-bill reviews should be done to match the continual billing throughout the month as covered in my earlier post.
  4. Print pre-bills on a slightly off color paper so that they are real easy to recognize on a crowded desk. .
  5. Set a pre-bill review deadline, for example 3 business days after delivery. Enforce this review time. Where possible allow secretaries to edit narrative for all pre-bill changes and accounting can do such things as adjustments and transfers. Maintain an ongoing list of all outstanding pre-bills by billing attorney, if they are late contact them or their secretaries and work out a timeframe for submission.

 In summary, getting pre-bills reviewed and ready for billing is the final critical step and sometimes the most costly one.

 In the next post we’ll look at finalizing bills and getting them to the clients, why is it a problem and what can you do to improve the process and become more profitable.

Comments (0)
Categories: AFA - alternative fee arrangement, Best Practices, Law firm billing, Productivity

Changing the Billing Paradigm – Part 5: Dealing with Soft Costs.

By on July 4, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue of processing billable soft costs each month.

Here is how to improve cash flow and profitability by dealing with soft costs:

  1. Soft Cost items include such things as copies, faxes, phone calls and postage. Many clients no longer pay for soft costs, they assume that the billable rates charged by firms (should) include these office costs. When a partner is billing $500 – $1,000/hr. it’s almost embarrassing to ask for $0.20/copy.
  2. Charging for soft costs is highly unique to law firms, can you name another business that does this. Law firms would accept this from their vendors.
  3. So, what should a firm do to improve profitability? If your firm really deals in a lot of soft costs items negotiate a flat fee or % of fees as soft costs charges. For example, 2% of fees is deemed to cover all soft costs charges. You should first check with your state bar associations to see if this is acceptable.
  4. Getting rid of soft costs also saves money on all the “cost capture” equipment currently used in the firm and all the maintenance contracts, along with labor to download and process these costs.

 In summary, get rid of soft cost, negotiate rates with clients that will cover any revenue lost through these. Trust me, your clients will be happier when they don’t see an extra $100 attached to their bill for “office functions”.

 In the next post we’ll look at dealing with the entire pre-bill process, why is it a problem and what can you do to improve the process and become more profitable.

Comments (0)
Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Productivity
Next Page »
Gallery
ist2_5516813-business-people-joining-their-hands ist2_7730216-library-tables ist2_11425109-business-woman-with-colleagues-at-the-back
Blogroll
Follow RainMaker