Metrics enable effective manage of legal service delivery
For law departments and law firms there are hundreds of measures and metrics from which to choose in order to measure legal service delivery. Metrics arm law departments and law firms with data to demonstrate value provided and a return on investment in overhead. The use of metrics can be an extremely powerful way to evaluate and manage performance. The key to creating a meaningful performance measurement program is to identify a manageable set of measures and metrics that align to current objectives as well as capabilities.
There are many companies and associations that compile data from law departments and law firms and publish that data. That data is often used by many law departments and law firms as the criteria for metrics because those sources provide comparable benchmarks. We've even published our own this year. Get your free copy here. Most of the commonly discussed metrics for legal service delivery are really high-level and fail to drill down into the details of how law departments and law firms are actually performing in the delivery of legal services to their clients. Most are financial related such as:
- Total Legal Spend over Revenue (for law departments) or
- Profits Per Partner (for law firms)
These are good things to track and great place to start but they really don't tell you that much. They don't tell you if the law department or law firm:
- has too much or too little capacity,
- are or are not cost effective,
- how quickly or slowly they produce work product,
- how well do they forecast cost (performance to budget)?,
- whether the client had a great or poor experience (likely to provide repeat business), or
- whether the legal staff is engaged and feels valued.
Total Legal Spend over Revenue and Profits Per Partner are akin to Price over Earnings (if you're looking to buy stock of a publicly traded company). They're good to know and make for easy comparisons between law departments and law firms but why is that ratio going up or down? What does Total Legal Spend over Revenue or Profits Per Partner tell a law department or law firm about how well they are delivering legal service? To figure that out you have to drill down deeper into more meaningful metrics.
19 metrics that matter
In our experience, here are the 19 metrics that matter for law firms and departments when delivering legal services. Here they are broken down in 4 main categories--Operational, Client Service, Talent Management, and Financial:
Operational metrics allow you to draw a clear picture of workload and associated trends. Is there too much available capacity? How quickly or slowly is work product being produced?
- Total # of matters open in a given year
- Total # of matters open in a given year by matter type or practice group
- Total # of matters closed in a given year
- Total # of matters closed in a given year by matter type or practice group
- Average cycle time of matters (# of days elapsed from opening to closing)
- Average cycle time of matters by matter type or practice group
- Average Performance to Budget on matters
- Performance to Budget on matters by matter type or practice group
- Ratio of insourced versus outsourced work
Metrics that track the total number of matters provide raw data to show trends on overall volume of work quarter to quarter and year over year. The raw data allows you to further drill down into available capacity by practice group or lawyer. Measuring cycle time is a valuable tool to monitor and manage cost of services delivered. Typically, a longer cycle time results in a higher cost of services delivered - eating away at efficient legal service delivery, cost-effectiveness, perceived value provided, and margin (for law firms).
Tracking performance to budget on legal matters is really important. Law departments need to forecast legal spend costs to their accounting/finance departments and law firms need to forecast legal spend to law departments. If we're honest, most lawyers are not very skilled at forecasting legal costs. If you're not tracking how well you've done this in the past, how can you get any better and learn from past mistakes? Maybe performance to budget is great in one or two practice groups but terrible in all of the others. What can be learned from the practice groups that get it right?
You can learn a lot from client feedback on your law department's or law firm's delivery of legal services. If your clients aren't happy with the level of service they're receiving they're likely to either hold off until the last minute to bring you into the matter or, worse, never involve you at all. Oftentimes a client will never tell a legal service provider about negative experiences, instead they'll just go find a replacement. The learnings from client satisfaction surveys are often the easiest (and cheapest) way to improve legal service delivery.
- Client Satisfaction Survey Results year over year
- Implementation of Action Items out of the prior year's Client Satisfaction Survey - you have to hold the team accountable to improve or you won't.
You've hired top talent and made the investment in your team. You should make sure you keep them and avoid costly bad hires. Similar to Client Satisfaction Surveys, you can learn a lot from Employee Engagement Surveys about what it will take to keep your legal team engaged, productive, and with your organization.
- Overall resignation rate
- High Potential resignation rate - if you are continuously losing top talent, you probably need to take a look at why
- New Hire failure rate
- Employee Engagement Survey Results year over year
- Implementation of Action Items out of prior year's Employee Engagement Survey
"High Potential" employees are those employees who have the potential, ability, and aspiration to be successful leaders within an organization. High Potential employees earn the trust and respect of others, demonstrate flexibility, and have proven to be reliable.
To make appropriate staffing, pricing (buying or selling legal services), or technology investment decisions, law departments and law firms need to know what their Cost of Services Delivered is. Otherwise, you're just making decisions based on instinct, which may not be a sound business decision.
- Cost of Services Delivered
- Cost of Services Delivered by matter type or practice area
- Value Added (Provided or Received) - many legal service providers provide their clients with value added services that are not billed for. Similarly, many law departments receive these value added services at no cost. Both law departments and law firms should be tracking this. Law departments should be tracking this to demonstrate to their internal business partners the additional value they are receiving at no cost and that the law department is not strictly a cost center. Law firms should be tracking this to demonstrate to their current clients the additional value they provided at no cost and also use this data for responding to Request for Proposals.
If your law department or law firm would like assistance in designing and implementing metrics that matter, please contact us.