Association Of Legal Administrators Richmond Chapter

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Association of Legal AdministratorsRichmond ChapterImpacting Financial PerformanceKey Performance Indicators“Measure, Adjust, Succeed”Presented by:Frederick J. Esposito, Jr., CLMChief Financial OfficerRivkin Radler, LLPTroutman Sanders, LLPRichmond, VAApril 24, 2014

Let’s Start with a Quote .“If You Don’t Know Where You AreGoing, Any Road Will Get You There”-Lewis Carroll

Law FirmKey Performance Indicators (KPI)Background Performance Measurement Evaluate Success/Progress Strategic Operational What is important to the Firm? Finance? Business Development?

Law FirmKey Performance Indicators (KPI)Background Measure, Adjust, Succeed Develop an Understanding of What is Important Performance Indicators Methods to Assess Present State of the FirmKey Initiatives (Strategic or Operational)Performance Improvement InitiativesApply to Management Framework

Law FirmKey Performance Indicators (KPI)Background Categorization of Indicators l Key Performance Indicators Strategic Development Targeted ObjectivesAdds Value

What is a KPI?Any Measure or Statistic that a Law Firm Tracks ThatMeets All Three of the Following Characteristics:1. Reflects the Firm’s Goals2. Viewed As Key to the Firm’s Success3. It is Quantifiable

Law Firm KPIs ExamplesProductivity The Ratio of Associates to Partners (i.e. leverage) The Ratio of Partner Hours Worked to the Total HoursWorked by all Timekeepers The Number of New Matters Opened in the Past YearFinancial Progress The Ratio of Unbilled Work-in-Progress to AverageFee Billings for the Past Year Charge-off Percentage of Fees Billed (Write offs) Cost-Recovery Revenue per Matter

When Choosing KPIs KPIs Should be Firm Specific No Law Firm Uses all KPIs Law Firms Must Identify: KPIs that are Important to the Firm and DefineSuccess Implement System for Tracking PerformanceMetrics to Guide Firm Strategy No One KPI Tells the Full Story Decisions need to be madeon an informed basis!

KPIs That DriveFirm Growth“Higher Gross Revenues Automatically Lead toHigher Profits!”

KPIs That DriveFirm GrowthRunning a highly profitable Law Firm that producesamazing profits year after year has little to do withthe quality of the attorneys in the Firm as it doesthe quality of their legal services.Do YOU Know What Numbers toMeasure to Ensure Profitability andDrive Growth in YOUR Law Firm?

KPIs That DriveFirm GrowthDo YOU Know What Numbers to Measure to EnsureProfitability and Drive Growth in YOUR Law Firm?Most Law Firms do NOT know!WHY NOT?Factors: Just don’t know what KPIs to utilize Not Compiling Measures on a Consistent Basis andAccurately Compare them Month over Month, Quarterover Quarter, Year over Year

KPIs That DriveFirm Growth“Our Only Benchmark is Our Own Past Experience.”-Mid-Size Law Firm Partner Misleading Benchmarks? Revenues per PartnerLaw firms vary significantly in terms of how manystaff supports each Partner –Impacts Profitability!Benchmarks can be skewed; tend to lean towardslarger firms –Small v. Large Law Firms Lack Clear Understanding of Metrics

KPIs That DriveFirm GrowthMetrics and Benchmarking Measure your Firm against a group of similar firms Compare specific performance measures acrossthe members of the groupNational Sources of Benchmarking Data Lexis Firm Insight BI Companion ALM Survey of Law Firm Economics Hildebrandt Peer Monitor Economic Index Incisive Legal Intelligence’s Annual Survey of Law Firms

KPIs That DriveFirm GrowthLocal Sources of Benchmarking Data Formal and Informal sources within your RegionIncluded groups are comparable to your Firm(i.e., size, location, type of firm)Indicators measured are consistently calculatedThird-Party conducts process so results are notskewed.

KPIsDecision-MakingKPIs Must Be: Clearly Defined Identify what needs to be collected What Data? Big Rocks First, Pebbles Next! Precisely Measured –Accuracy is Crucial Do Not Try to Collect Every Metric at Once “Analysis Paralysis” Accurately Interpreted Appropriately Acted Upon “Good Metrics, Good Decisions!”

KPIs –Law Firm ValuesNew Rules! Develop and implement a comprehensivecombination of specific KPIs relevant to your Firm–Think Strategically! Practice Group resources focusing on the rightpriorities and generating value? Daily monitoring of the results and processes;understand how the KPIs are interacting!

KPIs –Law Firm ValuesNew Rules! Make sure KPIs add value while demonstratingperformance All KPIs are NOT Equal! How can KPIs add value and demonstrateperformance?

Strategic SnapshotThe Dashboard – What Gets Measured Gets Done Snapshot of important performance indicators fromfinancial statements and related reporting Ability to view performance indicators and how they relateand form patterns “Focal Point” of all performance indicators from a variety ofsources

Strategic SnapshotExampleLaw Firm A has a strategic focus on specific clientrelationships and supports that focus with clientteams.Suggested KPIs that might be important in measuringthe breadth of the relationship:1. Number of matters per client as an indicator of growthin the client relationship2. Number of practice areas that serve this client asan indicator of cross-selling success; and3. Number of lawyers with time on matters connected tothis client; as it measures the breadth and depth ofthe relationships between the firm and client.

Law Firm Specific KPIsFinancial KPI Examples1.2.3.4.5.6.7.8.Unbilled DaysUncollected DaysNet Income (Profit) as a Percentage of RevenueAverage Net OverheadRevenue per Square FootRevenue per Attorney (?)Revenue per MatterRevenue per Client

Law Firm Specific KPIsOperational KPI Examples1.Billable hours per FTE2.Percentage of Partner hours3.Billings per FTE4.Average Billing rate5.Average Work rate6.Ratio of Billed-to-Work rate –”Realization”7.Number of Matters Opened8.Staffing Ratios9.Cost Recovery Revenue/Matter

Law Firm Specific KPIsMarketing & Business Development KPI Examples1.2.3.4.5.6.7.8.9.10.11.Client Growth RateDormant Client PercentageAverage Fee per Client/MatterAverage Fee per NEW Client/MatterMarketing/Business Development Budget RatioMarketing/Business Development Cost per ClientClient RetentionGrowth in Top ClientsPractice Areas per ClientNumber of Lawyers per ClientNumber of Matters per Client

Law Firm DashboardExample

DashboardsFinal Points To ConsiderYou Can’t Drive The Car by Solely Watching theDashboardRather, it helps you know how well you areprogressing towards your destination

Key Performance Indicators(KPIs)Final Points To ConsiderUse Liberal Doses of Common Sense! KPIs help to better assess Firm performance Consider your Firm’s specific goals KPIs can and will change over time as your Firmevolves Measure Firm performance with good and timelyinformation KPIs are measurable inputs, but no substitute forCommon Sense and Good Judgment

Key Performance Indicators(KPIs)Next Steps“Gentlemen, my government has informed me that theKlingons are expected to move against your planet,with the objective of making it a base of operationsagainst the Federation. My mission, frankly, is to, uh keep them from doing that.”– Capt. James T. KirkNow What?

Key Performance Indicators(KPIs)Next Steps“What Gets Measured Gets Done” Metrics support key business plan objectivesappropriate to each process and level of the Firm Firm personnel know their role and knows how wellthey are contributing to the business goals of theFirm

Key Performance Indicators(KPIs)Next StepsSelection of the Correct Metrics WILL: Communicate Direction(business plan trend for performance) Stimulate action in the most important areas(business plan) Establish the current situation against thebusiness plan goalsFacilitate learning(where the business plan stands against world class performance) Influence behavior(what gets measured gets attention and action)

Key Performance Indicators(KPIs)Getting Started –Bottlenecks First! Pick those issues that are easiest to correct and getthem fixed immediately If more data is needed, add these items to the datacollection process Use the classical problem solving tools of Six-Sigmato understand the data and begin a controlled changein the process.“Fred, What the &*% is Six-Sigma?”

Key Performance Indicators(KPIs)Getting Started –Bottlenecks First!Reader’s Digest Condensed Version:Six-SigmaSix Sigma seeks to improve the quality of process outputs byidentifying and removing the causes of defects (errors) andminimizing variability in business processes.It uses a set of quality management methods, including statisticalmethods, and creates a special infrastructure of people within theorganization ("Black Belts", "Green Belts", etc.) who are experts inthese methods.Each Six Sigma project carried out within an organization followsa defined sequence of steps and has quantified financial targets.(Cost reduction and/or profit increase)

Key Performance Indicators(KPIs)Getting Started –Bottlenecks First! If new issues are detected change the datacollection record to allow reporting of these newissuesTranslation? Don’t stop measuring even when the issue isresolved; keep those metrics that will provide apicture of the business process trend (KPI)

Key Performance Indicators(KPIs)Getting Started –Bottlenecks First!Once the KPI metric is selected .“Behind each metric is a process”Work Instruction or Formal Procedure? How the data will be collected, analyzed andreported to Firm management? Who will be responsible for data collection, whatform will used to collect it? Graphing or format to be used to communicatethe KPIs?

Key Performance Indicators(KPIs)Remember! Baby Steps!KPI implementation is a Process Have Patience Sense of Humor Measure .Adjust Succeed!

Questions

Thank You To OurBusiness Partner For Your Continued Support!

Contact InformationFrederick J. Esposito, Jr., CLMChief Financial OfficerRivkin Radler, LLP926 RXR Plaza, 10th FloorUniondale, NY 11556Email Address: FJE@rivkin.comPhone Number: 516-357-3000www.rivkinradler.comLinkedIn: www.linkedin.com/in/fjespositoTwitter: Lawmgtguru

Marketing & Business Development KPI Examples 1. Client Growth Rate 2. Dormant Client Percentage 3. Average Fee per Client/Matter 4. Average Fee per NEW Client/Matter 5. Marketing/Business Development Budget Ratio 6. Marketing/Business Development Cost per Client 7. Client Retention 8. Growth in Top Clients 9. Practice Areas per Client 10.

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