Law firms are notorious for not doing analyzes of Return on Investment (ROI). I recall a number of years ago when I was working in tech support for a major New York law firm. I was located on the floor below the cafeteria. We had a coffee room where the coffee was free and the cafeteria charged for coffee. One morning I went in to get coffee and there was a corner office partner from the floor above (the cafeteria floor). I had a pretty good relationship with him, having helped him out on several occasions, so I jokingly said: “Come down for the free coffee, have you?” He gave me a dirty look and replied “Every single cup of that so-called free coffee comes out of my pocket, and don’t you forget it.”
Name partners in smaller firms sometimes seem to pose the question in the form: “Which do I need more this year, a new computer/software system or a new Mercedes?” Guess which wins?
However, as law firms become more like other businesses and the pressure on hours and fees grows, it behooves them to think in more “corporate” terms and seriously examine ROI issues. These are notoriously difficult to quantify, but even “ballpark figures” can be useful. The problem is aggravated by the fact that ROI comes in two forms: hard dollars and soft dollars. Hard dollars represent more actual income (dollars) the firm receives. Soft dollars are savings in time that allow people to be more productive and sometimes even to a reduced staff that outputs the same amount of work.
The practice of law can be broken down into three parts: (1) gathering information; (2) analyzing it and applying your legal training and experience to that information – i.e., practicing law in the traditional sense; and (3) producing documents based on that analysis. To the extent that technology can be used to decrease the amount of time spent on parts (1) and (3), then an attorney has more hours in the day to spend on the actual practice of law. With that in mind, lets look at some types of ROI, both positive and negative.
Classic examples of “hard dollar” ROI software are time/billing/accounting software and document assembly software. Most analysts agree that systematic use of time and billing software allows an attorney to capture 10-15% more billable hours without doing any more work, This is because a lot of time that normally “falls through the cracks” is in fact captured when all you have to do is click a little icon in an appointment on your calendar to bill time for that appointment, or similar functions. So for an attorney who bills 1000-1200 hours a year, that represents 100-150 more billable hours. If the attorney bills $300 an hour, that’s $30,000-45,000 dollars per year. Multiply that by the number of attorneys in the firm and the amount adds up rapidly.
Similarly, a trusts and estates attorney that automates the product of a trust package (including basic wills for the client and spouse, trustee agreements, health agent agreements, etc.) can reduce the amount of time it takes to produce the basic package from several hours to a few minutes. If the basic trust package is billed at a flat fee, document automation can dramatically increase the effective hourly rate for that package.
Soft costs are difficult to quantify exactly, but the principle is clear: If a piece of software, procedure, better training, etc. can save a user 12 minutes a day (not a lot considering how much time people spend fumbling around), that’s an hour a week or 50 hours a year. Multiply that by the hourly cost or billing rate and the number of people involved. It mounts up much faster than you would think.
Negative ROI
The obverse of ROI analysis is what might be called “negative ROI.” This is standards or procedures that cause people to lose time and therefore costs the firm money.
Perhaps the leading cause of negative ROI is poor training. If a user has to spend 12 minutes a day fumbling around, asking the local “expert” (thus wasting 2 peoples’ time), then again, that’s 50 hours a year. If the firm spends, say $500 to get 6 people in a room for a couple of hours of refresher training, that cost is likely to pay for itself within the next month or so. If you take 6 assistants or paralegals and bill them out at $20/hour, that’s $1,000 per year each, or $6,000 total. Why would a firm not want to spend $500 to save $6,000 is costs?
Name partners in smaller firms sometimes seem to pose the question in the form: “Which do I need more this year, a new computer/software system or a new Mercedes?” Guess which wins?
However, as law firms become more like other businesses and the pressure on hours and fees grows, it behooves them to think in more “corporate” terms and seriously examine ROI issues. These are notoriously difficult to quantify, but even “ballpark figures” can be useful. The problem is aggravated by the fact that ROI comes in two forms: hard dollars and soft dollars. Hard dollars represent more actual income (dollars) the firm receives. Soft dollars are savings in time that allow people to be more productive and sometimes even to a reduced staff that outputs the same amount of work.
The practice of law can be broken down into three parts: (1) gathering information; (2) analyzing it and applying your legal training and experience to that information – i.e., practicing law in the traditional sense; and (3) producing documents based on that analysis. To the extent that technology can be used to decrease the amount of time spent on parts (1) and (3), then an attorney has more hours in the day to spend on the actual practice of law. With that in mind, lets look at some types of ROI, both positive and negative.
Classic examples of “hard dollar” ROI software are time/billing/accounting software and document assembly software. Most analysts agree that systematic use of time and billing software allows an attorney to capture 10-15% more billable hours without doing any more work, This is because a lot of time that normally “falls through the cracks” is in fact captured when all you have to do is click a little icon in an appointment on your calendar to bill time for that appointment, or similar functions. So for an attorney who bills 1000-1200 hours a year, that represents 100-150 more billable hours. If the attorney bills $300 an hour, that’s $30,000-45,000 dollars per year. Multiply that by the number of attorneys in the firm and the amount adds up rapidly.
Similarly, a trusts and estates attorney that automates the product of a trust package (including basic wills for the client and spouse, trustee agreements, health agent agreements, etc.) can reduce the amount of time it takes to produce the basic package from several hours to a few minutes. If the basic trust package is billed at a flat fee, document automation can dramatically increase the effective hourly rate for that package.
Soft costs are difficult to quantify exactly, but the principle is clear: If a piece of software, procedure, better training, etc. can save a user 12 minutes a day (not a lot considering how much time people spend fumbling around), that’s an hour a week or 50 hours a year. Multiply that by the hourly cost or billing rate and the number of people involved. It mounts up much faster than you would think.
Negative ROI
The obverse of ROI analysis is what might be called “negative ROI.” This is standards or procedures that cause people to lose time and therefore costs the firm money.
Perhaps the leading cause of negative ROI is poor training. If a user has to spend 12 minutes a day fumbling around, asking the local “expert” (thus wasting 2 peoples’ time), then again, that’s 50 hours a year. If the firm spends, say $500 to get 6 people in a room for a couple of hours of refresher training, that cost is likely to pay for itself within the next month or so. If you take 6 assistants or paralegals and bill them out at $20/hour, that’s $1,000 per year each, or $6,000 total. Why would a firm not want to spend $500 to save $6,000 is costs?