We live in a rapidly evolving business environment. And while many law firms have been reluctant to adapt, forward-thinking leaders are seizing the opportunities these changes have inspired.
Our recent blog posts have focused on an evolving workplace. We have highlighted three significant opportunities law firms should embrace to build a stronger, more resilient firm:
1.) Build a Strong Firm Culture ( View Article)
2.) Streamline Workflows (View Article)
3.) Measure the KPIs that Matter (article below)
Most law firms take a relatively narrow approach to formulating their goals. They define success with a handful of financial metrics and focus mainly on profit maximization, with billable hours as the most important performance indicator.
However, this approach limits strategic planning, ignores the potential long-term implications of in-the-moment business decisions, and, in turn, reinforces shallow and ill-defined goals. Instead of a rigid short-term focus, law firms are encouraged to expand their success metrics and establish more comprehensive performance reviews using a well-rounded set of key performance indicators that measure success beyond short-term profitability.
For clarification, metrics are used to track general business performance. A key performance indicator (KPI) is used to measure a specific, important goal or objective
Law firms should review their capability (reporting and knowledge) and take the necessary steps to gain a more nuanced assessment of essential metrics related to productivity, return on investment, profitability, and qualitative results.
A practical data analytics function consists of the following 4 elements:
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1. Data Capture |
Which tools are in use? Which policies are in place to ensure accurate and complete data capture? |
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2. Data Analysis |
Which reports are automated? Which ones require manual input? Who is in charge of analyzing them? |
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3. Modeling |
Is there qualified in-house or outsourced staff in place to forecast future results? |
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| 4. Action Steps |
What is the procedure for addressing findings? Who is in charge of strategic plan development? |
With a comprehensive reporting system, law firms can capture data to identify what is happening and better understand why it is happening. They can then focus on metrics contributing to a healthy work environment while ensuring financial and cultural stability.
Law firms should look at four types of data analysis: descriptive, diagnostic, predictive, and prescriptive.
Law firms need to understand the various metrics they can apply to perform the different types of data analysis. Consider the following categories of metrics: basic, intermediate, and advanced.
Grouping metrics by function or purpose is also helpful. For example, financial, operational, marketing, client service, cultural/social, workforce, etc. For this article, metrics are grouped into financial and non-financial sets to keep it simple.
Responsible firms should (at the least) consider basic metrics in their reports. For the firm as a whole, basic metrics include:
For timekeepers (revenue generators), key metrics include:
Beyond the standard financial reports, firms sometimes also look at capacity and demand-related metrics such as:
Intermediate financial reporting includes:
Intermediate non-financial reporting includes:
Rarely do law firms turn to advanced metrics that fully capture the underlying causes of performance outcomes.
Advanced financial metrics include (limited by data):
Reporting levels typically include firm, client, matter, case, and assignment.
On the non-financial side, only a few firms consider measuring qualitative metrics or their correlation with performance, such as:
There is a wide range of measures law firms can track to assess their performance. Without a comprehensive set of metrics, law firm managers have an incomplete picture of the health of their organizations. Their ability to analyze the underlying factors for financial or operational challenges and to identify patterns or create models to forecast future performance is limited.
Choosing the right mix of metrics to serve as key performance indicators depends on a multitude of factors, including:
Goal setting has a significant impact on which KPIs are essential. Devoting time to formulating a vision, goals, and objectives is critical to determine which performance metrics matter. All firms should incorporate basic, intermediate, and advanced KPIs into their reporting habits.
While some of the more advanced elements may need to be tracked informally in smaller organizations, the idea is to compile a list of metrics that managers can trust to adequately reflect the firm’s performance measured against specific goals and expectations.
A well-rounded stack of KPIs will allow law firms to define goals and measure performance against those that surpass simple short-term financial objectives. A firm that sets goals in the interest of all stakeholders while measuring its performance comprehensively through various financial and operational metrics is prepared to overcome challenges and prosper.
And be sure you are caught up reading our posts on the fascinating and relevant topic of the evolving legal workplace. Previous posts are listed below:
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