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Profitable pricing

Competitive advantage should be the driver of Legal Project Management, not profitable pricing alone, says Brian Taaffe, Business Intelligence Product Manager of LexisOne, LexisNexis Enterprise Solutions.

Sergey Nivens

Across the pond in the US, 76 per cent of large law firms are employing dedicated ‘pricing officers’ with more than half placing them on the firm’s senior leadership team, a recent study has found. Clearly, with clients looking for more predictable fees, the importance of profitable pricing is growing in stature in the law firm. In the UK, the role of the pricing officer is not as commonplace yet as it appears to be in the US, but Bid Manager and Pricing Manager positions are gradually growing. 

This trend is evidence that the billable hour (as a fee structure) is weakening as clients demand value-based pricing at significantly lower risk. Law firms therefore need to align their clients’ interest with that of their own by determining profitable pricing that delivers equally to both camps. And profitable pricing must be underpinned by efficiency (ie doing things in the best possible manner) and effectiveness (ie doing the correct things). 

Perhaps that is why the concept of legal project management (LPM) is sparking the interest of law firms too. The discipline offers a best-practice framework encompassing scoping, planning, and devising profitable permutations/combinations of varied pricing schemes. By adopting LPM, firms can ensure accurate cost budgeting immediately in the short term. Elementary to developing profitable pricing is the complete understanding of service delivery processes and the cost of service production – down to the bone. LPM provides processes that apply project management techniques and skills to legal matters.

However, the more far reaching benefits of LPM are derived when it is combined with process improvement and business intelligence. That is when the discipline delivers competitive advantage. 

LPM and Business Intelligence

With cost budgeting complete, firms must then also have processes in place to ensure that the work secured is delivered to plan and within budget. This requires making modifications and improvements along the way to meet the service and profitability goals. LPM combined with business intelligence facilitates this.

For instance, by analysing historical data residing in the business, overtime law firms can have  visibility of the type of pricing that has proved to be more profitable than others, which areas the organisational processes need to be fine-tuned and where new methods need to be devised. Using such information, firms can conduct forward-looking pricing analysis and stay-ahead of the curve of evolving pricing models through identification of potential costs and risks to stay competitive.  

LPM and Process Improvement 

Firms must simultaneously undertake perpetual process improvements in the way they execute matters and tasks. Incremental enhancements to the way law firms disburse their services is key to continuously optimising profit, creating new efficiencies, and enhancing productivity and effectiveness. 

LPM enables a retrospective analysis of matters to ascertain things like why matters were profitable (or unprofitable), what processes and strategies caused the outcomes and why, and so on. In the long run firms deliver better managed projects, higher profits and even encourage and nurture customer loyalty.

Technology Helps Embed LPM in the Business for Competitive Advantage

Nonetheless, a major reason for the weak adoption of LPM today is the technology scenario in law firms. Most firms use multiple, disjointed systems across business functions making it difficult to accurately budget, track and monitor activity. 

Integrated capabilities are essential to gathering and assimilating actionable data to facilitate optimisation of resources, cost control and business efficiency. Technology systems such as enterprise resource management (ERP) offer this ability. For instance, ERP systems can combine budgeting, resource allocation and matter management, to allow firms to break down assignments/matters into smaller tasks for more accurate budgeting, scheduling and staffing. They also offer work breakdown structures to track budgets and actuals down to specific phases and tasks within a matter, and can alert a user when actuals near the budget. On top of this, by utilising the in-built business intelligence functionality, firms can analyse the matters to match up the cost allocated to each phase task versus the invoiced amount – including margins to calculate profit for each stage of a matter. 

This kind of detail is essential as today law firms must live and die by their pricing commitments. More broadly, ERP systems allow firms to align their fee structures with the revenue and profitability objectives of the organisation, alongside the long term strategic goals. This is because they tie in everything from finance, human resources and time recording to expenses, procurement and business intelligence.

Fundamentally, LPM makes continuous improvement routine, which contributes to competitive advantage. Its adoption offers a clear message to clients – their interests are at the heart of the business – which in turn inspires customer confidence in the firm’s ability to deliver their assignments without compromising on quality, and in turn helps the firm stay ahead of competitors.

 Brian Taaffe is Business Intelligence Product Manager -  LexisOne™, LexisNexis Enterprise Solutions.

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18 August 2014

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