Why Retroactive Classification Makes Legal Practice Predictable
By Pieter van der Hoeven.
Every matter is unique. But often, the individual activities which come together to form a matter are not. Instead of building bespoke budgets, firms can use the wealth of data in their timecard narratives to generate activity-based building blocks. Like LEGO, these different blocks can then be used to build unique (but data-driven) fee structures for clients. Harnessing retroactive insights, through analysis of activities, is the easiest way to bring predictability and control over the lifecycle of a matter.
Introduction
In the first of this series on Law Firm Pricing and Legal Project Management I dived into the challenges faced by firms still relying on Phase and Task codes. Whether working with UTBMS, or a bespoke in-house system, manually assigning codes is repetitive and often inaccurate. Happily, the solution to the problem does not involve creating another classification system. Using natural language processing, it is possible to automatically analyse and categorise activities in timecards, based on timecard narratives.
Pivoting to narratives rather than codes has a number of knock-on benefits beyond those previously explored. In addition to increasing accuracy and reducing manual work, automatic categorisation unlocks the data in historical timecards. In turn, firms can use these historical insights to develop building blocks for fee structures, budgets and reports. This approach enables bespoke yet agile pricing and reporting strategies to be developed, which support firms in an increasingly competitive market.
Searching for the right data The majority of law firms have begun to embrace fixed fees. In the most recent Law Firms in Transition survey from Altman Weil, 79.1% of firms with over 250 lawyers were working directly with clients on creative fee structures. This shift in engagement structure resulted in a more balanced sharing of risk between client and law firm. Which in turn triggered the search for historical data in law firms to develop more advanced structures. The new fee arrangements need to be as data-driven as possible to mitigate the increased risk they inherently put on the firm.
”From a matter management and budget tracking perspective, we were reliant on information we could extract from our practice management system, which was quite a process in itself. Matter analysis could take you a week because you pulled the reports with all the narratives and you had to sift through and identify & classify what happened. It took forever,”
Many of those reading will empathise with the plight of Ebrahim. For firms without automated time card narrative classification, the only way to develop fee structures is to manually dive into historical matters. It means spending hours in an Excel spreadsheet, manually assigning codes or tasks based on old narratives. It also means that most pricing teams have to hope that their selection of matters is similar enough to the new work to provide a solid fee quote.
Sitting on a gold mine Not only is this way of working wildly inefficient, but it is also forcing pricing teams to rely on an incomplete picture of the work their firm does. One of the key reasons that Clocktimizer chooses to automatically categorise time card narratives, is that this enables firms to retrospectively dive into historical matters.
The act of recording a proper narrative has been pushed by e-billing guidelines that sprang up in the last decade or so. This means that natural language processing is able to analyse all historical matters in a firm in minutes, giving pricing teams a much wider pool of data to compare. To the delight of Stephen Allen, at the time Head of Global Service Delivery at Hogan Lovells, it meant Clocktimizer analysed a raft of his historical matters in seconds. He would normally have spent weeks extracting that kind of insight.
Automated time card classification puts enriched data in the hands of pricing teams. Instead of hoping that enough accurate historical data has been collected and analysed to develop an accurate fee quote, teams can compare years and years worth of old matters to become pricing sparring partners for the firm. Firms can even choose to identify the historical price of activities based on specific teams, or seniority levels, because their hands are not tied by the amount of manual effort that would have to go into that level of insight.
From data pools to building blocks
Importantly, it is this ability to break down and categorise historical data that is one of the most important tools in the arsenal of the modern pricing, LPM and other teams that rely on analytics and accurate reporting. Every matter is unique. Tougher still, the scoped work included in a fee quote can change dramatically during the lifecycle of matter. However, by breaking matters down into component activities, it is possible to implement flexible pricing and reporting structures which can respond to this uncertainty.
At Clocktimizer, we analyse the activities that make up a matter. This data becomes the ‘DNA’ of a matter. Comparing this DNA with other matters outlines the activities which are quite similar in terms of time spent and which have a high variance from matter to matter. Having this information enables pricing teams to decide on the appropriate fee structure for each part of the matter.
These building blocks can then also be used to monitor the scope of the project and report to timekeepers and clients on the matter progress. Having granular insight into the anticipated work will even offer the chance to clients to decide which work they want to do in-house or which work should be done by their outside counsel, allowing for unbundling of legal services. This encourages risk sharing and increases transparency. Unsurprisingly, this in turn leads to happier clients.
Looking to the future
Clearly, the benefits of automatic classification of narratives are huge. Not only does it reduce much of the mindless manual labour that we would all like to avoid, but it also increases the amount of data at the hands of pricing teams and reduces the risk of entering into a loss-making engagement. In creating smaller building blocks, based on activities, pricing teams can be both accurate and flexible in creating fee quotes. But the benefits of narrative based pricing are not only retrospective. In my next article, I will tackle their ability to manage risk on future engagements. In doing so, legal project management and pricing teams can avoid write-offs and improve the efficiency of the firm.
About the Author Pieter van der Hoeven, a former M&A lawyer
with 15 years of experience in the legal industry, is the co-founder and CEO of Clocktimizer.
Clocktimizer is an award-winning legal technology company that helps law firms to understand who is doing what, when, where, and at what cost. Global 100, Am Law 100, and Am Law 200 law firms use Clocktimizer to make data-driven decisions around matter management, budgeting, and pricing.
Before starting Clocktimizer in 2014, Pieter was an M&A lawyer at DLA Piper and earned his MBA from Rotterdam School of Management and IE Business School. Pieter can be contacted at pieter@clocktimizer.com
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