After the financial uncertainties of 2020, it is no surprise that profit is front of mind for law firms. While most firms maintained profits in 2020, this was achieved primarily through cost-cutting measures and senior staff going above and beyond to meet client needs.
As the post pandemic economic business model begins to evolve, costs are escalating again, creating new pressures to achieve the levels of profitability achieved last year.
Despite the current industry trend of most firms reporting growth at the end of the last financial year – BigHand’s survey shows that 47% NA, 56% UK and 57% APAC firms confirm billable hours reduced or stayed the same. With firms acknowledging the challenges of effective resource allocation across a dispersed workforce, there is clearly a significant potential impact on profitability.
Anecdotally, BigHand continues to hear reports of lawyers working increased hours – but clearly there are firms where this is not always reflected in the billable hours. Who is handling the work? Is it being resourced at the correct level of expertise and, if so, why is it not being billed? Are senior lawyers compelled to undertake work usually managed by associates without passing on costs to clients simply to keep up with demand? Or are they actively holding onto high profitable work, simply to boost their billable hours at the expense of the client? The immense business challenges that law firms’ clients faced in 2020 may have given law firms some latitude here but with business settling into the new normal, this is unlikely to continue to be the case.
When faced with the possible risk of job losses and pay cuts, individuals’ behaviour will change – in different ways. While one set of employees will look to demonstrate their value to the business, to take ownership of work to prove their worth, others will experience negative effects to physical and mental health, life happiness, work attitude and behaviour.
Neither response is good for lawyers, law firms or clients. Lawyers attempting to ring-fence work can end up with burn-out – and their juniors miss opportunities for career development; while those with a negative outlook will struggle to do their best work, undermining their value to the business and client alike. Either way, profitability will inevitably take a hit and turnover will increase.
Appropriate Resourcing
Ensuring matter budgets are adhered to and the right people are working on the right work, at the right cost to the firm, is vital. According to HBR Consulting’s Sean Monahan, resource management can be just as important as LPM and Pricing when it comes to maintaining margins, something that will become even more important as costs begin to rise over the coming months. He says in BigHand’s Resource Management Whitepaper, “Many firms have spent time developing and deploying their profitability metrics in recent years, and the next natural step is to look toward resource management to ensure firms can call in the right resources throughout the lifecycle of a matter.”
As the BigHand research reveals, however, firms still have some way to go to achieve effective profit-led resource management with 33% NA, 32% of UK firms, and 19% APAC admitting that there is little resource allocation / matter staffing focused on matter profitability, creating a challenge when considering work allocation.
Law firms recognise the problem, with 37% NA, 31% UK and 28% APAC firms confirming that Partners also spend too much of their time resourcing a matter. As a result, ‘reviewing matter resourcing / staffing of matters based on profitability’ is the number one priority for firms over the next 24 months (50% NA,45% UK, 47% APAC). Implementing effective Resource Management that incorporates lawyer’s forecasted hours as well as their expertise and capacity will ensure firms can use lawyer time in the best, most cost-effective way to maximise billable hours and profitability
This was an excerpt from The Legal Resource Management Report. Access the full report to dive deeper into the findings from over 900 legal management professionals:
