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What areas of your law firm’s business are doing well, and which are under-performing?
Which cases are your most profitable and which deserve extra resources to ensure a job well done? Are you pricing competitively, and do you have the team you need to meet your long-term goals?
These are the kinds of questions law firms ask every day. And for small and medium-sized firms especially, the answers can be a driving force for the future of their business.
Corporate performance management gives law firms the data they need to better make these decisions, like which areas of law to pursue, who to hire and the best ways their lawyers should be spending their time. That’s why it’s a critical process for legal FP&A teams today.
“Performance management helps law firms when it comes to the billing side of things or just trying to understand profitability within the different areas of practice within a law firm—everything that's going on in the economy, the different ebbs and flows of business and even seasonal changes,” said Andrew Lee, Demand Generation Manager at Vena partner ProLytics Consulting Group.
The company specializes in helping businesses, including law firms, build out their performance management processes and systems.
But despite the importance of performance management in establishing and meeting their goals, many small and medium-sized law firms are still relying on manual processes to support it.
This can make it difficult to make the real-time decisions they need to stay agile.
Looking to build out your legal tech stack to better support your corporate performance management efforts? In this blog, we unpack what you’ll need to consider.
More law firms are prioritizing corporate performance management. That’s true for larger law firms, but increasingly so for small and medium-sized firms as well.
And for good reason—it can give you powerful insights into the path that will best position your firm for growth.
“Most firms we’ve worked with, if they’re on the small side or even mid-market, looking to grow, they’re taking a page out of big law—and big law has been very heavily invested in using financial planning and analysis strategies to support their growth and position as well as the valuation of their firm,” Andrew said.
And to get the most out of those FP&A strategies, your firm needs data it can rely on. That starts by building out the operational and financial systems that will improve your processes and enhance ongoing decision making.
So what does that look like?
For a successful performance management program, finance teams must first consider all the strategic, financial and operational processes that enable their budgeting, forecasting and planning.
And for law firms, core priorities include:
Profitability analysis helps firms evaluate their costs and revenue streams and optimize their profitability. For instance, what is your staff doing during their non-billable hours and are there ways you can introduce time savings there to optimize costs?
Profitability analysis allows law firms to find new ways to add efficiencies into their operations, track performance and empower better budgeting and planning.
Your utilization rate helps you better understand the productivity and overall workload of your firm, and to compare billable hours to non-billable hours. Tracking your utilization rate, then, can help you better maximize your billable hours and find ways to be more efficient and profitable.
By tracking your actual hours and billing, utilization and realization rates, timekeeper revenue planning can help you more accurately and quickly build out your law firm budgets and forecast future resource requirements.
Demand planning lets you project future demand for your firm’s legal services, so that you can stay ready for whatever’s around the corner. Through demand forecasting, you can make more informed decisions regarding staffing and resource allocation, based on data points like seasonality, case complexity and client segments.
Fee income planning lets you plan fee income around your practice, office, department and so on according to productivity, work in progress and payment terms.
Having a clear partner compensation sharing model, centered around your firm’s goals and strategic values, helps ensure your partners are going to see the expected returns on your ongoing strategic efforts.
Resource planning helps you identify and allocate the resources your firm requires both now and in the future. From staffing needs to office space, it shows you how to use those resources most effectively to accomplish your goals.
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All these different programs can feed into your performance management strategy, so that you’re keeping on top of all aspects of the firm and making decisions based on actual data.
When looking for a corporate performance management (CPM) solution, look for a platform that can support all of these processes and, importantly, integrate with the tools that are already in your tech stack.
Leverage this free template to gain insight into the performance and profitability of different timekeepers to make informed decisions.
The right legal tech stack should make it easy for firms to analyze their complete operational and financial performance, helping them find new efficiencies, keep on top of their FP&A goals and enhance their budgeting and forecasting.
But what does that tech stack look like?
“For an ideal tech stack, really, there's a couple of things that [law firms] would need,” Andrew said. Among those “must-haves,” he includes:
Your customer relationship management (CRM) software helps you organize and empower your client intake process and manage functionality around business development.
An enterprise resource planning (ERP) system can help you integrate your main business processes and add automation capabilities across the firm.
A matter management tool allows you to streamline your legal processes and workflows, maximize productivity and optimize operations, including invoicing and billing.
Your accounting and finance solutions help you oversee the financial aspects of your legal firm, including accounting and payroll, as well as billing and invoicing.
The right HR and human capital management (HCM) software can help you manage your HR resources and track your people’s performance, including their billable and non-billable hours.
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Aggregating data from all these solutions is also integral to tracking performance—and not the easiest thing to do.
Some law firms approach this problem through a manual, Excel-based process where their teams are extracting data from each solution into various workbooks.
But there are challenges that come with that approach.
Want to learn more about building your finance tech stack? Listen to William Liang, Managing Director at ProLytics Consulting Group and Melissa Howatson, CFO at Vena, discuss this on an episode of The CFO Show.
There are some inherent challenges that come with implementing corporate performance management into your firm—especially if you’re manually aggregating data from across disparate processes and platforms.
Manually building out your performance management program can be cumbersome and time-consuming. It’s no surprise, then, that it requires more effort from your team—and often more people in the first place.
This may mean extra hiring—and an inefficient use of the resources and talent you have. Instead of building strategic insights from your performance management efforts, your team ends up aggregating data instead.
Because aggregating data manually takes time, it may already be out of date by the time you’re actually able to use it. This can cost you in terms of the agility of your performance management insights.
“The challenge is bringing all this data in and having it immediately made available, so that it can be further manipulated,” Andrew said. “There’s also the need to enable collaboration at all levels so that decisions can be made based off the metrics that are being captured. That's where a visual Power BI dashboard can be helpful, where reports can be seen at a high level.”
Without that real-time view of the data and an up-to-date look at the metrics you’re following, it can be easy to miss out on potential strategies that will enhance performance or maximize profitability in your firm. That’s not going to work if growth is your goal, Andrew pointed out.
“Some firms, they're not really looking to expand into any certain areas or looking for other opportunities,” he said. “They're a little bit more static in their approach. But others are looking to become more dynamic, understanding that they have possibly competing areas of practice and may be juggling shared resources—such as paralegals, admin, even technology sometimes. That’s where more analysis is needed in terms of understanding that clear profitability transparency.”
Finally, manually managing your performance management program and aggregating data across all those different systems can increase your risk of mistakes as well.
That’s especially the case if your team members are trying to work as quickly as possible, where human errors are more prone to happen.
Bringing in a technology that aggregates data from across those disparate solutions, for a single source of truth, can help decrease that chance of error—while also reducing the amount of resources you need—Andrew said.
“It can facilitate a lot of different data aggregation and automate a number of different sequences so that [law firms] can effectively eliminate a full-time equivalent person,” he said. “And at the same time, you gain accuracy from the reduction of errors in some of these data extract processes. And you have a little more immediacy of control over those processes as well.”
Firms that prioritize growth need to treat data the way that large firms do. That is, as a powerful asset that gives them the insights they need to fuel every aspect of their business—from the areas of law they decide to pursue, to the cases they choose to take and the resources they allocate to them.
That requires real-time insights, and the right technology stack.
But bringing in a new technology is a big investment and a change in the way things have always been done. Naturally, that might come with some resistance from your team.
So how do you go about getting your firm on board and easing people through the changes involved?
Andrew offered a few tips to help as you kick off your technology implementation and ramp up your law firm performance management program to bring about real improvements:
“First and foremost, the partners need to be on board,” Andrew said. After all, implementing any major technology or program is an investment that will take budget and resources to introduce.
Having a partner to champion your cause will help make it possible to put those resources in place—but support from above will also make it easier to get people throughout the firm behind the new initiative.
Of course, building support for a new technology solution—whether it be from the senior partners, your direct FP&A team or beyond—is a lot easier if you can communicate exactly how it will benefit your organization.
That means understanding the potential financial and resource savings upfront, before you even get to the implementation stage. “There's direct ROI there,” Andrew said.
Yours may be a small or medium-sized law firm right now, but that doesn’t mean your partners want it to stay that way. Understanding their goals will help you ensure your performance management program—and the technology that supports it—has maximum impact.
And for Andrew, the right performance management and reporting technology is a big part of making those growth goals happen. “Having a strong FP&A team, and an FP&A platform to enable that team, is what really separates big law from firms that are just striving to get there,” he said.
Vena for Legal by ProLytics is a complete planning solution built in partnership with ProLytics to deliver budgeting, reporting and forecasting solutions tailored to law firms—including profitability analysis, demand planning and timekeeper revenue planning capabilities.
Built on an Excel interface, Vena is easy to use for anyone, with pre-configured templates and ERP, HCM, payroll and demand planning software integrations that create a single source of truth for real-time analysis, reporting and insights. Vena lets law firms track performance to boost profitability and make data-driven decisions and fuel their growth goals.
“This is a solution that grows with your firm, and it doesn't grow by having to add headcount,” Andrew said. “It doesn't grow from having to add on more modules or more infrastructure and technology overhead. It doesn't need any of that. And that's a huge advantage.”
Vena for Legal by ProLytics is a secure and flexible preconfigured solution that is easy to adopt and built for how legal firms work.
