Star performers

There are two principles to performance measures: the optimistic ('What gets measured gets done') and the sceptical ('What gets measured gets manipulated').

We use performance measures to encourage people to occupy their time on activities we approve of and to achieve the results we want. They are intended both to tell us whether we are achieving our objectives and to influence the behaviour of the people working for us. Performance measures will alter behaviour, but the behaviour will be that which meets the targets, not necessarily that needed to achieve the business objective.

How do these principles apply to lawyers?

Lawyers are wedded to two performance measures: chargeable hours and billing. That means that our people will do their best to record high hours and high bills. These are the opposite of what our clients want and the courts require. Not getting it right first time is rewarded rather than punished. The result is disallowed costs and written off fees.

A litigation department may have many business objectives, including: making a profit; developing the practice; advancing the department's skills; and increasing the client base.

Some of these involve chargeable time and some non-chargeable time. Why do lawyers not spend time on marketing and development? Because they have chargeable hours targets to meet. If chargeable time and billing are the targets that are seen to count, they will be met at the expense of all others. As David Maister points out in 'True Professionalism' (Free Press 1997), non-chargeable time is the time a firm needs to use to secure its future.

The levers of profitability

Profit is the universal objective. A law firm's profitability, according to Mayson (Understanding Law Firms 1997), is governed by the 'RULES' (rates, utilisation, leverage, expenses and speed).

In reality, law firms cannot do much about charging rates. They are more often than not in a buyer's market, especially for desirable clients who can give regular or bulk work.

What is important and can be measured is the realisation rate '“ the proportion of bills paid to chargeable hours recorded against the bill.

Utilisation is the measure of how much time a lawyer spends on billable client work. It is a key performance measure.

Leverage is an important factor, but is not a panacea. A key specialist lawyer may not achieve much by leverage. Bulk services do benefit from leverage. Time recorded is not relevant to highly leveraged bulk work, what matters is throughput.

Expenses is a matter of keeping overheads down. Individual lawyers and, even department heads cannot do much about this. The exception for department heads is staff turnover. Some staff turnover is unavoidable, even desirable, but it is expensive. People are said to leave bosses rather than jobs. Staff turnover is a key measure for supervising partners. If a partner keeps losing staff, something is going wrong and it won't be the staff.

Figure 2

Speed is the rate at which work-in-progress is turned into cash. It is a matter of billing and credit control. It is also a question of progress. It is hard to bill until a task is completed. If billing on account has been agreed with the client, it remains difficult to bill if milestones are not met.

Utilisation

The performance measure that tracks and encourages utilisation is the number of chargeable hours in a given time. This is familiar ground. Most lawyers will have chargeable hours targets, but what started as a useful accounting device has become a tyranny and an endless hunt for that extra unit. How many chargeable hours a lawyer will deliver depends on two factors that do not depend on their own efficiency or diligence.

The first is the social contract within the firm. Within any organisation, there will be a cultural expectation of how hard people work. City firms pay very well and demand very long working hours from staff. People joining those firms understand this well. Lawyers in small firms expect lower financial rewards, so it is often firms in the middle that struggle most. They have to pay high to attract talent that can compete with City quality, but attract people who have decided to escape the perceived tyranny of City targets.

There is also internal competition. Ambitious lawyers will record higher hours than the firm's target, putting peer pressure on others to meet their achievement. An article in the Evening Standard on 23 August 2006 reported that in some City firms, those aspiring to partnership were recording 3,400-3,800 chargeable hours a year. The temptation to overwork a case or even to cheat is formidable.

For any firm, there will be a norm for chargeable hours and only limited deviation. The firm's target will be a factor in creating the norm, but it will be an uphill task to change it. Simply to ask lawyers to work longer hours is to ask them 'to work harder to make me richer' '“ not the most motivational message.

Second, the working system affects the ability of the lawyer to do chargeable, effective work. How do lawyers of acceptable diligence and keenness actually spend their time? Ideally as much as possible is spent on client work. Targets usually take account of time spent on training, marketing and holidays. Nevertheless, a day can go by in the office with very little chargeable time recorded. The best days for chargeable time are those spent on a single case, often out of the office. Travelling to interview a witness and writing it up in the evening is an efficient day. Or is it? It is tempting to choose such an activity just because it looks good on the time sheet.

It is those messy days in the office that devour time. A lawyer may find that it is 3pm and only half an hour of chargeable time has been recorded.

Some of the activities that took up the day might be chargeable or otherwise useful. Might it be better to allow a lawyer to record routine indexing work at a paralegal rate, rather than not recording it or not charging it at all? A lot of lost time is caused by inefficiencies in the support the firm gives to the lawyer. To put that more positively, it is the function of management to provide a system of support that helps the front-line lawyers deliver. The front-line lawyers are best placed to know what helps and hinders service delivery and good managers work alongside them rather than seek to control them.

Partners are often methodical administrators rather than managers or leaders. Often, the reaction to a problem is to create a procedure. The procedure, rather than solving the problem, becomes the aim. To take an obvious example, a lawyer who is spending too much time fire-fighting, does not need procedures, what is needed is a lower caseload.

Chargeable hours reports provide the raw data of utilisation. We must find ways of learning from the figures. Let us take, for simplicity six months' chargeable hours figures for just two lawyers. The firm's target is 100 chargeable hours per month. The figures are shown in Figure 2 (above).

It is hard to tell who is performing better. An average shows they are producing the same average chargeable hours in a month, see Figure 3 (above).

It is even more important to look for changes and trends in performance. The figures are put into a graph in Figure 4 (above).

The graph shows that while A is steady, B is showing a declining trend over four months. B needs attention.

Finally, a graph illustrates the constraints. Figure 5 shows that the department's chargeable hours fall within a narrow band. In this case it is somewhere between 85 and 105. It defines the limit of what can be done within the culture and working systems of the firm.

Using chargeable hours data in this way helps us understand how the firm is doing on utilisation. Used as a diagnostic tool, it can help the firm be more efficient. The weakness remains, chargeable hours measure activity, not the usefulness of the activity or output.

Part of the problem is that time-recording systems and the way time is recorded for court assessment of costs make lawyers think in terms of activity. For example, time spent analysing witness statements to establish the issues of fact is recorded as 'perusal'. Time spent working out where to pitch a Part 36 offer that could make or break the client has no code for time-recording. At best, it might go to 'drafting' what is then a very short letter. That activity might be challenged as: 'What, two hours to draft a one page letter?' Litigation lawyers often do not help themselves. We value time expended over the product of our minds. It is the latter the client is really buying.

Before leaving utilisation, we must consider cheating. Recording time that has not been done is a fraud on the client. Fortunately, it is rare. It is wise however, to recognise that extreme pressure to record hours increases the temptation to cheat. More often what happens is that the lawyer makes a decision on which activity to pursue that satisfies time-recording targets, rather than the true interests of the client or the needs of the case.

We need to know that our lawyers are properly utilised. Subject to the points made above, it remains a useful measure. It does not, however, encourage the behaviour needed for work that is not charged by the hour. In work that is charged by fixed costs, profit comes from completing the work properly in the minimum of time. In computerised debt collection, the time spent by individuals is as meaningless as a newsagent charging by time for the sale of The Times and a Mars Bar. What counts is the price of the transaction and the number of transactions completed in a day or a year. Computerised systems increase the number of transactions handled, with little increase in human time expended. That is why law firms install them. Competition drives down the unit price, in turn driving the need to increase throughput. The measure of success is total income or number of transaction completed in, say, a month. As clients demand the commoditisation of more legal services, law firms will need to drive down the time required to deliver a service.

Speed

Both in hourly priced work and fixed priced work, speed generates cash. Chargeable hours and billing targets do not measure speed, nor do they encourage behaviour that improves speed. Accountants tend to approach the speed problem by measuring work-in-progress (WIP) and debtor days. Lawyers find it hard to make a connection between their performance and these measures. Further, unless the lawyer is in control of when bills go out and the subsequent chasing of payment, it is unfair and ineffective to use these measures as measures of their performance.

Performance measures that work

The effective litigation manager will devise measures that suit a particular practice.

Performance against billing targets and work in progress are best considered by way of a cumulative graph so that trends can be seen.

Figure 6 shows predicted fees over six months for a group of lawyers. In the second row are the actual fees and the group's WIP is in the last row. It is hard to see how the group is doing. Figure 7 (above) shows the same figures in a cumulative graph called 'Progress against target'.

The group can now be seen to be performing consistently below forecast. The trend suggests that it is not going to get better. We have to decide why performance is below par or whether the prediction was unrealistic. The level of WIP is seen to be constant. It may simply require a purge on billing to solve the problem. Performance measures are more useful if presented better.

Conventional performance measures do not measure speed, nor do they encourage a quicker resolution of litigation. Better reports are available.

The first report is a file closing report. It records the following (see Figure 8):

Files 1 and 3 had time written off. File 3, the case that lasted the longest had the most time written off. File 2 required intensive effort over a short time. The chargeable hours per month column shows that file 2 was run at great intensity. File 3 looks as though it was run on the back burner. About a day's work a month was spread over 15 months. The general pattern is important. A litigator who is consistently putting just a few hours per month on each case may be carrying too high a caseload.

In one firm, a number of litigators were engaged on similar work for a single client. The firm published league table of days open. One litigator consistently took a lot longer to clear up cases than others. The litigator complained that his cases were more complicated than anyone else's. Not when they were handed out, they weren't.

Monthly reports

Monthly reports help us feel the pulse of the department. It is useful to group litigators by team or type of work. Within a team, there will be a norm for the number of open files a litigator can be expected to handle. It also helps to monitor the number of files opened and closed in a month. Figure 9 (below)ï'žµis an example.

Figure 10

This is also apparent from the high percentage of files unmoved, that is those with no time recorded for a given period. C is working hard, but may not be bringing cases to a conclusion. Putting measures and people side-by-side gives us a feel of how the department is doing and what to talk to individuals about.

Conclusion

• No set of performance measures will serve all purposes.
• Start by deciding what the department needs to achieve
• Select measures that will not only measure what is really wanted but will also will encourage the behaviours required.
• Present the measures in a way that delivers useful comparisons.
• Measures tell us what to talk about with members of the department.