Effective Law Office Administration

By
David W. Favor
Catalyst Group Inc.
P.O. Box 97067
Raleigh, NC 2624-7067
(800) 892-0283
dave@catalystgroupinc.com

Getting Started

There is a unique element that we have found that applies to professionals, like attorneys or doctors. That is that they do not always recognize that they are running a business. Business management – or Firm administration – can be as important to your success as your professional knowledge.

The business model that we will be discussing has these elements:

• Setting boundaries
  • Defining your values and vision
• Strategic planning
  • Defining your mission
• Effective Administration
  • Structure
  • Management Principles
  • Office Systems
• Measuring your effectiveness

Within each of these elements are these considerations:

• Resources like intellectual property, funding, time and materials.
• Policies
• Administration and management

Setting Boundaries

Have you ever wondered what your purpose in life is? Are you just a victim of circumstance or do you have a grander purpose? If you are like each of us, from time to time it occurs to you that you must have a purpose.

When you are acting outside of your values there is a lot of frustration in your life. Sometimes you try to live the values of others, which do not match your set of values. The competing sets of values just do not mix. For example, your values may include extreme honesty while your job included a value that prevented complete honesty. Sooner or later you will encounter that moment of truth where you must choose. It is possible for you to be in a constant state of frustration and not be aware that you have this inner conflict with values. While you may not be conscious of your values, they are observable in the way you live your life.

Values are the nonnegotiable characteristics you want reflected in your life.

To find your purpose you must identify what your true values are. What kind of values do you want (work values and social values)? The hard part about defining values is, VALUES are not negotiable. There is a difference between your values and a policy. A policy is negotiable, values are not. You could have honesty as a policy and decide, based on the circumstance, not to be honest. Let’s say you tell your secretary to tell certain people that call that you are busy but put others through to you. You tell a friend you will attend a function and then don’t want to go so you make up an excuse. In these examples honesty could be a policy but not a value. Values can be policy but all elements of a policy are not necessarily a value.

Determining your values is a necessary and important step in your personal and business development. Values convey who you are: the parameters you have set for yourself in terms of ethical, moral and personal beliefs. Your values become the filter through which you determine right from wrong. If you do not define your values, the influences of the world will define them for you. Values might represent various character traits such as honesty, compassion, or generosity. Others may reflect our attitudes about people or life, running the gamut from being a loving partner to appreciating nature, having faith in a higher power or having freedom of thought.

We have been through this exercise many times and continually review our values. Here is a set of values that we developed recently to better define a relationship. We hope this will help show how values can be real and can affect your life.

• Honesty in our feelings with courage to express our needs and emotions. So often our needs are not expressed and go ignored. We will not allow this to happen. No matter what the needs are, emotional or physical, we have the trust and the courage to express them.
• A passion to support each other with respect for each other's needs, talents and self worth. To establish an environment of trust we must provide respect and passion. A relationship without passion is lifeless and without respect is doomed.
• A Loyalty to each other (self-sacrificing devotion, faithfulness and allegiance). Loyalty requires an understanding of needs and wants which can be understood only if you have honesty, courage, passion and respect.

An individual may have personal values as follows:

• Intentionally cause no harm to others
• Compassion for others
• Acceptance of the diversity and uniqueness of others
• Non-judgmental
• To Live each day in the moment

If you can establish a set of values, which agree with basic societal values, and which meet other people’s generic values, you can get those people to follow your dream. It is our values that move us, bind us together, push us apart, and generally make the world go round.

YOUR PERSONAL VALUES MUST MATCH YOUR PROFESSIONAL VALUES
PEOPLE WHO ARE INTEGRAL TO YOU IN YOUR LIFE AND CAN AFFECT YOUR LIFE PLAN MUST HAVE THE SAME VALUES

Your Vision

There is a neat exercise you can use to discover your purpose in life. Dare to DREAM! In this exercise forget about all preconceived restrictions (yes even your values for now) and just dream about the perfect future. What does it feel like? What does it look like? This is your vision for the future.

A vision is a dream that focuses on what you want the future to be like and your role in creating that future.

A vision statement is a clear mental portrait of a preferable future. Your vision is a long-term approach to life. It is not something you will accomplish in the next quarter, the next year or probably not within the decade.

The lack of personal vision can be physically and emotionally debilitating. You are not excited. There is no anticipation about the day, no looking forward to getting up in the morning. When you create a vision that you really believe in the energy comes back.

Your Mission

While the vision is long term, your mission is short term – 2-3 years out. Your mission will tell you what you have to do now to realize your vision. The mission for your law firm defines who your clients are and what you deliver to those clients.

Your mission is the grand purpose for which you exist

A mission statement is written to inspire you, not to impress anyone else. You live in a world of opportunities, alternatives too numerous for you to fully exploit. Unless you embrace some degree of self-definition, you will self-destruct. Think of your mission as the territory within which you will operate. A true mission will reflect your values and your vision. As proactive people, we can begin to give expression to what we want to be and to do in our lives. Fundamentally, your mission statement becomes your constitution, the solid expression of your vision and values. It becomes the criterion by which you measure everything else in your life. Writing, and reviewing, your mission statement changes you because it forces you to think through your priorities carefully and to align your behavior to your beliefs.

There is no right or wrong mission, just yours. You could include statements like: to create joy, to have peace, to make a difference, to raise a family, to serve God, or to find fulfillment. What you write about you must have some passion about, something to which you wish to dedicate your life.

Law Office Structure

With all this information about values, vision and mission, how do we manage a business. First of all you have to recognize that a law firm is a business. With that done, we have to discuss some of the titles we hear about just so we are all talking about the same thing.

What is in a title?

• A manager is focused on the control of resources and the mission. For example, a business manager in a Law Firm would be accountable for meeting the budget, following the procedures, enforcing policies, and employees.

• A leader is focused on the development of people and the vision. For example, a leader would own the strategic plan, be responsible for staff morale, and accountable for the overall performance of the business.

• An administrator would be focused on coordinating elements of a Law Firm. For example, the administrator would have managers reporting to them, would be implementing the vision and would keep the scorecard.

• A profit center would be a team that generated revenue. For example, the Worker’s Compensation team in a Law Firm.

• A resource center would be a team supporting the business. For example a call center or a pool of legal secretaries.

• A skill based system would rely on skills to accomplish a job. For example an attorney would be in a skill based system.

• A process based system would rely on processes, and procedures to get the job done. For example a resource center would be in a process based system.

• The burden rate would represent the cost of doing business.
  Technology

The use of technology in law firms is just beginning to take hold. With this change in the business environment we begin to see new roles within the structure of law firm management; roles like Manager of Information Technology, Business Manager, System Administrator, and other technical roles.

While the role of IT (Information Technology) as a service is becoming familiar, the ability to measure the quality of the service actually being delivered is still not clear. At some point the management staff or the partners in a law firm are going to ask what the ROI (Return On Investment) is for all this technology. The goal of technology is to provide better service for the legal staff in place to generate revenue.

Technology plays such a key role in data integrity and the passing of information that goes into a case that it becomes intellectual property for your practice. The first of two problems is, people fall in love with technology. They order new technology without doing any strategic planning, and then use less than half of the function. The second problem is your technology folks are not focused on the business. When your major technology folks are able to discuss, in great detail and very accurately, what the business challenges are to doing something, then you know you’re beginning to blend your organization. You should take offense when employees say that something is a technology problem. It’s not a technology problem; it’s a business problem.

Most IT issues or failures can be traced back to users not clearly defining their goals, no strategic planning.

The provision of high levels of service has taken over from all the old issues that have been associated with Information Technology. The advent of the internet and mobile technologies has meant that the concept of the ‘end-user experience has become more important. We now have attorneys and investigators accessing case management systems from a remote location (their home, the court, etc.).
The problem that we have seen for law firms in this highly distributed world is that the ownership of the communications is outside of their jurisdiction and they do not understand the technology. At the same time, it takes only a small degradation in quality of service for the users to abandon the service being offered. The business needs to know when users are experiencing poor levels of service so that it can identify the problems and resolve them or all that technology will never be used.

Technology has enhanced the need for procedures and strategic planning. Technology is expensive and usually complex or at least changes the way task are done. The best way to put some control on technology cost is by incorporating technology studies in the strategic plan. Also, changes in technology tend to impact many areas which will increase the need for strategic planning. The best way to get employees up to speed on the new technology quickly is to transfer the knowledge of the technical team to a process that can be used to train all the employees, new and old.

Planned change almost becomes a necessity because of the lead times needed to import new technology.

The Scorecard

You need to identify your goals in measurable terms. This is essential for understanding, evaluation and making adjustments. What are your two-to-five year projections for key performance measures? How does your projected performance compare with competitors, key benchmarks, and past performance?

You should have measurements in several key areas, like finance, time and intellectual property. Any area that you feel is critical should also be added to the list, like client service.

For the financial side you may want to know what your overhead is, what the burden rate is, what the average settlement is, or what the average cost of a case is. For intellectual property you may want to know how current your process are, what the skill levels of your staff are, or how well you have protected key information. For time you may want to know the average time span of a case, how long it takes to create a brochure, the integrity of your calendar system or how long your staff are on the phone. For client service you may want to know the average call back rate, results of client surveys, or the referral rate.

Quality Assurance

My suspicion is that law firm administrators do not have a good understanding of what Quality Assurance is. I admit that it could be that a law Firm is somehow the only unique business out there and all this industry stuff does not apply, but I doubt that. A law firm may have different terminology but it is not unique. The purpose of Quality Assurance is to provide early warning of potential missed quality goals with enough warning that the process can be fixed in time to prevent any impact.

A simple definition for Quality would be: the degree to which you meet requirements.

Today, due to a very competitive environment, quality is just another way to distinguish your services from those of your competitor. The problem is, how do you measure the quality of your service? Well, one way would be to define the quality characteristic you want in your service. For example, if you wanted the brochure to be delivered on a time constraint than that would be one measure of the quality of that brochure. Let’s say that the brochure had to be out of your office ten days from some established checkpoint that could be tracked by your case management system. Or, let’s say no spelling error allowed, that would be easy to count.

The definition of quality I know is - meets requirements, so what you need to do is define the requirements for the Firm. Generally, measurements are driven by client requirements; however you may have other requirements to meet. A law firm, for example, may have to meet legal requirements. In addition to these requirements you may also have some personal requirements, for example the desire to make a profit.

So, a law firm would probably have several requirements based on NC Bar requirements, client service requirements and financial. Making sure that you have the correct requirements is the first step and it is referred to as developing a balanced score card. Once done the next step would be to determine what process steps can be measured to give early warning with enough time to effect a change. Now you can say that all this is overkill and not needed in your world but that is what every business that I know about does from large (the IBMs) to the small dress shop that measures cost per sq ft floor space (yes I even did a small store once).

The quality Assurance function is responsible for providing to management;

1. The results of audits

2. Client feedback

3. The status of corrective actions

4. Recommendations for improvement

Some quality benefits are tangible, such as an increase in financial earnings or a decrease in process-related waste; others are less tangible, such as a loyal customer base or an alignment between business activities and business results. All of the benefits, however, are real.

The Burden Rate

I discuss burden rates because most attorneys I talked with have never heard this term. The burden rate can be used to determine the return on investment of a team or even one attorney. This calculation can also be used in formulas for bonus payments. This calculation is frequently included in the score card.

All costs of services are recovered by charging an hourly rate to all users(users here are staff members of the law firm) for the actual time staff work on a project. Like other overhead rates, the burden rate is set annually, based on the completing years of historical data. It is calculated as a ratio of the annual operating costs of the department or team to the value of the services. Operating costs include: rent, communications, management and support staff salaries, supplies, maintenance of engineering labs and computer systems, plus the assessed share of facilities maintenance, copying, and the operating expenses of the administration and IT departments. The burden rate, and its component expenses, is subject to the same monitoring, audit, and final approval by the partners as are the other overhead rates. Burden costs are defined as the direct overhead costs associated with producing a job.

Management

Now that we have all these elements defined, how can we manage the law firm? A lot of that decision is based on the size and the complexity of your law practice. As you increase in size you are more likely to use a process based system to help manage the delivery of services. As you increase complexity you rely more on a skill based system. So as your law firm grows you rely on both. A small single attorney firm may be a skill based system while a large multi-attorney law firm may have a skill based element as well as a process based element.

There are two business views evident in most professional organizations; the skilled view and the process view.

• On the skilled side you have task that are not time constrained. They do have delivery dates but while the task is open it can be worked on any time. The other characteristic is that of requiring a unique skill. These two elements generally preclude a well defined process.

• On the process side you have tasks that are repetitive in nature and can be performed with a narrow range of skills. The ability to perform the task can be easily taught and regimented by a process. Since everyone doing this task will follow the same steps they can be grouped together into a team.

The concept for a manager to understand is that of two groups of staff, one with unique skills and one working in a team under a process. The balance between skills and process is usually decided in the strategic plan with the staffing defined in the business plan. Since skilled hours cost more that process hours the burden rate can be improved by moving work to the process side. The skilled group needs a leader while the process group needs a manager.

A manager will maximize the use of resource by looking at the mix of skills and process and add technology to support the resulting mix. A skill based system will support attorneys and case managers. If that is all that is available the amount of work that can be completed soon is limited to the time available and the priority of task. As the work load increases repetitive work is pulled out of the skill based system and assigned to a process based system.

Performance measures are used by the manager to determine the effectiveness of this mix, the efficiency of the system and the quality of delivered services. Using the technology of a case management system can improve the efficiency of either system.

The Profit Center

Defining teams can improve the efficiency of your business. One way to effectively define teams is to identify profit centers and cost centers. A cost center is simply an overhead cost, or a team that provides a service but does not directly create revenue. The team effectiveness is determined by process measures. A profit center is more complex and is a team that generates revenue. This team will have your attorneys, case managers and paralegals.

The measure of this team’s effectiveness is generally based on revenue generating capability. The goal of a profit center (PC) is to generate revenue and profit. There are several ways to develop these measurements and goals.

• Using the calculated overhead of the practice you could make the assumption that all areas have a similar overhead. This is not always accurate, however will give you a ballpark figure. For example, a PC that generates $1000 in revenue, with a 50% overhead, generated $500 in revenue. The problem is, the fixed overhead cost is not accurate for each practice area.

• You could determine the cost on just salary and assign a return on investment (ROI) multiplier. For example, the total salaries for the staff in a PC were $10,000 and you want a 150% ROI for this period. So, the goal of the PC is to generate $15,000 in revenue. This is better than method 1, however still does not address the true cost of the PC. It is better because it does address the salaries of the PC members, which is an indicator of cost.

• The most accurate method, and most complex, is to determine your burden rate and use that in your determination of cost. The burden is the non-revenue generating cost of running your practice (heat, light, buildings, administration, etc.). The rate is generally calculated as the cost per hour using all the hours worked by the revenue generating staff (attorneys, paralegals, etc.). Now the cost of running the PC is the number of hours worked by the PC multiplied by the burden rate, plus the salaries of the PC staff. If your ROI was 150%, you would multiply the cost figure by 1.5 to get the revenue goal.

Now that you have the goal of the PC (using method 1, 2 or 3) you can assign a revenue quota. The method you use to calculate the cost of the PC will be influenced by the amount of detail that is allowed in your bookkeeping system. With the revenue goal established, any bonus would be calculated on the amount of revenue generated over and above that target for that period.

By Values

Now that you have all your systems in place there is still the question of how you are going to manage this law firm. It really comes down to two management focuses, values or performance. Most new managers start out focused on performance and discover that this was too narrow of a focus. For example a law firm that was focused on performance may only measure profit and therefore the management team would be focused on return on investment. Actually if the values, vision and mission were focused on making money this may be OK. Most law firms are not focused that narrowly. For example you may have client service, profit margins, and reputation in your mix. In fact most successful businesses have between 3 and 5 elements on their score cards. This will make the job of management more difficult. With a mix of elements in your score card the best approach is to manage by values. This forces you back to your defined values. Decisions are made based on the values defined not just performance.

Evaluations

One of the jobs a manager has is the evaluation of the staff assigned. To do this the manager must understand the system being used (skill or process), the technology available (tools) and the performance levels expected. The job of the manager is to ensure the best fit for each staff member within the system. The goal is to make the system as effective as possible. If a staff member is in the wrong position or not able to handle the responsibilities of a position the manager must balance the resource. This can be done by fixing the process (in a process based system an error is always the fault of the process), education (in a skill based system an error is always the fault of the skill level) or moving the staff into a position that best addresses the performance expectations. Other factors should also be considered in any evaluation. Elements like how the person being evaluated respected the Firm’s values, how well they contributed to the team assigned, or how well they responded to policies.

It is important that you treat all staff equally when it comes to evaluations. You can not have two sets of values or two sets of policies for the same type of team. It is important to also remember the notes provided above.

• In a processed based system any error is always the fault of the process. When an error is found address the process not the staff. This has been proven over and over again. Usually the single biggest mistake seen is that the process was not followed or some unique element was added to a process that does not apply to all. As your process becomes corrupted errors increase. You should not hold a staff responsible for a continually changing process.

• In a skilled based system the error is usually due to lack of skills. When this happens you have a choice, determine if the staff person needs training or if they should already know the skill.

System Setup

The management systems are designed or thought out during strategic planning. This is where you decide what practice areas you want, what volume of cases you want, and how large of a firm you want. Once these parameters are decided on the case management system is chosen which will determine the level of process documentation you need and the balance between skills and processes. The theoretical design is completed to the degree that would allow a detailed business plan to be developed. The business plan drives the spending of funds and the installation of systems. By following this path your odds of creating a working system efficiently is improved.

Summary

The key to having an effective and efficient law practice, or any business, is planning. It makes no difference what you call it (business planning, strategic planning, etc.). You simply have to think about what you want and plan out how you will get there. The steps we have discussed increase your success rate. By defining your values and the values held by your law practice you define who you are. By documenting your vision you define where you want to end up. Now you know your rules and your destination. Map out how you are going to get there.

Be honest with yourself and any partners you may have. It really does not matter what your vision is, as long as it is real to you and you have some passion focused on realizing it.

Tips

MBWA

One of the best ways for a manager to find out how well the system is working is to walk around and ask questions. Find out if your staff are having problems and address issues early. Take this opportunity to provide positive feedback to your staff. Remember that the manager is not there to do the work.

Process Flux

One good indicator that your process is out of control is a sudden increase in the changes applied to a process. This can mean one of two things;

1. The process is designed for the wrong skill level

2. The process is not effective

Look for an increase in notes, process changes and other communications that discuss small process improvements. If someone other that the owner of the process is making these changes they may not understand the process and how it fits into the big picture.

Root Cause

At a high level there are only 5 causes for error when you are looking at an office system.

1. Communications – what was not communicated? Look at the training program or the process documentation to determine the root cause.

2. Education – what was not understood? Look at the effectiveness of the training program to determine the root cause.

3. Oversight – what was not considered thoroughly? Look at the training and past performance to determine the root cause.

4. Process – how did the process allow, enable or encourage the error? Look at the overall design of the process and procedures to determine the root cause. The process will include the actual process documentation, the process flow and the tools used.

5. Ability – how did the ability or skill level of the staff encourage or enable the error? Look at the training effectiveness and past performance to determine the root cause.

Causes 1-4 can be addressed within the process system while cause 5 is addressed by Human Resources. Several studies have proven that while working in a process system causes 1-4 are almost always the cause.

While operating in a skill based system the cause is almost always the cause.