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How to Increase Utilisation and Realisation Levels

How to Increase Utilisation and Realisation Levels

Overall Financial Model

Utilisation is one of the key drivers of financial success in a law firm. A possible set of drivers that would produce a profit for each 100 unit partner of $2 million is as follows – best practice in this market today:

  • Effective fee rate – blended rate for all lawyers incl partners - $440 ph
  • Utilisation – 85%
  • Leverage – 4.3
  • Overhead rate as a % of revenue – all costs other than lawyer salaries – 28%
  • Write-offs – 2%

There are many combinations of these drivers that produce the same outcome – but those combinations narrow if you assume the size and breadth of a major firm. This is the $2 million target that the best practices in the leading firms deliver today.

Utilisation Drivers

Utilisation is an outcome of:

  • The ability of the sales processes of the firm to sell enough work across:
  • Service lines
  • Geographies
  • Lawyer levels
  • The ability of the operating processes to maximise the level of utilisation for any given stock of sold work
  • There is a straight line curve that shows the relationships between sold stock and utilisation levels - assuming proper operational management
  • The organizational settings that support a high performance culture

Improving utilisation therefore needs to explore all the elements that contribute to both of these drivers – selling and consuming stock of sold work.

Diagnostic: Utilisation – Stock Gaps

The first step in understanding how to increase utilisation levels is to get the facts around three key elements:

  • What is the stock of sold work across the business?
  • Is the sales machine selling enough work to feed people at higher levels of utilisation?
  • Are people maximising the usage of sold work to maximise short term utilisation levels?
  • Are the organisational settings set correctly?

The first key analysis is to map the level of sold work across the firm:

  • Service line, Geographies, Lawyer Levels
  • And compare these stock levels with the levels required to achieve a hurdle rate of utilisation – say 85%
  • This analysis will show where the stock gaps are across the firm

Diagnostic: Utilisation – Sales Processes

The next step is to assess the effectiveness of the various key sales processes across the firm:

  • Sales management
  • Bid processes
  • Account management
  • Extension management

This analysis will determine which of these processes, and the people capabilities that drive them, need to be improved which will produce the higher sales levels required.

The effectiveness of the sales machine can be measured as follows:

  • Penetration levels of key clients – should be at least 35% of wallet
  • Extension rates on current work for current clients – should be 80% of sales
  • Sales conversion rates across the board – best practice is 50% - 2 proposals for 1 sale
  • Quality of sales management processes
  • The continuous management of sales pipeline and operating capacity to focus sales force – partners supported by BD teams – on feeding ‘hungry mouths”.

Diagnostic: Utilisation – Operational Management

The second key analysis is to assess the ability of the firm to convert sold work into billable hours. To do this, we need to do three pieces of work:

  • What do people spend their time on now?
  • Fee earning work
  • Marketing & selling
  • Producing thought pieces
  • Training & development
  • Admin, etc.
  • Is there a sufficiently high focus and priority on people spending most of their “40 hour week” on billable work?
  • How the Practice Groups go about maximising utilisation on a day to day basis
  • What are the organisational settings, and how do they impact on utilisation?

Process: Utilisation – Operational Management

What do people spend their time on? Take a statically valid sample of lawyers at all levels from across the firm:

  • Different utilisation levels
  • Different lawyers levels
  • Different practice groups
  • Different geographies

Interview each lawyer in the sample and determine where the key utilisation leakages come from across the firm and which ones are key:

  • Where does the time go?
  • What is getting in the way:
  • Complexity?
  • Too many meetings?

Diagnostic: Utilisation – Operational Management

  • How do the PG Leaders go about driving high performance levels from their teams?
  • Quality of reporting systems that focus on utilisation, realisation rates and the strength of the sales pipeline:
  • History
  • Forecasts – next week, month and quarter
  • How do the PGL’s short term schedule work to their team members?
  • How do the PGL’s energise the sales system when there is forecast utilisation gaps?
  • How do PGL’s “sell” their resources when they are short of work, and also “buy” resources when they have over-sold their capacity?
  • How do PGL’s deal with performance issues – i.e. somebody who has plenty of work but is not burning that work quickly enough?

Process: Utilisation – Operational Management

Part of this second area of analysis would cover the organisational settings:

  • What is measured for partners and lawyers?
  • What is rewarded?
  • What is trained?
  • What is expected?
  • What is communicated?
  • What is performance managed?
  • What is focused on?
  • How is agility achieved?

All of these points and others create the environment that sets the culture. No doubt that some of these settings will need to be changed to maximise utilisation levels.

Diagnostic: Utilisation - Summary

The results of these analyses would tell us where the issues are:

  • Sales deficit:
  • Do we have a sales problem? – i.e. not enough stock
  • Do we have a sales mix problem – i.e. some parts of the firm are very busy whilst other parts are not?
  • Do we have big enough multi-disciplinary jobs that suck in large volumes of resources from across the firm?
  • Operational management issue:
  • Do we have a professional staff mobility problem between practice groups and geography?
  • Do we manage tightly the operating capacity with the sales pipeline?
  • Do the PGL’s understand their business model and how to actively manage the key levers available to them?
  • Do the PGL’s tightly manage the scheduling of lawyers onto jobs to maximise utilisation given current stock levels?
  • Do we have the ‘right’ PGL’s who are properly trained and supported by good systems?
  • If there discipline around the timesheet system?

The results of these analyses would tell us where the issues are:

  • Organisational settings/culture:
  • Are low utilisation levels allowed to continue with no sanctions?
  • Is utilisation a key personal KPI?
  • Are utilisation expectations set too low?
  • Do the professional staff understand the impacts of poor commercial behaviour?
  • What is the strength of the work ethic?

Implementation Utilisation – Action Plan

These findings would suggest where the major focus of attention should be to get quick benefits to utilisation levels across the firm. From my experience, these are likely to include:

  • Weekly reporting of utilisation levels by lawyers and by practice group across the firm
  • Previous week, MTD and YTD
  • Forecasts over the next week, month and quarter
  • Weekly management focus from the top leadership team cascading down to the PGL’s
  • Short term actions designed to maximise utilisation levels this week from current sold work
  • Stronger connection between the sales machine and the operating capacity across the business – the BD Director has a major role to play here
  • Increasing the capability of the PGL’s to drive this process on a day to day basis

Realisation

The key to driving up realisation rates is to improve the commercial behaviours of partners in selling and operating matters. Some thoughts on this:

  • Undertake a brief pricing study to determine realistic prices for a premium position in each segment of the market – both line of business and geography
  • Set a hurdle rate for the profitability of each job – say PEP of $1.5 mill
  • Establish a process that deals with potential sales that are less than the hurdle rate
  • Establish a review mechanism for approving write-offs beyond a certain limit
  • Train the partners in firms
  • Business model
  • Commercial process
  • Maybe using stimulation
  • Have a very focused management system on write-offs per partner

Author(s)

John Colvin

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