Much has been written about how big data is disrupting the legal professional, but is that reality? How is law firm data being used to make decisions? There are several points of data critical to the modern law firm’s processes, such as: billing, receivable cycles, effective rates, budgets and forecasting. What do they all have in common? All of this information, which feeds big data and business intelligence exists after the invoice is created - but what happens before the invoice is generated?
The Case of the Neglected Timecard
Billing systems provide a wealth of information once the invoice has been created, but today’s firms don’t make use of the information that appears before an invoice is generated. Yes, you might run unbilled time reports, you might use some automated workflow to send missing time to accounting and attorneys, but that is mostly the extent of the pre-invoice data that exists in law firms today.
The timecard is the unit of revenue of law firms. If there is no timecard, there is no invoice, which translates to no receivables. Even for flat fee billing, you need to know how much time was spent on a case in order to know whether it is profitable or not.
Understanding Your Firm’s Time Entry Data
You cannot manage what you don’t measure. Measuring your firm’s time entry is an important step in managing your firm’s financial performance. After all, poor timekeeping compromises billing accuracy, resulting in time leakage, longer billing cycles, rejections and poor client trust. Timekeepers that take 5 days or more to enter time have problems such as leakage and rejections - while the timekeepers that create time entries the same day do not experience these types of problems, or at least not nearly as much of it.
So, what kind of data should your firm measure in order to improve time entry performance?
#1: Time Velocity
Time Velocity is the amount of time (in days) that it takes between the time that a task is completed and the time it is entered.
#2: Contemporaneous Time
Contemporaneous time means that time is entered as the work is performed. Contemporaneous time entry lowers the risk of leakage and accuracy issues, so measuring the amount of contemporaneous time is key for firms to understand. It’s common for firms to measure how many hours an attorney enters, but most firms are not looking at how long those time entries took to create, let alone how many of them are contemporaneous. By measuring contemporaneous time entry, we are able to establish a baseline to improve upon.
#3: Who Enters Time
Why do we care about who is entering time? The biggest reason is that time cannot be contemporaneous if we are relying on the attorneys to give time to legal assistants to enter, meaning that it takes longer for time entries to be recorded and longer for them to be entered. Not only will it most likely not be contemporaneous, but who knows when the secretary will actually be able to enter it. This creates an inefficient environment that directly contributes to longer billing cycles as well as more room for things to go wrong.
#4: Reconstructive Time
There is nothing constructive about reconstructive time entry. Reconstructing time is the most concerning thing that a timekeeper can do. Reconstructive time entry provides inaccurate information, adding another layer of anxiety to attorneys, billers, and other administrative staff members. How accurate can time entries be when they are recreating a time entry for work that was completed two, three, or even four weeks ago?
The Impact of Law Firm Data on the Firm’s Financial Results
When we start measuring things such as contemporaneous time, time velocity, and who’s entering their own time, patterns start to emerge that give us immensely valuable data about the time keepers, the billing, and the results we are seeing with both.
The Correlation Between Velocity and Who Enters Time
Through our analytics study that we do for our firms, we are able to identify trends and what has emerged is the correlation between velocity and who enters time. Attorneys that enter their own time achieve a faster velocity, meaning that they are more likely to be contemporaneous, lower time leakage and reduce write-offs.
The Correlation Between Write-Offs and Velocity
The correlation between velocity and who is entering time is good to know, as it helps us focus our efforts to improve our velocity – meaning, we will see more contemporaneous time entries, but a correlation that we’ve identified that we know directly impacts the bottom line is the correlation between write-offs and time velocity. When we map the velocity of timekeepers with the amount of their write-offs, we can see a direct relationship: the longer it takes for an attorney to create a time entry, the more write-offs that attorney has.
While this may be new information to the firm, and a great way to identify the habits that result in write-offs, this shouldn’t be a surprise. As our velocity increases and our accuracy decreases, it’s common sense to expect that write-offs will occur.
Why Data Matters to Today’s Firms
Data allows us to establish a better understanding of the firm’s time entry performance and how it plugs into the firm’s overall financial performance. When we can establish a baseline for understanding a firm’s performance, we can then focus on improving the areas that will generate the biggest impact.
How does your firm use data to drive decision making? Share your comments below.