FM31- Impacting Financial Performance- Key Performance Indicators. Presented by Frederick J. Esposito, Jr., CLM

Transcription

1 FM31- Impacting Financial Performance- Key Performance Indicators Presented by Frederick J. Esposito, Jr., CLM 9/9/ :00 AM The handouts and presentations attached are copyright and trademark protected and provided for individual use only.

2 Impacting Financial Performance Key Performance Indicators Measure, Adjust, Succeed Presented by: Frederick J. Esposito, Jr., MBA, CLM Executive Director Rivkin Radler LLP The Venetian Las Vegas, Nevada Saturday, September 9, 2017 Let s Start with a Quote. If You Don t Know Where You Are Going, Any Road Will Get You There -Lewis Carroll 1

3 Law Firm Key Performance Indicators (KPI) Background Performance Measurement Evaluate Success/Progress Strategic Operational What is important to the Firm? Finance? Business Development? Law Firm Key Performance Indicators (KPI) Background Measure, Adjust, Succeed Develop an Understanding of What is Important Performance Indicators Methods to Assess Present State of the Firm Key Initiatives (Strategic or Operational) Performance Improvement Initiatives Apply to Management Framework 2

4 Law Firm Key Performance Indicators (KPI) Background Categorization of Indicators Quantifiable Practical Directional Actionable Financial Key Performance Indicators Strategic Development Targeted Objectives Adds Value What is a KPI???? Any Measure or Statistic that a Law Firm Tracks That Meets All Three of the Following Characteristics: 1. Reflects the Firm s Goals 2. Viewed As Key to the Firm s Success 3. It is Quantifiable 3

5 Law Firm KPIs Examples Productivity The Ratio of Associates to Partners (i.e. leverage) The Ratio of Partner Hours Worked to the Total Hours Worked by all Timekeepers The Number of New Matters Opened in the Past Year Financial Progress The Ratio of Unbilled Work-in-Progress to Average Fee Billings for the Past Year Charge-off Percentage of Fees Billed (Write offs) Cost-Recovery Revenue per Matter When Choosing KPIs KPIs Should be Firm Specific No Law Firm Uses all KPIs Law Firms Must Identify: KPIs that are Important to the Firm and Define Success Implement System for Tracking Performance Metrics to Guide Firm Strategy No One KPI Tells the Full Story Decisions need to be made on an informed basis! 4

6 KPIs That Drive Firm Growth Higher Gross Revenues Automatically Lead to Higher Profits! KPIs That Drive Firm Growth Running a highly profitable Law Firm that produces amazing profits year after year has little to do with the quality of the attorneys in the Firm as it does the quality of their legal services. Do YOU Know What Numbers to Measure to Ensure Profitability and Drive Growth in YOUR Law Firm? 5

7 KPIs That Drive Firm Growth Do YOU Know What Numbers to Measure to Ensure Profitability and Drive Growth in YOUR Law Firm? Most Law Firms do NOT know! WHY NOT? Factors: Just don t know what KPIs to utilize Not Compiling Measures on a Consistent Basis and Accurately Compare them Month over Month, Quarter over Quarter, Year over Year KPIs That Drive Firm Growth Our Only Benchmark is Our Own Past Experience. -Mid-Size Law Firm Partner Misleading Benchmarks? Revenues per Partner Law firms vary significantly in terms of how many staff supports each Partner Impacts Profitability! Benchmarks can be skewed; tend to lean towards larger firms Small v. Large Law Firms Lack Clear Understanding of Metrics 6

8 KPIs That Drive Firm Growth Metrics and Benchmarking Measure your Firm against a group of similar firms Compare specific performance measures across the members of the group National Sources of Benchmarking Data Lexis Firm Insight BI Companion ALM Survey of Law Firm Economics Hildebrandt Peer Monitor Economic Index Incisive Legal Intelligence s Annual Survey of Law Firms KPIs That Drive Firm Growth Local Sources of Benchmarking Data Formal and Informal sources within your Region Included groups are comparable to your Firm (i.e., size, location, type of firm) Indicators measured are consistently calculated Third-Party conducts process so results are not skewed. 7

9 KPIs Decision-Making KPIs Must Be: Clearly Defined Identify what needs to be collected What Data? Big Rocks First, Pebbles Next! Precisely Measured Accuracy is Crucial Do Not Try to Collect Every Metric at Once Analysis Paralysis Accurately Interpreted Appropriately Acted Upon Good Metrics, Good Decisions! New Rules! KPIs Law Firm Values Develop and implement a comprehensive combination of specific KPIs relevant to your Firm Think Strategically! Practice Group resources focusing on the right priorities and generating value? Daily monitoring of the results and processes; understand how the KPIs are interacting! 8

10 New Rules! KPIs Law Firm Values Make sure KPIs add value while demonstrating performance All KPIs are NOT Equal! How can KPIs add value and demonstrate performance? Strategic Snapshot The Dashboard What Gets Measured Gets Done Snapshot of important performance indicators from financial statements and related reporting Ability to view performance indicators and how they relate and form patterns Focal Point of all performance indicators from a variety of sources 9

11 Strategic Snapshot Example Law Firm A has a strategic focus on specific client relationships and supports that focus with client teams. Suggested KPIs that might be important in measuring the breadth of the relationship: 1. Number of matters per client as an indicator of growth in the client relationship 2. Number of practice areas that serve this client as an indicator of cross-selling success; and 3. Number of lawyers with time on matters connected to this client; as it measures the breadth and depth of the relationships between the firm and client. Law Firm Specific KPIs Financial KPI Examples 1. Unbilled Days 2. Uncollected Days 3. Net Income (Profit) as a Percentage of Revenue 4. Average Net Overhead 5. Revenue per Square Foot 6. Revenue per Attorney (?) 7. Revenue per Matter 8. Revenue per Client 10

12 Law Firm Specific KPIs Operational KPI Examples 1.Billable hours per FTE 2.Percentage of Partner hours 3.Billings per FTE 4.Average Billing rate 5.Average Work rate 6.Ratio of Billed-to-Work rate Realization 7.Number of Matters Opened 8.Staffing Ratios 9.Cost Recovery Revenue per Matter Law Firm Specific KPIs Marketing & Business Development KPI Examples 1. Client Growth Rate 2. Dormant Client Percentage 3. Average Fee per Client/Matter 4. Average Fee per NEW Client/Matter 5. Marketing/Business Development Budget Ratio 6. Marketing/Business Development Cost per Client 7. Client Retention 8. Growth in Top Clients 9. Practice Areas per Client 10. Number of Lawyers per Client 11. Number of Matters per Client 11

13 Law Firm Dashboard Example Dashboards Final Points To Consider You Can t Drive The Car by Solely Watching the Dashboard Rather, it helps you know how well you are progressing towards your destination 12

14 Key Performance Indicators (KPIs) Final Points To Consider Use Liberal Doses of Common Sense! KPIs help to better assess Firm performance Consider your Firm s specific goals KPIs can and will change over time as your Firm evolves Measure Firm performance with good and timely information KPIs are measurable inputs, but no substitute for Common Sense and Good Judgment Key Performance Indicators (KPIs) Next Steps Gentlemen, my government has informed me that the Klingons are expected to move against your planet, with the objective of making it a base of operations against the Federation. My mission, frankly, is to, uh keep them from doing that. Capt. James T. Kirk Now What? 13

15 Key Performance Indicators (KPIs) Next Steps What Gets Measured Gets Done Metrics support key business plan objectives appropriate to each process and level of the Firm Sends the same message Firm personnel know their role and knows how well they are contributing to the business goals of the Firm Key Performance Indicators (KPIs) Next Steps Selection of the Correct Metrics WILL: Communicate Direction (business plan trend for performance) Stimulate action in the most important areas (business plan) Establish the current situation against the business plan goals Facilitate learning (where the business plan stands against world class performance) Influence behavior (what gets measured gets attention and action) 14

16 Key Performance Indicators (KPIs) Getting Started Bottlenecks First! Pick those issues that are easiest to correct and get them fixed immediately If more data is needed, add these items to the data collection process Use the classical problem solving tools of Six-Sigma to understand the data and begin a controlled change in the process. Fred, What the &*%^ is Six-Sigma? Key Performance Indicators (KPIs) Getting Started Bottlenecks First! Reader s Digest Condensed Version: Six-Sigma Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in business processes. It uses a set of quality management methods, including statistical methods, and creates a special infrastructure of people within the organization ("Black Belts", "Green Belts", etc.) who are experts in these methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified financial targets. (Cost reduction and/or profit increase) 15

17 Key Performance Indicators (KPIs) Getting Started Bottlenecks First! If new issues are detected change the data collection record to allow reporting of these new issues Translation? Don t stop measuring even when the issue is resolved; keep those metrics that will provide a picture of the business process trend (KPI) Key Performance Indicators (KPIs) Getting Started Bottlenecks First! Once the KPI metric is selected. Behind each metric is a process Work Instruction or Formal Procedure? How the data will be collected, analyzed and reported to Firm management? Who will be responsible for data collection, what form will used to collect it? Graphing or format to be used to communicate the KPIs? 16

18 Key Performance Indicators (KPIs) Remember! Baby Steps! KPI implementation is a Process Have Patience Sense of Humor Measure. Adjust Succeed! Questions 17

19 Contact Information Frederick J. Esposito, Jr., MBA, CLM Executive Director Rivkin Radler LLP 926 RXR Plaza Uniondale, NY Address: Phone Number: LinkedIn: Twitter: Lawmgtguru 18

20 Your Opinion Matters! Please take a moment to evaluate this session. Thank you!!

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