Revenue

Three Key Sources of Revenue and Data Leakage in Law Firms

Anyone working in the fee-for-service environment that still dominates the legal profession is familiar with the challenges of accurately tracking time consumed on work for clients. Most legal professionals spend much of their days working on multiple matters for multiple clients. They are constantly subject to interruption, and they often have to rely on memory and “guesstimates” to reconstruct what they’ve done, for whom and during what periods of time. Even as they perform substantial work, they must also take time at many points in the day to get organized and try to stay that way, whether that means filing documents, scrolling through their inbox, asking a colleague for a status update or creating new folders for a new batch of emails.

Revenue leakage occurs when we fail to capture the time spent on client-related work because of inefficient processes. The association of revenue leakage with data leakage may not be immediately obvious, but it makes sense because today’s law firm clients demand verifiable evidence of work performed on their behalf, and in today’s digital business environment such evidence is derived from data. Clients want to see what they’re paying for.

With that in mind, let’s take a look at a few of the most important sources of revenue and data leakage in the legal service delivery profession today.

Human behavior

Human beings are easily distracted, and every diversion is an opportunity for cognitive drag and the erosion of productivity. Every small organizational task consumes intellectual energy and imposes a modicum of “cognitive drag” that accumulates over the course of the day. These tasks divert attention and concentration from the more cerebrally demanding tasks that ultimately determine legal outcomes, earn the trust of clients and generate revenue.

Throughout this constant back-and-forth between big tasks and small—which have a way of merging together in our minds—attorneys must also divert cognitive energy to documenting their activities so that, when it comes time to bill, the firm can present clients with an accurate and convincing account of the productive hours that have been spent on their behalf. That’s what clients increasingly expect, and that’s what firms that wish to continue to win business will need to be able to provide.

This is where revenue leakage begins. Every instance in which we fail to convincingly substantiate time actually spent on client-related work represents a small loss of revenue, and those instances can add up very quickly.

A less obvious but equally important point is that each of these instances also represents a lost opportunity to gather and analyze data that can tell us exactly how we perform specific kinds of activities, how long it takes and how much it ultimately costs.

Human beings can accomplish amazing things, but our inability to function efficiently and accurately when performing highly detailed tasks very quickly in complex work environments is well-documented, and it is a core factor in nearly every example of revenue and data leakage in law firms. Technology that requires active human engagement, such as following a series of steps, may help us keep organized, but it also takes us off task and increases the likelihood of error. This is a major problem with most time-tracking software, for example. Instead, we need technology that operates in the background, constantly gathers information, learns from individual behavior and performs these tasks efficiently and automatically.

Email

Email is an essential component of any attorney’s daily activity, and much of that activity takes place on phones and other mobile devices. Email often involves valuable work on client matters, but it also includes tasks like filtering and prioritizing messages, reviewing a lot of non-essential information, organizing emails into folders, ensuring you are maintaining compliance, and reconstructing many of these activities for time cards and narratives of genuinely billable work. Again, we have conventional software like Microsoft Outlook to help us keep our emails organized, but these products require we take active steps like dragging and dropping, which take time, are susceptible to human error, and divert our attention from more important tasks—and they are even more difficult to manage on mobile devices.

Even if you don’t end up billing the client for the actual time your attorneys spend on every email related to a particular matter, if you have technology working in the background to capture the details of those activities and automating the organization of inboxes and email folders based on individual attorneys’ actual behavior, soon you will have a body of data that reveals with remarkable precision how those attorneys are spending their time. That data can be compiled into a detailed narrative to substantiate billable activity, and that in itself is no small feat. But the data can also provide important insights, such as the variable demands clients impose on staff time and the ability of individual employees to manage their time effectively. This is the kind of thing advanced technologies like machine learning are very, very good at.

The example of email also highlights a unique form of data leakage that poses potentially severe legal, financial, and reputational risks for firms when communications containing sensitive or privileged information are inadvertently sent to the wrong recipient. We already know that human error is a major source of data breaches. In the case of email, we can automate wrong recipient detection and data loss prevention and virtually eliminate the problem.

Administrative workflows

Admin activities often appear in budgets and bills as “professional fees” or are surreptitiously padded as a result of inefficiencies, a.k.a. “overhead.” In general, law firms really don’t know how much potential revenue is lost to non-billable costs because they don’t have the data to measure it, and therefore they don’t have a good way distinguish activities that substantially contribute to a client’s legal representation from activities that do not. Client engagement management falls under this category, including tasks like client inception, searches for conflicts of interest, credit checks, client care, client relationships and “know your client” (KYC) regulatory requirements. Similarly, matter management comprises essential activities like matter inception, conflict searches, global matter management, matter reviews, and matter budgeting.

Other administrative functions that bear less directly on specific matters and clients include HR management, work in progress (WIP) management and billing, time and disbursement management, and finance and controlling. This is hardly a comprehensive list. We can be certain there is revenue leakage in many of these areas, but for the most part, we can’t quantify it. That’s because most law firms don’t have software running in the background gathering data, analyzing it, learning from it and providing actionable business intelligence to inform better decision making.

We don’t necessarily need to disrupt and rebuild these workflows in order to identify areas of revenue leakage and improve them. But without the data to understand exactly how they’re working, we’ll never effectively address the leakage they make possible.

To prevent leakage, think small

When we consider the potential for deploying advanced technologies to enable more efficient legal workflows, it’s important to keep in mind what technology can’t do. There is substantive legal work that only highly trained legal professionals can perform, involving complex capabilities like human judgment, the ability to construct reasonable and persuasive arguments, and an understanding of the nuances of highly specialized legal and other domain-specific language. Mastering these activities requires high levels of specialized education and broad experience with specific types of litigation and legal problems.

In spite of what you may have been led to believe, we are not at a point where technology can help significantly with these kinds of activities, at least not yet. On the other hand, there are plenty of tasks, some of which I’ve touched on here, that legal professionals perform every day which specific kinds of advanced technology can help manage. Almost every attorney working in private practice legal service delivery performs a mix of both kinds of tasks—the “big” tasks that can legitimately be billed to clients, and the “small” organizational tasks that often contribute directly to client-related work but are much harder to capture and substantiate.

Today, we can use sophisticated algorithms to learn from the behavior of legal professionals, and help them stay organized and perform small tasks even better. But to seriously address revenue leakage in law firms, we will also need to use the data that is generated in the process to get meaningful, actionable insight from the minute and iterative details of our operations, and that information will help us further refine workflows, budget much more accurately and provide clients with rigorous accounts of our activities on their behalf. Getting there isn’t about building a lot of fancy new applications. Instead, it’s about building inside the applications that law firms and their clients already use.

About Ryan Steadman

Ryan Steadman
Ryan Steadman is CRO at Zero, innovative AI-based email management for law firms.Ryan leads Zero’s vision and execution for growth, expanding their global footprint, and ensuring a world-class customer experience. He has over two decades of experience delivering disruptive and emerging technology to professional services organizations world-wide, and deep subject-matter expertise across a wide spectrum of essential business processes.

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