Matter-Based Budgeting [#ILTA10]

Budgeting transcends all sorts of fee arrangements — whether hourly billing or alternative fee arrangements. So we should not limit the discussion to a particular kind of matter or billing approach. “This session [outlines] the essential elements required to develop a matter-based budget and how to track progress against it.”


William Auther, Partner, Bowman and Brooke LLP
Keith Lipman, President, Prosperoware
Randy Steere, Owner, Randy Steere LLC
Doug Brown, President, Basal Enterprises, Inc.

[These are my quick notes, complete with (what I hope is no more than) the occasional typo or grammatical error. Please excuse those. From time to time, I may insert my own editorial comments – exercising the prerogatives of the blogger. I’ll show those in brackets.]

So what do you do when a client calls and asks for a budget?

– What does the lawyer need to know?
– What does the accounting/finance department need to know?

The lawyer needs the following information:

– What is the client’s viewpoint or perspective? (is this a routine matter or a bet the farm matter?)
– What are the client’s expectations? (what form and content does the client need to receive?)
– What is the scope of work?
– What is the amount in controversy?
– How difficult does the client expect the project to be?

Focus on the major project management processes: breakdown the engagement into its constituent parts and tasks. Do you know what needs to be done in a stepwise fashion? It’s also very important to identify the phases in which these tasks occur. It isn’t enough to just say that every matter is unique. To do budgeting correctly, you have to dig deeper to find the identifiable tasks, phases and repeatable patterns. Don’t treat a matter (and its budget) as a mystery whose answer is to be revealed in time.

Budgeting is an iterative process. Once the lawyer puts a draft budget on the table, that opens up an important ongoing conversation with the client.

Tools and Methodology

What tools are available to a lawyer who is trying to create a matter budget? Do some data mining on multiple prior engagements so that you can compare the contingencies and costs associated with the work you’ve done before. However, you need to be sure that you are working with clean data — for example, is the information complete or has information been deleted, have you used task-based coding consistently, etc. This process provides data for the current budget, but it also provides clues as to how you might improve your current processes.

It’s very important to do budgeting by staff level/rank rather than by individuals. If you do it on the basis of an named individual, that may obscure the fact that they did this work as a third-year associate rather than a third-year partner.

The foundation for good data is laid at the time the new matter is opened. There needs to be a process in place that ensures that the firm continually refreshes that basic matter information to make sure it reflects accurately the development of the matter.

One enormous challenge is getting lawyers to participate fully in capturing the key data (regarding tasks and phases) that are necessary to build a robust model for matter budgeting. One way is to “drive the data back to them” so that they can see the implications of the data they are providing. In addition, you need to be sure that the feedback loops are good so that as lawyers review the budgeting data they can correct inaccurate data easily.

Where should a firm begin?

– Start by going back to prior similar matters and do the work to ensure that you have complete task/phase coding consistently applied. You can’t do the necessary analysis without this kind of information.

– When you are “managing the budget,” don’t just look at the actuals vs budget of the fees. It’s important to also look at staffing levels and changes in project scope. You need to get a better sense of where the gaps are between actuals and budget, AND WHY those gaps occurred. In addition, you should be analyzing whether your personnel truly are engaged in activities that deliver value to the client and profit to the firm.

A lawyer can really impress her clients by being able to make not only regular reports on how things are going (in terms of actuals vs budget), but also being able to make reasonable projections as to when and where variations from budget are likely to occur. A lawyer who can do this becomes a valuable partner for the client who needs to make similar reports to their company.

Lawyers are beginning to understand the importance of doing accurate budgets. Some firms are even beginning to think about how to reflect budgeting accuracy in their lawyer compensation arrangements.

A member of the audience noted that there’s a lot of work involved in monitoring a matter budget and handling the adjustments to the budget, and asked: “Should attorneys be doing this non-legal work rather than practicing law?” According to the panel, you can’t cut the attorney out of the equation — he needs to be on top of this information and is ultimately responsible to the client for this. Further, a non-attorney (coming from project management or IT) may not understand “where the pulse of the matter is” without input from a lawyer involved in the matter. That said, you can build a business process within the firm where non-attorneys (e.g., project managers, “pricing specialists” or others) can provide a substantial amount of support to alleviate the burden on the relationship partner.

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