Using KM in Fixed Fee Pricing

Knowledge Management in the Legal Profession is the subject of the Ark Group’s conference I’m attending in New York City. Here are my notes.

Toby Brown is involved in Client Teams, Alternative Fee Arrangements and Knowledge Management at Fulbright & Jaworski LLP. He’s also a recovering economist. This presentation focuses on the strong role KM can play in establishing fixed fee arrangements (AFAs) within firms.

#1. Analyzing billing data rarely reveals what you need.

Analyzing time and billing records tends to provide limited useful data because until now billing practices have focused on creating a narrative a client will accept and have not been about providing data that help the firm understand the phase, task or type of work involved. Further, going back in time more than two or three years won’t be useful since approaches to legal practice have changed dramatically and continue to change. For example, today it is rare to deploy enormous teams of associates on matters. Finally, Toby’s analysis of the data from similar matters did not reveal the existence of easily identifiable budgets or even strong trends. In fact, he found that the greatest influence on fees came from the specific facts and circumstances of a each matter.

#2. Firms need more knowledge about their work; KM can help provide this.

KM approaches to aggregating knowledge, coupled with improved approaches to creating billing narratives, can help build a knowledge store that is suitable for analysis. Toby believes that KM tools for collaboration, search and analysis. This will help the firm gather the necessary data, which will allow the firm to establish prices with greater certainty. Toby uses Redwood Analytics to analyze data and create a pricing model for a particular matter. Use KM practices to learn from your experience of analyzing the data and creating models. What worked? Where were the proposed prices wildly wrong? What should we change?

#3. KM can have a strong role in monitoring variance of cost to budget.

Toby says this is the “hot thing” on his project list. He is focused on trying to figure out how to provide more effective monitoring, coupled with an early warning system to partners so that they know when they are about to exceed the agreed budget.

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