Law firms have an enormous amount of information on hand, in the form of court records, legal files, time entries, invoice documents, payment times, and more — and you can’t manage what you don’t measure. Thankfully, law firm analytics reporting inside legal practice management software lets you easily collect, digest, visualize, and make your firm’s data more actionable.
Leveraging data analytics in the legal industry
William Edwards Deming, an American engineer, statistician, professor, and author often labeled “the original data scientist” said, “Without data, you’re just another person with an opinion.”
Legal analytics tools, (commonly packaged inside legal practice management software turn your data into actionable insights that can help discover inefficiencies, improve workflows, streamline operations, and boost your bottom line. It won’t take much for your firm to quickly become a sophisticated, data-powered organization. All you need is the right technology and a willingness to embrace innovation.
Tips on how to approach law firm analytics
Information is power, but only if you know how to use it — and today’s lawyers are. Here are some tips on how to start approaching your law firm’s business analytics:
1. Why? Setting the framework
To effectively use your law firm’s data, you must determine why you are analyzing data in the first place.
What do you want to understand about your firm? Is it what happened in the past and why, how to change future performance, or – more likely – both?
“Why” is typically a question for the managing partner to answer because it involves the firm’s strategic plans. For example, your plan may call for an approach that shifts away from the all-important billable hour. Management may want to know how to use data analytics to develop a range of potential alternative fee options for clients as the firm grows.
Aligning how you visualize your law firm’s data analytics with your strategic plans also will help drive firmwide adoption of analytical systems and processes. As you know, it’s always easier to implement new initiatives with an understanding of ‘why’.
2. How? Develop SMART, strategic goals aligned with firm objectives
So, you’ve decided to use data to help drive planning, but how will you do so? Defining your success criteria is crucial. Setting specific goals around key metrics allows you to measure effectiveness and track success. Essentially, your goals are the procedural steps – the how – for accomplishing the why.
The best goals are SMART. That is, they are Specific, Measurable, Achievable, Realistic, and Timely. Too often, good initiatives fail due to amorphous, unrealistic, or unachievable goals.
Defining SMART goals requires understanding the key drivers of your law firm. Is success going to turn into increased revenue? Increased matter profitability? Improved client turnover? Increased profit-per-partner? Legal victories and favorable judgments? Employee retention or client satisfaction?
How your firm measures success will define how you present and make use of data.
3. What? Identify your Key Performance Indicators (KPIs)
Once you understand why you’re analyzing data and how you intend to use it, selecting the data you want available for review is simple. These are the key performance indicators (KPIs) that you measure on a real-time basis.
Proper selection of KPIs is vital. For most attorneys, profit and profitability are the most critical KPIs. But these often are overly focused on the short term, and there may be many others that better indicate whether you are meeting your SMART goals.
Just as important is the question of whether you have the right data to calculate your KPIs. The best analytics systems in the world are only as good as their data. Implementing effective data analytics within a law firm requires developing a culture committed to quality creation and actual utilization of data. A little extra front-end effort will generate tremendous benefits.
One prime example of low-quality data in law firms is task coding for time entries. Timekeepers often bulk code entries rather than appropriately assigning individual tasks. But this creates low-quality data that will hinder your efforts to develop matter budgets or assess potential alternative fee arrangements for future matters.
This is where your buy-in for data analytics is crucial. With management leading by example, it is more difficult for others to ignore use of best practices or disregard data insights.
4. Who? Build custom report dashboards
Creating effective dashboards requires understanding who is using the data and what you want out of the reports. Each person accessing your data will have different needs and will prioritize data differently. Effective dashboards present the most critical information first – which KPIs matter most? – so you must know what each user needs to see.
With CARET Legal, you and your users can customize their dashboard to track the items that mean the most. For example, most users grasp charts and tables better than lists of numbers. Trends are also more easily recognized when in visual graphic form.
You also need to display data that makes it clear if you are meeting goals. Trend directions are important, but they depend on the KPI; obviously, you want to see a line decreasing for non-billable hours but increasing for new clients.
Allowing users to build custom dashboards using easily selectable modules also helps maximize participation in your data analytics efforts.
5. Where? Share your data across the firm
Many practices consider performance information to be solely the province of shareholders or management. But you will get more firmwide engagement with your legal analytics tools – and, frankly, in overall firm health – by being more transparent and sharing information broadly across your organization.
The more people understand what the firm is trying to accomplish, the more they can help drive those goals. However, not all information should be freely available; effective analytics efforts tailor reporting for every level, and some sensitive internal and client data still needs to be protected.
You can also use your practice management solution’s law firm reporting software to automate report distribution at specified times to reinforce the firm’s commitment to transparency. Reporting should be available across all devices, particularly on devices that leadership and individual client managers use. Anytime, anywhere access to reporting allows firms to be more responsive to client demands and respond more rapidly to issues as they arise.
4 Ways Data Analytics Can Benefit Firms
Now that you know how to approach data analytics at your firm, here are a few recommendations on how to make effective use of the information you collect and measure.
1. Use data to identify better business models
Data analytics allows firms to find the right balance in showcasing expertise and providing clients with flexible pricing options while still protecting firm profitability. Analyzing bill collections and profitability rates can help you determine when to charge hourly billable rates and when to offer alternative options, such as flat fees or capped and blended rates.
2. Analyze data to assess lawyer productivity and performance rates
It’s important to know who is doing productive and profitable work and who may need more resources or coaching to raise their productivity.
Measuring a lawyer’s utilization rate offers a gauge of individual productivity. It conveys how much time is spent on billable work for clients. Utilization is calculated by dividing a lawyer’s billable hours by the total hours worked.
Of course, maximum productivity would be a utilization rate as close to 100% as possible, but lawyers must spend some of their time on administrative tasks.
3. Determine where new business originates
Your firm may receive referrals through word-of-mouth, the local bar association or other marketing endeavors. You want to know what works best so you can build on successful efforts.
But outside of referrals, data analytics provides a straightforward way to identify patterns and trends that pinpoint when and where growth occurs in your firm and where concentrated efforts will optimize additional potential.
Accelerate firm success with data analytics for lawyers
Every law firm has an endless supply of valuable data at its fingertips. You can put that data to good use to drive strategic plans and build a more productive, profitable practice. With high-quality data underlying insightful analytics, customized dashboards presenting real-time performance, and comprehensive reports conveying actionable intelligence, you can create a culture of innovation and constant improvement.
