Tag Archives: chargeable hours

Why timesheets rule but chargeable hours suck

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There was something deliciously ironic about me trying some new time recording software this week. It’s many years after I left life as a private practice lawyer but I can still remember that huge sense of freedom at escaping the tyranny of the timesheet. The feeling of being able to work on what mattered most and be judged on results rather than be measured purely on how much time I had spent working on client matters was incredibly liberating.

The IT director proudly unveiled the firm's latest timerecording application - robust, wireless and mobile, it represented the future of the firm's management information system

Subsequent conversations with other in-house lawyers validated that I was not alone in those feelings.

After I moved in-house a huge number of conversations with peers included the words  “….. and no-more timesheets”, with knowing glances being directed at any private practice lawyer in the room.

But within a few years, I was voluntarily tracking my time as an inhouse lawyer. Admittedly at the time it was a pretty crude mechanism – I tracked data in hour long blocks in an Excel spreadsheet over a period of months, but it did the job.

I’d been inspired to do this after reading Drucker’s book “The Effective Executive” (well worth a read) in which he makes the point that an individual can’t maximise their effectiveness unless they know where they spend their time.

In practice what it meant was that I could have much more informed discussions with my major stakeholders around how best to allocate my time to achieve organisational objectives. It allowed sensible and transparent choices to be made around different priorities (if I support this deal and this HR project, the position paper on IPR ownership will need to wait until next quarter, or we’ll need to resource things differently) which I believe kept me more aligned with the company and led to some very productive conversations.

On the other side of the fence, I’ve written a fair bit around what I believe the problems with charging by the hour are, not least the impact this has on the firms as well as how it affects the client relationship. My mind often turns to a partner I know who runs a management consultancy business, who almost immediately on taking over the department abolished time-based billing. Profitability increased along with client satisfaction and employee retention.

However, to my mind there’s a critical distinction between tracking time and charging purely based upon time. The most obvious point is that as knowledge workers, typically the cost of labour is one of the largest components of the cost of providing a legal service. Without knowing what the cost is, running a profitable firm (file, project,team, department etc) is nigh on impossible.

It’s also important to understand cost in other areas too. Law firms often talk about the challenges of calculating return on investment for marketing events such as seminars and events, but when looking at how business development budgets are prioritised and spent, much of the focus is just on the hard cash being spent on venues and collateral, rather than the cost of the people involved in preparing and administering the event.

For example, having a top partner at a City law firm prepare for, attend and follow-up at a seminar overseas which takes him or her out of the office for a couple of days is a significant cost which can be accurately measured but is often overlooked.

The other non-chargeable area that it’s important to track is product development. As law firms begin to think more about efficiency and identify some more standard, repeatable services (some firms have been doing this for years) which are nicely packaged for clients at a set price, they usually “get” the idea that the service becomes increasingly profitable as volume of sales increase. The documents needed for the service are all ready and the people involved get quicker and more skilled at providing the service as they get more experienced. But often any upfront development cost in creating the service (market research, pilot projects, legal research, designing template documents) is lost because it is recorded under a general non-chargeable code. This makes comparing the return on investment for the project challenging and without an idea of these sort of development costs for previous legal products, makes forecasting and budgeting for future product development more difficult.

So back to my current quest. I was inspired to revisit this after reading tweet from a contact saying he was trying a web-based package called timerescue. This was a million miles away from the clunky, manual time recording systems I’d used in law firms (when I first started practice it was a paper timesheet pad) – running in the background and capturing application use, automatically learning behaviour and applying tags. All in all, a fairly sophisticated tool, with some nice web-based analytics to use to understand the data.

However, while I’m a big user of many cloud services, I wasn’t entirely comfortable with sending some of this data (document names, email titles) to a company I knew little about, so after a very short trial, I binned it. I then installed a similar piece of software locally, called Manictime. I liked this a lot, but it led to stability issues, so now I’m back to a more traditional system called Grindstone2.

The application is, of course, irrelevant other than it needs to be quick and easy to use, and provide the data in a format that’s useful.

The key point I wanted to make is that while the market may be (thankfully) steadily moving away from time-based billing, there is much to be said for the discipline of recording your time.

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The insidious side of hourly rate billing

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Much has been written about the demise of hourly rate billing by some excellent writers, and rightly so, much of the focus is on why hourly rate billing doesn’t work for clients. Encourages inefficiency, doesn’t relate to value delivered or market rate for work, makes bill auditing onerous etc etc.

These criticisms are absolutely valid and it is undoubtedly clients who are driving the nails into the coffin of the hourly rate.

Time's up for chargeable time

But I want to look at hourly rate from another angle, and investigate some of the problems it causes within law firms.

Starting with the most obvious, chargeable hours targets for lawyers. Still the numero uno metric for measuring law firm performance, and still causing associates heartache in so many ways.

The number (be it 1,400 p/a 1,800 p/a or if you’re at a US firm maybe 2,400 p/a) it’s still the main criteria that lawyers are judged in the performance management cycle. Many law firms talk a good game about recognising non-chargeable work and rewarding high performance outside of pure client work, but speaking to associates at some of these firms, this type of recognition only occurs once the chargeable hours box has been ticked.

  • Want to have your business development truly recognised? Just make sure you hit your chargeable target.
  • Want to spend some time studying an emerging area of law? Fine, as long as you hit your target.
  • Like to spend some more time with clients, learning about their business? No problem, as long as it’s chargeable.
  • Up for partnership? Better knock your hours target out of the park this year.
  • Want to devote some time on pro-bono or other CSR initiatives? That’s great, do it at the end of the day when the timesheet is full.

There are so many activities that create value in law firms, yet so few of them get real recognition in comparison to chargeable hours targets.

Note also that many of these activities above represent an investment in the future health of the firm (you may remember David Maister talked about the tension between short term firm hygiene and longer term health) as opposed to the short term focus on current revenue.

One of the consequences of this is that lawyers fit in all the additional work over and above what are sometimes very onerous chargeable hours targets, leading to the inevitable work/life issues which are a hot topic over at the Careerist right now (http://thecareerist.typepad.com/).

And yet more frustratingly still, chargeable hours as a key metric has so many flaws

  • Do chargeable hours reflect the quality of work produced or client satisfaction? Nope
  • Do chargeable hours demonstrate profitable work or good financial management? Afraid not.
  • Do chargeable hours promote effective delegation and encourage senior lawyers to mentor train junior lawyers? Absolutely. Sorry, only joking.

I’m not necessarily suggesting the total abandonment of time recoirding. Indeed Peter Drucker, one of my favourite authors, talks about the importance of understanding where you spend your time in his brilliant book “The effective executive” which is one of the reasons I spent over three months as an inhouse lawyer recording my time. Also, capturing time utilised on client projects is important for calculating cost and determining profitability, and can also highlight development needs (if for example one lawyer takes 30% longer on a task than his or her peers).

But for as long as hourly rate billing and chargeable hours as the key metric continue staggering round like a zombie that just won’t die, I’ll continue wielding my personal chainsaw to send them to the grave!

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White space?

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I’m always looking to improve my blog, and one of the areas I look for inspiration and guidance is on other blogs, particular those with a big audience. One of the most popular is called “Zen Habits“, a blog about using zen principles to simplify life and slow down which has been going since 2007. Since the author has six children, I figure he must know a thing or two about running a busy, complex life!

The partners at Whitmore Grubbins took the art in their meeting rooms very seriously

The article that grabbed me this time, was called “Life’s missing white space” (link at end of the post), which explained the concept of white space in the design world, and then went on to look at how the principle can be applied to life, to increase clarity, balance, priority and peace.  Now with the possible exception of peace (although I’ve met my fair share of conflict-seeking lawyers over the years!), I think those outcomes could certainly benefit many of us in the legal profession.

In basic terms, the idea is that in the design world, the white space surrounding the design, can form part of the viewer’s experience. Think of the Mona Lisa: looking at this in a spacious room, with nothing either side of the picture would give a very different experience from seeing it in a small gallery with other pieces of art 30cm each side of it and above and below it. The white space has an important relationship with the content.

Where I think the concept has application for lawyers is that building white space into a day allows quality thinking time and reflection. The need for this can manifest in many different ways: the “doh” moment on a deal or case when a lawyer realises that something obvious has been overlooked; the realisation in the middle of an internal discussion that all the parties have been down this road before and are just rehashing the same behaviours again and again; the snatched and heated conversation with a difficult client or colleague that could have gone much better with just a little thought beforehand.

A little white space, a little pause, would offer the opportunity to just go back to basics. What are the objectives for a particular piece of work? What is it that the client really wants?  What are the risks here? What will the other party be thinking?

Often it is this thinking time that is the first casualty of the drive to get more done. Particularly in law firms living with the tyranny of the chargeable hour. The challenge is that this white space and the thinking that could occur within it, could result in a higher quality output for the client.

The other area where I believe that white space can help us, is its ability to allow reflection and learning. This can help us grow both as individuals and organisations (I’ll leave discussion of Senge’s classic book “the 5th discipline” for another day). I’ve written previously about some of the challenges facing lawyers who wish to examine their work and learn from it, but adding some white space offers a great opportunity to grow.

Asking at the end of the day “what went well today” and “what could I have done better?”, is time well spent in my book, even if it is (literally) just five minutes.  One similar technique I picked up from a book called “Mindchi” was a two minute review at the end of each day, where you replay the day’s events from start to finish as a movie on fast forward in your mind’s eye. The first time you identify areas for improvement, the second time successes and things that went well. I found learning in both “films” (although I much preferred watching the second!

The paradox with creating white space, is that it is both simple and difficult to create. Simple is that it’s just a question of doing less and creating some time (ideally by removing some of the unimportant, unproductive things we all do each day). Difficult in that we are often not truly the master of our own schedules, and even when we are, old habits are hard to break.

Just for the record, the five minutes you spend each week reading The Intelligent Challenge should stay in your schedule!

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Time and money

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From my days as a project lawyer, I remember hearing “it’s just a question of scope. Or time. Or money”; the three key project variables. Of those, it’s time and money that are occupying my thoughts this week. In particular, the need to strengthen the link in lawyer’s minds between what they do (day to day) and making money for the firm.

Coming out of a listed company, that reports revenue and profit figures quarterly, the laser focus on those numbers was fresh in my mind (along with cash flow management in the current environment). This undoubtedly had some downside (in particular I think quarterly reporting encourages overly short-term thinking) but one strong upside was that people’s minds were focussed on helping the company make money. It might not be quite the same as creating shareholder value, but it was a good start.

Contrast this with a standard law firm. Lawyers may well be under serious pressure to meet chargeable hours targets, and team leaders exhorted to drive up utilisation rates, but to me that is one step removed from making the link between work and revenue. I think there are a lot of lawyers who don’t have a strong connection between what they actually do (be it chargeable work, bringing in new clients, training junior lawyers) and the money their firm makes.

Got my mind on my money and my money on my mind?

Given this is an observation, rather than a criticism, I’ve been mulling over the causes. Of course, at the heart of this is arguably the chargeable hours model of pricing work, which encourages a focus on hours worked, not on value delivered to the client (and thus the price the client will pay for it). However, I think there are also cultural factors at work in the English profession as a whole which have their roots deep in history and can perhaps explain why lawyers don’t like talking about money. Except of course when it comes to talk of salary or drawings, when many lawyers can prove to be highly articulate, very up front about expectations, and the link between effort and reward is strongly made in their minds!