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Time Sheets have been one of the most talked about aspects of a lawyer’s life. Both the young and old brigade of lawyers label time sheets as a source of pain to them. Law Firm Management, on the other hand, blames the lack of time sheet culture as a cause of lost revenue to the firm. In this article, we aim to discuss both perspectives to understand the utility of the Time Sheets and whether they are a measure of productivity and profitability or just a means to measure the same!
Understanding Perspectives of Lawyers & the Management
Lawyers are often observed quoting that just totalling up hours each day on a timesheet is a horse-blind approach to measure the worth of their work. According to them, it limits itself to assessing the value that you are providing to your clients into a single number, based on the passage of time and nothing else. To an extent, this can be equated with what Jay Shepherd commented in his blog, complimenting the work of a photographer by counting of pixels, instead of admiring the photo and its aesthetics!
Supporters of Time Sheets usually cite three most important reasons in favour of time tracking, namely – to gauge profitability, for effective management of workforce and for ensuring adequate data to be provided to the client. Lawyers come up with great counters to all the points cited above. To them, the logic that tracking the time allows firms to determine their costs and profitability doesn’t make sense. Their argument is that profit is calculated by subtracting expenses from the revenue, and the same matters at a firm level. Though not hundred percent correct, the argument carries some weight. The second reason regarding implementing time sheets for effective management of work force is also countered with the suggestion for team leaders to get enrolled for a management course! If team leaders manage their associates hands on, they would know what they are up to, instead of tracking their time minute by minute. Finally, as far as recording the time for client requirements is concerned, lawyers usually tender the argument that clients do not care about time records or how the work gets done, as long as it’s done based on agreed-upon specifications.
‘Value Addition” – The Key Mantra
On the basis of the discussion so far, it becomes evident that more than tracking the time spent, summing up the costs and evaluating the profitability, the relevant question is whether you’re delivering enough value to the client. Clients only really care about time and time records because they perceive that’s what they’re paying for. One can back that up with value added services. But the question remains, where does the value arise from? Value comes from the solutions we provide.
Understanding “Value” and its importance
It is important to understand that in order to determine ‘value’ in a business like a typical law firm, with many clients and many projects of varying degrees of complexity and scope, one needs to understand the financial environment of Law Firms. Law Firms have predominantly fixed costs, with direct labour as their major cost element and the primary stock in trade being ‘time’. If the firm does not record and understand how its available resources are using the available time, then how can it manage the same? Therefore, it is important to understand the following.
– Time tracking gives us the expense side.
– Value billing is the revenue side of the firm.
– Paired, they give you the information you need to successfully manage the firm.
A model that measures price, volume and quality against resource cost really trims the equation down to the right size and ties cost to value. The measuring of how long things take to do efficiently will always be an important component of pricing a service.
Decoding the simple arithmetic
For any commercial venture, it is important to price its services in such a manner that there is sufficient margin over the cost. A Firm cannot make profit, especially on fixed fee and retainer assignments, unless it is aware of its costs. To ascertain the cost of providing a service, it is important to know, along with other expenses, the time consumed by the resources in performing the task. Now, there is no other way to know how much time is being spent on matters if you don’t keep track of hours!
Time, scope and cost, often referred to as the ‘triple constraint’, are the most important features that must be managed effectively for the successful running of any project. Delivering projects on time and budgeting particularly within project-based businesses is crucial for any profitability and even survival.
This section aims to cover some of the best practices followed by time-keepers across the globe.
These are enlisted as below.
a. Fill Detailed but Relevant Time Entries
The time and precisely how we spent that time matter to clients because we insist on charging them for that. And since they can’t see for themselves how we’re spending that time, they want the details. We can’t tell them that the time is what matters, and then give them a bill for 20 hours with the description of “professional services rendered.” So we must spell out all our activities at length, so that the clients have the details of all what has been worked upon.
b. Analysis of Time Entries – Not merely filling in data
For time-keepers, it is important to understand that what is filled in the time records is more important than how much time has been filled. Further, in order to truly add value, the team leaders have to assess the data filled in by the team members. Timesheets have to account for the insights, judgment, knowledge, and experience that the team brings to solving a legal problem. Filling details also ensures that time spent for critical activities are valued at a ‘premium’. A minute spent telling a partner which folder the brief is filed in is not worth exactly the same as the minute spent thinking up the perfect closing paragraph to the brief’s argument section.
c. Non-Billable Activities
All lawyers in a firm, while spending the majority of their time working on client servicing, will spend some time doing other tasks that are not billable to a client. The question is – should time spent by employees on these types of tasks be recorded in timesheets? The answer to the question is ‘Yes’. Most lawyers believe that the time sheets are required for the purpose of prompt billing only. This is true only to an extent. While time sheets provide the basis of billing, they are also an important tool for performance evaluation of a lawyer. They are means to record lawyers’ efforts and time, which are always not ‘billable’ to the clients.
d. Disciplne in Billing & Locking the Lock-up
Many times, busy partners become so engrossed in work that actual billing of clients is not prioritized. Failure to maintain discipline in billing affects the cash-conversion cycle. Lock-up is a figure that combines work-in-progress (WIP) and debtor days, in effect giving a figure of how long it is before firms are able to bank the fees for the work they have done. If all the problems combine – slow billing from partners and associates, and clients holding bills back – you can hit lock-up of 6 months. Frequent billing helps to reduce the risk of non-payment. The firm can’t make money until you invoice, so invoice as quickly as possible.
e. Follow a regime of regularity
Adam Smith Esq. & Smart WebParts conducted a Survey on Law Firm Time Keeping in the Year 2010, wherein in three types of behaviours of time-keepers were identified. 38% responses in the survey admitted to practice Contemporaneous Behaviour, entering the time promptly as it happens. Collaborative Behavior, accounting for only 2% of Survey Report, involves working with an assistant to prepare time records. According to the survey, 60% of time-keepers admitted to follow Reconstructive Behaviour, which means that they enter time at the end of the day or days later by looking at emails, phone logs and appointments to recreate the day. This means that lawyers overestimate (or, with surprising frequency, underestimate) the number of hours they have spent on a given matter. On Friday, nobody remembers exactly what they did on Monday. Fortunately, there is a solution to this. Trash the weekly time sheets in favour of daily time keeping.
Time sheets are focused on the internal process and business analysis. You can use time records to better target your fee and find ways to get it done better, faster and more efficiently. Time Records Analysis ensures better allocation of resources, better outcomes, and an increase in profitability for a particular type of transaction. The productivity data from time tracking leads to objective evaluation. Great employees welcome the feedback that poor employees fear.
Note from the author: The section on ‘Timekeeper Behaviour’ contains reference to Survey on Time Smith by Adam Smith, Esq. Certain other globally accepted technical terms and phrases have been referred to in the article.
Nipun Bhatia is a Senior Consultant (Finance & HR Development Solution) at Legal League Consulting. He is part of the Law Firm Management Practice team and provides solutions to Law Firms on issues related to Finance, Accounts, Operations and HR Development.