What is a good law firm management information pack?

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Pile of Files 

Let’s start with what it’s not – and this is something I see quite a lot of – a thick pile of printed reports containing huge amounts of financial detail.

Peter Drucker, the “founder of modern management” once said, “The fewer data needed, the better the information. And an overload of information, that is, anything much beyond what is truly needed, leads to information blackout. It does not enrich, but impoverishes.”

Law firms, just like any other business, use management information to set strategies and achieve business objectives. But many firms don’t get maximum value from their management information. The NatWest 2015 financial benchmarking report highlighted, for example, that operational efficiencies and fee earner productivity have become much more important in determining a firm’s profitability – could you tell this from your reports?

Unfortunately, I see all too often that those thick weighty tomes are destined to sit in your partners’ or directors’ in trays until the next report pack is published.

A management Information pack is a form of communication, and what is the point of communication? It is to cause action.

On its own, what action does a set of detailed reports cause? Nothing.

A good management information system will should help you gain insight to better align strategies and identify critical relationships and gaps. It should provide a framework that enables you to evaluate your success.

I have a question for law firm heads of finance – How many of you genuinely believe that all partners and managers in the firm read in detail the management information they are sent?

If they don’t, why don’t they?

There may be a number of reasons given:

(1)   They’re not interested – Not interested in what? Not interested in minute financial detail, or not interested in whether the firm will run out of cash within 6 months?

(2)   Haven’t got time – Haven’t got time to read through 10 pages of detailed reports, or just don’t see that as a valuable use of their time?

(3)   Don’t understand finance – Don’t have the detailed accountants training that makes reading p&l statements and balance sheets second nature, or just need help understanding the relationship between WIP lockup and cash available for drawings?

If these are common objections, it’s time to look at the way you deliver management information in your firm and refine your reporting processes.

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How to produce good management information

The key thing is to ensure your management information reports provoke action. You can cause action by:

(1)   Making the message clear

(2)   Emphasising the link between the message and each individual’s personal motivation (why they should care?)

So based on this, the principles of good management information reports should be:

(1)   Focus on exceptions (some examples are given below)

(2)   Use commentary to highlight areas of concern, for example introduce the reports with one paragraph summarising the board’s interpretation. For some partners that may be all they want.

(3)   Provide high level summaries initially, with detailed breakdown available only as and when required

(4)   Be clear on how every measure relates to things that (should) matter to the audience, for example:

  1. Your firm’s strategic goals
  2. Sound financial management
  3. Financial returns for the individual (such as profits or performance bonuses)

(5)   Clear explanations of terminology and implications. For example, how many fee earners in your firm actually know what ‘utilisation’ and ‘realisation mean’, and how they are calculated?

Examples of common exceptions might include:

(1)   Teams or individuals missing targets – and those significantly exceeding targets

(2)   Potential risks – matters with compliance / financial risk factors

(3)   Lockup outside normal expectations

(4)   Forecast Profit warnings

(5)   Forecast cashflow warnings

I have seen some great examples of good practice. For example, Stephens Scown, one of the largest law firms in Devon and Cornwall distributes all its fee earner performance information online. The use of dashboards and similar graphical displays means information is available when needed.

This article in The Law Gazette highlights the importance of KPIs when managing lawyers. Two universal KPIs highlighted are billing, allied to client care, but bearing in mind the behaviours that lead to those two.

The term “Key Performance Indicator” is regularly used, but in my experience many people ignore the first word “KEY”. The point of a KPI is that it is something that attention should be focussed on. People can’t focus on too many things at once. A list of a dozen KPIs is in my opinion an oxymoron.

So to summarise, good management information should be tied to the firms objectives, be clear and easy to understand, and be designed to cause action.

How do your management information reports stack up?

Blog post by Graham Moore, Managing Director at Katchr

Contact me on Twitter: @KatchrData

Or to discuss a review of your management information systems, contact us.

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