2013 ALA NYC CHAPTER FINANCIAL FORUM PRESENTATION ON KEY PERFORMANCE INDICATORS

1. Impacting Financial Performance
Key Performance Indicators
“Measure, Adjust, Succeed”
Presented by:
Frederick J. Esposito, Jr., CLM
Director of Administration/CFO
Meyer, Suozzi, English & Klein, P.C.
2013 ALANYC Financial Forum
June 19, 2013
Break Out Session 3
1:30pm – 2:15pm

2. Let’s Start with a Quote….
“If You Don’t Know Where You Are
Going, Any Road Will Get You There”
-Lewis Carroll

3. Law Firm
Key Performance Indicators (KPI)
Background
• Performance Measurement
• Evaluate Success/Progress
• Strategic
• Operational
• What is important to the Firm?
• Finance?
• Business Development?

4. Law Firm
Key Performance Indicators (KPI)
Background
• Measure, Adjust, Succeed
• Develop an Understanding of What is Important
• Performance Indicators
• Methods to Assess
•Present State of the Firm
•Key Initiatives (Strategic or Operational)
•Performance Improvement Initiatives
•Apply to Management Framework

5. Law Firm
Key Performance Indicators (KPI)
Background
• Categorization of Indicators
• Quantifiable
• Practical
• Directional
• Actionable
• Financial
• Key Performance Indicators
• Strategic Development
•Targeted Objectives
•Adds Value

6. What is a KPI????
Any Measure or Statistic that a Law Firm Tracks That
Meets All Three of the Following Characteristics:
1. Reflects the Firm’s Goals
2. Viewed As Key to the Firm’s Success
3. It is Quantifiable

7. Law Firm KPIs Examples
Productivity
•The Ratio of Associates to Partners (i.e. leverage)
•The Ratio of Partner Hours Worked to the Total Hours
Worked by all Timekeepers
•The Number of New Matters Opened in the Past Year
Financial Progress
•The Ratio of Unbilled Work-in-Progress to Average Fee
Billings for the Past Year
•Charge-off Percentage of Fees Billed (Write offs)
•Cost-Recovery Revenue per Matter

8. When Choosing KPIs
• KPIs Should be Firm Specific
• No Law Firm Uses all KPIs
• Law Firms Must Identify:
• KPIs that are Important to the Firm and Define
Success
• Implement System for Tracking Performance Metrics
to Guide Firm Strategy
• No One KPI Tells the Full Story
• Decisions need to be made
on an informed basis!

9. KPIs That Drive
Firm Growth
“Higher Gross Revenues Automatically Lead to
Higher Profits!”

10. KPIs That Drive
Firm Growth
Running a highly profitable Law Firm that produces
amazing profits year after year has little to do with
the quality of the attorneys in the Firm as it does the
quality of their legal services.
Do YOU Know What Numbers to
Measure to Ensure Profitability and
Drive Growth in YOUR Law Firm?

11. KPIs That Drive
Firm Growth
Do YOU Know What Numbers to Measure to Ensure
Profitability and Drive Growth in YOUR Law Firm?
Most Law Firms do NOT know!
WHY NOT?
Factors:
•Just don’t know what KPIs to utilize
•Not Compiling Measures on a Consistent Basis and
Accurately Compare them Month over Month,
Quarter over Quarter, Year over Year

12. KPIs That Drive
Firm Growth
“Our Only Benchmark is Our Own Past Experience.”
-Mid-Size Law Firm Partner
•Misleading Benchmarks?
• Revenues per Partner
• Law firms vary significantly in terms of how many staff
supports each Partner –Impacts Profitability!
• Benchmarks can be skewed; tend to lean towards
larger firms –Small v. Large Law Firms
•Lack Clear Understanding of Metrics

13. KPIs That Drive
Firm Growth
Metrics and Benchmarking
•Measure your Firm against a group of similar firms
•Compare specific performance measures across the
members of the group
National Sources of Benchmarking Data
•Lexis Firm Insight BI Companion
•ALM Survey of Law Firm Economics
•Hildebrandt Per Monitor Economic Index
•Incisive Legal Intelligence’s Annual Survey of Law Firms

14. KPIs That Drive
Firm Growth
Local Sources of Benchmarking Data
•Formal and Informal sources within your Region
•Included groups are comparable to your Firm (i.e.,
size, location, type of firm)
•Indicators measured are consistently calculated
•Third-Party conducts process so results are not skewed.

15. KPIs
Decision-Making
KPIs Must Be:
•Clearly Defined
• Identify what needs to be collected
• What Data?
• Big Rocks First, Pebbles Next!
•Precisely Measured –Accuracy is Crucial
• Do Not Try to Collect Every Metric at Once
• “Analysis Paralysis”
•Accurately Interpreted
•Appropriately Acted Upon
• “Good Metrics, Good Decisions!”

16. KPIs –Law Firm Values
New Rules!
•Develop and implement a comprehensive
combination of specific KPIs relevant to your Firm
–Think Strategically!
• Practice Group resources focusing on the right
priorities and generating value?
•Daily monitoring of the results and processes;
understand how the KPIs are interacting!

17. KPIs –Law Firm Values
New Rules!
•Make sure KPIs add value while demonstrating
performance All KPIs are NOT Equal!
• How can KPIs add value and demonstrate performance?

18. “Strategic Dot Connecting”
Combining KPIs
• Organizational
• Input Process & Output aspects
• Client
• Target GOAL for organizational procedures
KPIs may be combined in different ways to model what
may be complex operational areas of interest to the firm

19. Strategic Snapshot
The Dashboard – What Gets Measured Gets Done
•Snapshot of important performance indicators from
financial statements and related reporting
•Ability to view performance indicators and how they relate
and form patterns
•“Focal Point” of all performance indicators from a variety of
sources

20. Strategic Snapshot
Example
Law Firm A has a strategic focus on specific client
relationships and supports that focus with client
teams.
Suggested KPIs that might be important in measuring
the breadth of the relationship
1. Number of matters per client as an indicator of
growth in the client relationship
2. Number of practice areas that serve these client as
an indicator of cross-selling success; and
3. Number of lawyers with time on matters connected
to this client; as it measures the breadth and depth
of the relationships between the firm and client.

21. Law Firm Specific KPIs
Financial KPI Examples
1. Unbilled Days
2. Uncollected Days
3. Net Income as a Percentage of Revenue
4. Average Net Overhead
5. Revenue per Square Foot
6. Revenue per Attorney
7. Revenue per Matter
8. Revenue per Client

22. Law Firm Specific KPIs
Operational KPI Examples
1. Billable hours per FTE
2. Percentage of Partner hours
3. Billings per FTE
4. Average Billing rate
5. Average Work rate
6. Ratio of Billed-to-Work rate
7. Number of Matters Opened
8. Staffing Ratios
9. Cost Recovery Revenue
per Matter

23. Law Firm Specific KPIs
Marketing & Business Development KPI Examples
1. Client Growth Rate
2. Dormant Client Percentage
3. Average Fee per Client/Matter
4. Average Fee per NEW Client/Matter
5. Marketing/Business Development Budget Ratio
6. Marketing/Business Development Cost per Client
7. Client Retention
8. Growth in Top Clients
9. Practice Areas per Client
10. Number of Lawyers per Client
11. Number of Matters per Client

24. Law Firm Dashboard
Example

25. Dashboards
Final Points To Consider
You Can’t Drive The Car by Solely Watching the
Dashboard
Rather, it helps you know how well you are
progressing towards your destination

26. Key Performance Indicators
(KPIs)
Final Points To Consider
Use Liberal Doses of Common Sense!
•KPIs help to better assess Firm performance
•Consider your Firm’s specific goals
•KPIs can and will change over time as your Firm
evolves
•Measure Firm performance with good and timely
information
•KPIs are measurable inputs, but no substitute for
Common Sense and Good Judgment

27. Key Performance Indicators
(KPIs)
Next Steps
“Gentlemen, my government has informed me that the
Klingons are expected to move against your planet,
with the objective of making it a base of operations
against the Federation. My mission, frankly, is to, uh…
keep them from doing that.”
– Capt. James T. Kirk
Now What?

28. Key Performance Indicators
(KPIs)
Next Steps
“What Gets Measured Gets Done”
• Metrics support key business plan objectives
appropriate to each process and level of the Firm
• Sends the same message
• Firm personnel know their role and knows how well
they are contributing to the business goals of the
Firm

29. Key Performance Indicators
(KPIs)
Next Steps
Selection of the Correct Metrics WILL:
•Communicate Direction (business
plan trend for performance)
•Stimulate action in the most important areas (business
plan)
•Establish the current situation against the business
plan goals
•Facilitate learning (where
the business plan stands against world class performance)
•Influence behavior (what
gets measured gets attention and action)

30. Key Performance Indicators
(KPIs)
Getting Started –Bottlenecks First!
Law Firms that Do Not have Key Process Metrics
•Start by developing a group of measurements in
perceived “bottleneck” areas
•Identify areas that have the greatest impact on meeting
the Firm’s business goals or client needs

31. Key Performance Indicators
(KPIs)
Getting Started –Bottlenecks First!
• Start by interviewing all the staff involved in the
process
• Understand all the issues that
are preventing or causing the
process to be impacted
• Put the issues on a list and have the staff
document each time the problem occurs and any
supporting data that can be provided

32. Key Performance Indicators
(KPIs)
Getting Started –Bottlenecks First!
• Pick those issues that are easiest to correct and get
them fixed immediately
• If more data is needed, add these items to the data
collection process
• Use the classical problem solving tools of Six-Sigma
to understand the data and begin a controlled change
in the process.
“Fred, What the &*%^ is Six-Sigma?”

33. Key Performance Indicators
(KPIs)
Getting Started –Bottlenecks First!
Reader’s Digest Condensed Version:
Six-Sigma
Six Sigma seeks to improve the quality of process outputs by identifying
and removing the causes of defects (errors) and minimizing variability in
business processes.
It uses a set of quality management methods, including statistical
methods, and creates a special infrastructure of people within the
organization ("Black Belts", "Green Belts", etc.) who are experts in these
methods.
Each Six Sigma project carried out within an organization follows a
defined sequence of steps and has quantified financial targets (cost
reduction and/or profit increase

34. Key Performance Indicators
(KPIs)
Getting Started –Bottlenecks First!
• If new issues are detected change the data collection
record to allow reporting of these new issues
Translation?
• Don’t stop measuring even when the issue is resolved;
keep those metrics that will provide of picture of the
business process trend (KPI)

35. Key Performance Indicators
(KPIs)
Getting Started –Bottlenecks First!
Once the KPI metric is selected…….
“Behind each metric is a process”
Work Instruction or Formal Procedure?
• How the data will be collected, analyzed and reported
to Firm management
• Who will be responsible for data collection, what
form will used to collect it?
• Graphing or format to be used to communicate the
KPIs

36. Key Performance Indicators
(KPIs)
Remember! Baby Steps!
KPI implementation is a Process……
Have Patience……
Sense of Humor……
Measure….
Adjust……
Succeed!

37. Questions

38. Contact Information
Frederick J. Esposito, Jr., CLM
Director of Administration/CFO
Meyer, Suozzi, English & Klein, P.C.
990 Stewart Avenue, Suite 300
Garden City, NY 11530
Email Address: FJE@msek.com
Phone Number: 516-741-6565
www.msek.com
LinkedIn: www.linkedin.com/in/fjesposito
Twitter: Lawmgtguru