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Law Firm Performance Metricswithin the ProLaw XII Reporting FrameworkHILDEBRANDTBAKER ROBBINSPEER MONITORLegal Industry PerformanceMeasures for Managing PerformanceIt is without question that the legal industry and the economyoverall has experienced one of the most traumatic economicevents in years, perhaps made all the more stressful following aperiod of lengthy prosperity for law firms, as illustrated below inrevenue growth for the industry compared to inflation.These pressures are creating real change in the industry, and drivingthe need for improvement in the management of law firms, includingthe better use of traditional metrics used in law firm managementand decision‐making, with additional consideration for new metricsthat may be required in the coming years to respond to an emergingnew operating environment. And while it will likely take some timefor new metrics to be adopted, there is quite a bit of thinking going onnow about new metrics required for law firms over the next fewyears. Changes will drive new ways of doing things and will result inthe use of new metrics within more sophisticated performancemanagement systems.PERCENTAGE CHANGE INLEGAL MARKET REVENUES vs. INFLATION (1999-2008)Legal Market RevenuesInflation rate1210Suggested Metric Framework86The chart below sets out seven different management categories for lawfirms, each focusing on performance areas for law firms, listing metrics incommon use today, and offering a list of potential new metrics for useover time. Note that some of these new metrics may be unfamiliar tomany readers, but they all represent potential measurement tools thathave been proposed by various observers in the legal These volatile conditions and the reactions of clients and law firms alikemay be creating an environment of real positive change – with the hopeof a better climate for client service and perhaps more satisfied lawyersin the profession.A more recent view of profitability performance from the HildebrandtBaker Robbins (HBR) Peer Monitor 1 economic database reveals thatlaw firms across the industry have been experiencing profitabilitypressure for some time, and are now searching for ways to becomemore efficient to respond to many pricing and competitive stressesthat may have become the “new normal” for the industry.PEER MONITOR ECONOMIC INDEX (PMI)ManagementCategoryToday’s Key MetricsPossible Future MetricsFirmPerformanceProfits per Equity PartnerProfits per PartnerRevenue per it per EmployeeExtended LeverageReturn on Capital/Equity (accrual basis)Risk‐Adjusted PerformanceProfit per Share (in excess of partner“salaries”)Value of Income StreamExpenseManagementExpense per LawyerStaffing RatiosFunctional Expenses per LawyerEfficiency IndexReturn on AssetsEmployees per 1 MillionCompensation per 1 MillionPracticePerformanceFees and GrowthRealizationUtilizationLeverageMatter ProfitabilityMatter Contribution to Profit/MarginPractice Contribution to ProfitProfit per Practice MemberProfit per EmployeeMarket ShareExtended LeverageProfit Contribution by Client DecilePartnerPerformanceOrganizationsWorking Attorney FeesRealizationBillable HoursLeverageProfit per Share of Practice ManagedTotal Profit of Work Originated or ManagedUnit Cost of Work Originated or ManagedClient Satisfaction RatingEmployee Satisfaction RatingCross‐Selling or ent Turnover RateClient Diversification IndexFee GrowthRealizationOriginationsBrand StrengthWallet Share for Target ClientsGrowth in Share for Target Clients8075Credit Q2Q3Q4Q12008Q2Q3Q4Q12009Q2Q3Q4Q1Q22010And in spite of significant cost cutting which improved margins for many firmsshortly after the start of the economic crisis (as marked by Lehman Brothersbankruptcy), the Peer Monitor Economic Index (PMI) economic indicator for itsmost recent quarters has been reporting flat performance for the past year.This reveals the presence of industry stagnation, due to the lack of revenuegrowth resulting from a dearth of billable hour growth and rate increases.1HBR Peer Monitor is a benchmarking service where participants provideelectronic monthly updates, enabling a near up‐to‐the‐moment view on thelegal industry by major law firm financial performance measures.Balance Sheet Capital per Partnerand RiskDebt per PartnerDebt/Equity RatiosDebt/Net Fixed Asset RatioValue Index/Firm ValuationReturn on CapitalRisk IndexManagementandLeadershipMarket Share GrowthLeadership IndexClient Satisfaction IndexReturn on Human CapitalEmployee Satisfaction IndexManagement Value Index (value/cost)PPEP GrowthFee/Revenue GrowthTurnoverFirm Rankings1

Our experience shows that some of these innovative metrics are alreadyhaving a material impact on improving performance in a number of firms. Itis important to emphasize, however, that measuring the health andeffectiveness of a law firm requires the use of several differentmeasurement tools, including both financial and non‐financial performanceassessments. In our view, some of the serious misuses of metrics in the pastfew years have been the overreliance on profits per equity partner as thedefining index of a firm’s value and quality. Going forward, more flexible andcomprehensive tools will be required to measure the ability of firms todeliver the kind and quality of legal services that clients will demand.ProLaw XII within the Metric FrameworkProLaw XII reporting offers a firm the capability to turn data into knowledgefor law firm performance management. The new reporting features withinProLaw XII provide key financial and operational metrics necessary tomonitor firm performance – many of which can be self‐defined by the firm.ProLaw XII also offers a suite of reports for general performance suchas realization, billing analysis summary, fee analysis performance togoal, and other reports included in the system’s firm analysis reportbundle. These reports can assist in providing key components forpredicting future results against established firm goals – WIP/ARanalysis, average days to payment, professional budget, and theaforementioned profit indicators report. The table below summarizesthe application’s capabilities for the firm performance metric:Management Category: Firm PerformanceCurrent KeyMetric(s)ProLaw XIIReportMeets MetricNeeds?Profits perEquity Partner,Profits perPartners, RevenuePer Lawyer,ProfitabilityIndicatorsFrom FirmAnalysis ReportBundle – ProfitIndicatorsMeets – fromProfit Indicatorsand ReportBuilder useLeverageAcrobat PDF, CSV, and TIFF, easy customization of ProLaw XII standard reports, flexibility to create new reports based on available ProLaw XIIdata sets,functionality of drag and drop fields,capability of adding custom fields to data sets,availability of multiple parameters and multiple level sorts,handy document maps outlining a report’s headings and allowingfor quick movement through a report without losing place, availability of charts and graphs to present data in easilyunderstandable formats, interactive functions making it easy to change a report view tobetter suit a user’s needs, and convenient drill down and roll up functions to more easilyretrieve detail information. Following an extensive report examination, this document, prepared byHildebrandt Baker Robbins, reviews the above current key metricframework against that of the new ProLaw XII reporting system.Firm PerformanceThe need for better tools and metrics to manage a law firm’s businesshas never been more pronounced than in today’s legal climate.Traditionally firms have used measures like profits per partner tomeasure bottom‐line performance. Consequently, to measure firmperformance and profitability, FTE (Full‐Time Equivalent values)tracking is required to allocate revenue and profits.FTE tracking is implemented in ProLaw XII along with a ‘ProfitabilityIndicators’ report, which takes into account FTEs and a variety ofperformance indicators such as realization, utilization by percent ofcapacity, contributions per equity partner, leverage, and other metrics.In addition, ProLaw XII offers the capability of creating customfields, adding those fields to a data set, and creating a user‐definedcustom report from that set. As long as a firm categorizes theirattorneys by professional titles, performance measures such asprofits per equity partner (PPEP), profits per partner (PPP), revenueper lawyer (RPL), leverage can be readily calculated.FTE is added as a new, standardfield in ProLaw XII. Firm wouldneed to classify Partners by morethan just 'Partner' category (unlessall are considered Equity Partnerswhich would make this metric thesame as 'Profits per Partner'below).Additional perspectives outside ofProfit Indicators report could becreated using the Report Builderfunctionality.New ProLaw XII reporting features with custom report capabilities provide: a platform built on Microsoft’s SQL Reporting Services, integration with and export capabilities to Excel, Word, HTML,CommentsRealizationFrom FirmAnalysis ReportBundle – ProfitIndicatorsMeets bothhourly leverageand per variouslawyer leverageBilling AnalysisMeets for simpleRealization ‐ alsocollected andcontained withinbillingFirm Analysis ReportBundle ‐ ProfitIndicators report;Billing AnalysisSummary, and FeeAnalysisPerformance to GoalFTE is added as a new, standardfield in ProLaw XII.Additional perspectives outside ofProfit Indicators report could becreated using the Report Builderfunctionality.Standard reports combine straightworked value for the periodrequested, billed values for theperiod requested (vs. the actualfees worked making up thosebilling values), and paid fees for theperiod requested (vs. the feesworked).Expense ManagementThe increased pressure to reduce costs resulting in part by thecurrent flat demand trend for legal services, has created anenvironment in which improvements to a firm’s cost structure andcost accountability are paramount. Areas such as changes instaffing models, adoption of more systematic procurement models,and the delivery of legal services are driving change. Expensemanagement allows a firm to determine appropriate ways to investin and benefit from proper staffing levels and compensation. Thistype of analysis also helps a firm identify potential partnerships withefficient legal service providers, as well as effectively leveragingtechnology and staff.Using the Report Builder, ProLaw XII contains data elements andfunctionality allowing a firm to create custom reports to assist inexpense assessment. However, like most timekeeping systems,ProLaw XII might be improved to include analysis on staffing ratios,an area of great emphasis by firms today. The table belowsummarizes general Expense Management metrics:Management Category: Expense ManagementCurrent KeyMetric(s)ProLaw XIIReportMeets MetricNeeds?Expenses perLawyerA standard reportis not currentlyavailableMeets ‐ subject to Data available in GL and FTE valuesReport Builder use available in billing makes thismetric available via the ReportBuilder.Comments2Law Firm Performance Metrics within the ProLaw XII Reporting Framework