By Dera J Nevin
What does the rising number of legal technology applications that are focusing on lawyer timekeeping analytics tell us? Will the emergence of this technology finally bring about a challenge to the billable hour and help to reduce the cost of legal services?
It’s no secret that for many lawyers and law firms compensation and performance reviews continue to be structured around the billable hour. Despite the notional rise of flat and alternative fee arrangements most bills sent to clients consist of narratives, time units and hourly rate entries. The billable hour has been held responsible for inflated bills and incentives for lawyer inefficiency. Legal project management and pricing professionals are emerging in law firms as a result of client attention to these criticisms.
An emerging category of legal technology focuses on supporting improvements to lawyer billing and the adoption of alternative pricing and project management. Increasingly this technology is getting more sophisticated and incorporates machine learning and natural language processing. The technology is variously marketed both to law firms and law departments, but generally approaches the problem of understanding lawyer billing in one of two ways.
The first problem associated with lawyer billing, usually targeted to law firms, consists of automating capture and improving narratives. Underlying this technology is the recognition that most time capture is manual and error-prone; the software integrates with mobile devices and calendars to automatically “read emails” and note activity like phone calls made or emails sent. In some cases, the technology will not only create time-capture activity stubs with hourly units, but may also pre-write narratives and assign them to client matter numbers. The objective here is to increase the amount of time being captured and improve the accuracy rate of total entry.
Capturing more and better-quality narratives at the point of time entry is an important initiative for law firms seeking to maximise revenue. But this technology alone is insufficient to accomplish that objective. The entry of time will not ensure it is billed, and billed time may not necessarily be collected. To understand whether this technology actually has an impact on the top line (and therefore RoI for its purchase), firms would need to analyse how much of this additionally captured time is collected. The two challenges to doing so are that most time is written off “from the top” of the invoice and also that, generally, law firm finance systems are unable to reconcile write-offs to individual line-items on bills. One also needs to question the long-term health of a revenue capture system that is subject to so much leakage.
The second problem associated with lawyer billing is that time entry results in large amounts of unstructured data that resists analysis in aggregate. The prevalent mechanism to add structure to the content, UTBMS codes, is manual and often results in subjective and conflicting data classification. An increasing number of applications, usually marketed to law departments, will ingest time entry data in the form of bills, apply sophisticated algorithms to analyse the narratives, ignore the manually entered UTBMS billing codes, and restructure the data to approximate the phases of the work to which the narrative entries correspond. Some will even analyse this against billing guidelines to flag unusual or impermissible entries! The promise of this technology is that consumers can better understand how legal costs are being generated and work with their firms to control these. This technology is increasingly being purchased by law firms to support legal project management efforts.
Structuring billing narratives and classifying the narratives into “buckets” of work permits analytics, and many of these tools can be used to generate visually compelling reports showing costs against budget, or how time is being spent across a portfolio of matters. Others permit comparison of how different law firms accomplish similar work. For this reason, these technologies have become important to many legal operations professionals because they help them get insight by reverse engineering how the work is being billed. The solutions rely on the belief that “what gets measured gets managed.”
However, such solutions may obscure the more subtle but insidious challenges associated with managing service delivery costs by the sole lever of law firm billing. Billing narratives, even when structured, do not tell the full story about how lawyers and the law firm put together their work and where the real obstacles to efficiency might be. As such, they offer an incomplete picture and may be insufficient to achieve novel or more profitable pricing outcomes.
For example, billing narratives will not capture whether a high-quality precedent was used, saving time, or whether the lawyers were confounded by poor precedents or noise from a search that contained out of date materials due to a lack of investment in information governance and knowledge management. Nor will it capture the presence of non-billing allied professionals who supported on the matter but who added direct (rather than indirect) overhead. In other words, a focus on classifying narratives does not enable law firms to unpack the true cost of delivering the services within any given matter, or in the aggregate. Indeed, many law firms are unable, within the finance systems or even within a practice, to understand the cost of supporting any individual client or matter.
Overall, the industry-wide inability to capture, understand and analyse revenues and the specific and tied costs of generating that revenue are the far greater obstacle to the acceleration of fixed and alterative pricing arrangements, not the billable hour. While these billing point-solutions have their place, they are unlikely to yield systemic changes. It’s possible that it will take consolidation of these stand-alone applications into finance and time entry solutions, and enhancements to FP&A functions in law firms, before more significant understanding of underlying economics will result in changes to legal service delivery pricing.
Dera J Nevin is a lawyer and legal technologist based in New York City. Views are her own.
This article first appeared in the monthly Orange Rag newsletter – sign up for your free monthly copy here: http://legaltechnology.com/latest-newsletter/
By Dera J Nevin