How to increase utilisation and realisation levels

1. How to Increase Utilisation and
Realisation Levels
March 2015

2. Overall Financial Model
• Utilisation is one of the key drivers of financial success in a law firm
• A possible set of drivers that would produce a profit for each 100 unit partner of $2 million is as
follows – best practice in this market today:
• Effective fee rate – blended rate for all lawyers incl partners - $440 ph
• Utilisation – 85%
• Leverage – 4.3
• Overhead rate as a % of revenue – all costs other than lawyer salaries – 28%
• Write-offs – 2%
• There are many combinations of these drivers that produce the same outcome – but those
combinations narrow if you assume the size and breadth of a major firm
• This is the $2 million target that the best practices in the leading firms deliver today
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3. Utilisation Drivers
• Utilisation is an outcome of:
• The ability of the sales processes of the firm to sell enough work across:
• Service lines
• Geographies
• Lawyer levels
• The ability of the operating processes to maximise the level of utilisation for any given stock
of sold work
• There is a straight line curve that shows the relationships between sold stock and utilisation
levels - assuming proper operational management
• The organizational settings that support a high performance culture
• Improving utilisation therefore needs to explore all the elements that contribute to both of
these drivers – selling and consuming stock of sold work
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4. Diagnostic: Utilisation – Stock Gaps
• The first step in understanding how to increase utilisation levels is to get the facts around three
key elements:
• What is the stock of sold work across the business?
• Is the sales machine selling enough work to feed people at higher levels of utilisation?
• Are people maximising the usage of sold work to maximise short term utilisation levels?
• Are the organisational settings set correctly?
• The first key analysis is to map the level of sold work across the firm:
• Service line, Geographies, Lawyer Levels
• And compare these stock levels with the levels required to achieve a hurdle rate of utilisation
– say 85%
• This analysis will show where the stock gaps are across the firm
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5. Diagnostic: Utilisation – Sales Processes
• The next step is to assess the effectiveness of the various key sales processes across the firm:
• Sales management
• Bid processes
• Account management
• Extension management
• This analysis will determine which of these processes, and the people capabilities that drive
them, need to be improved which will produce the higher sales levels required.
• The effectiveness of the sales machine can be measured as follows:
• Penetration levels of key clients – should be at least 35% of wallet
• Extension rates on current work for current clients – should be 80% of sales
• Sales conversion rates across the board – best practice is 50% - 2 proposals for 1 sale
• Quality of sales management processes
• The continuous management of sales pipeline and operating capacity to focus sales force
– partners supported by BD teams – on feeding ‘hungry mouths”.
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6. Diagnostic: Utilisation – Operational Management
• The second key analysis is to assess the ability of the firm to convert sold work into billable hours
• To do this we need to do three pieces of work
• What do people spend their time on now?
• Fee earning work
• Marketing & selling
• Producing thought pieces
• Training & development
• Admin…etc
• Is there a sufficiently high focus and priority on people spending most of their “40 hour
week” on billable work?
• How the Practice Groups go about maximising utilisation on a day to day basis
• What are the organisational settings, and how do they impact on utilisation?
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7. Process: Utilisation – Operational Management
• What do people spend their time on
• Take a statically valid sample of lawyers at all levels from across the firm:
• Different utilisation levels
• Different lawyers levels
• Different practice groups
• Different geographies
• Interview each lawyer in the sample and determine where the key utilisation leakages come
from across the firm and which ones are key:
• Where does the time go?
• What is getting in the way:
• Complexity?
• Too many meetings?
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8. Diagnostic: Utilisation – Operational Management
• How do the PG Leaders go about driving high performance levels from their teams
• Quality of reporting systems that focus on utilisation, realisation rates and the strength of the
sales pipeline:
• History
• Forecasts – next week, month and quarter
• How do the PGL’s short term schedule work to their team members?
• How do the PGL’s energise the sales system when there is forecast utilisation gaps?
• How do PGL’s “sell” their resources when they are short of work, and also “buy” resources
when they have over-sold their capacity?
• How do PGL’s deal with performance issues – i.e. somebody who has plenty of work but is
not burning that work quickly enough?
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9. Process: Utilisation – Operational Management
• Part of this second area of analysis would cover the organisational settings:
• What is measured for partners and lawyers?
• What is rewarded?
• What is trained?
• What is expected?
• What is communicated?
• What is performance managed?
• What is focused on?
• How is agility achieved?
• All of these points and others create the environment that sets the culture
• No doubt that some of these settings will need to be changed to maximise utilisation levels
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10. Diagnostic: Utilisation - Summary
• The results of these analyses would tell us where the issues are:
• Sales deficit:
• Do we have a sales problem? – i.e. not enough stock
• Do we have a sales mix problem – i.e. some parts of the firm are very busy whilst other
parts are not?
• Do we have big enough multi-disciplinary jobs that suck in large volumes of resources
from across the firm?
• Operational management issue:
• Do we have a professional staff mobility problem between practice groups and
geography?
• Do we manage tightly the operating capacity with the sales pipeline?
• Do the PGL’s understand their business model and how to actively manage the key levers
available to them?
• Do the PGL’s tightly manage the scheduling of lawyers onto jobs to maximise utilisation
given current stock levels?
• Do we have the ‘right’ PGL’s who are properly trained and supported by good systems?
• If there discipline around the timesheet system?
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11. Diagnostic: Utilisation - Summary
• The results of these analyses would tell us where the issues are:
• Organisational settings/culture:
• Are low utilisation levels allowed to continue with no sanctions?
• Is utilisation a key personal KPI?
• Are utilisation expectations set too low?
• Do the professional staff understand the impacts of poor commercial behaviour?
• What is the strength of the work ethic?
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12. Implementation Utilisation – Action Plan
• These findings would suggest where the major focus of attention should be to get quick benefits
to utilisation levels across the firm
• From my experience these are likely to include:
• Weekly reporting of utilisation levels by lawyers and by practice group across the firm
• Previous week, MTD and YTD
• Forecasts over the next week, month and quarter
• Weekly management focus from the top leadership team cascading down to the PGL’s
• Short term actions designed to maximise utilisation levels this week from current sold work
• Stronger connection between the sales machine and the operating capacity across the business
– the BD Director has a major role to play here
• Increasing the capability of the PGL’s to drive this process on a day to day basis
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13. Realisation
• The key to driving up realisation rates is to improve the commercial behaviours of partners in
selling and operating matters
• Some thoughts on this
• Undertake a brief pricing study to determine realistic prices for a premium position in each
segment of the market – both line of business and geography
• Set a hurdle rate for the profitability of each job – say PEP of $1.5 mill
• Establish a process that deals with potential sales that are less than the hurdle rate
• Establish a review mechanism for approving write-offs beyond a certain limit
• Train the partners in firms
• Business model
• Commercial process
• Maybe using stimulation
• Have a very focused management system on write-offs per partner
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14. Contact Details
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John Colvin
Principal
E: jcolvin@johncolvin.com.au
M: +61 409 183 174
S: +61 2 8823 3485
Level 36, Governor Phillip Tower
1 Farrer Place, Sydney NSW 2000, Australia
Sandra Heinig
Senior Associate
E: sh@johncolvin.com.au
M: +61 416 731 897
S: +61 2 8823 3485
D: +61 2 8823 3487
Level 36, Governor Phillip Tower
1 Farrer Place, Sydney NSW 2000, Australia
Sian O’Shaughnessy
Research Analyst
E: sian@johncolvin.com.au
D: +61 2 8823 3485
Level 36, Governor Phillip Tower
1 Farrer Place, Sydney NSW 2000, Australia