Risk management: from theory to practice...

In the April issue of Managing Partner, our authors raised some important issues on the area of risk management. In this article, Bill Kirby, sales and marketing director at Axxia Systems, continues the debate with an assessment of what steps law firms should take once they've agreed on their general risk management strategy. In particular, he focuses on the work of the Law Society in its efforts to introduce minimum standards of operation across law firms.

Insurers are already warning of a hardening market, the post-SIF honeymoon period coming to an emphatic close with the prospect of indemnity rates rising by a possible 30-40 per cent this year. But that is not the worst of it. Potentially insurers may not want your business – if they have filled their exposure to capacity, law firms will have to play hunt the insurer. And rare commodities are always expensive.

This whole scenario has given rise to many an article on the importance of managing risk, specifically operational risk. The stress had been on developing a risk-aware culture and preventative procedures, the latter invariably demanding some sort of standard system. But they go no further, indeed they often question whether there can be a single system that will deal safely with all transactions and all clients.

What we do know is that the electronic capture and storage of information is key to any system. Instant and speedy access to data, control and supply of information, easy dissemination of accurate reports and documents, constant tracking of matters and dates, these are fundamental building bricks to support any risk strategy.

Firms certainly need to work on their strategy, as it will only be the practices that manage risk effectively that will find themselves enjoying lower insurance premiums notwithstanding the by-product of better standards of professionalism in the eye of the client and more efficiency for the practice.

With the removal of SIF, the Law Society is assisting by looking to introduce minimum standards of operation as a way of assuring quality and controlling risk. The standards contained within the Law Society's practice management quality mark - Lexcel - were revised to introduce new requirements on risk management.

Tracey Stanley, Lexcel Manager at the Law Society comments: "Written specifically for the legal profession, Lexcel allows any type and size of practice to undergo independent assessment to certify that the Lexcel Practice Management Standards are being met.

"Lexcel helps practices to manage risk because it covers the main causes of claims against solicitors and also includes specific risk management systems and procedures. It provides a simple, systematic way to monitor and manage risk continually.

Many insurers and brokers have endorsed the Lexcel quality mark as an effective risk management tool - some stating that they will offer up-front discounts to accredited practices."

Lexcel demands set levels of competence in six discrete disciplines. Of the six, matter and case management are arguably the most challenging - both because culturally they are still new for many lawyers and, more practically, a lot of firms are yet to adopt the requisite technology. But that shouldn’t mask the fact that matter and case management are the basis of managing risk. A solution which, if taken to its logical conclusion, will ensure that firms can impose a corporate standard for managing risk irrespective of the client or type of transaction.

Think of it in terms of intelligent electronic file management, whereby everyone has the same information at their fingertips, knows the current status of every matter and can progress things to a set timetable in a standard manner.

Matters are the currency of law firms, their proper handling a fundamental requirement of every practice. But until recently there has been little appreciation of what disciplined management of every matter within every department can actually achieve – the creation of a single interface to manage cases, knowledge, client relations and most importantly, quality assurance, a major component of which is the controlled management of risk. It's a fact that most claims are generated because of factors such as key dates being misse, conflicts of interest, incorrect terms of engagement, all of which can be covered in a good matter management system.

Times change and so do needs. And as needs become more pressing, so does one’s receptiveness to ideas that offer potential solutions – even those ideas previously discounted.

The belief that a standard system is unviable for different clients and worktypes mirrors a previous opinion on Case Manager. For some years, specialist departments, notably conveyancing and personal injury, have been deploying case management systems to boost productivity and profitability; workflow templates and electronic diaries have combined to help fee earners push through volume work at a quicker pace and at a reduced cost while also assuring quality output. The original suggestion made by technology providers that similar systems could be equally well deployed in other departments was frequently met with scepticism on the grounds that “you could not possibly reduce what I do to a process”.

Today the concept of practice-wide deployment of case management technologies to manage all matters (matter management), once derided as a consultants’ whim, has not only gained acceptance but continues to build momentum by the day. The innovators and early adopters having moved quickly to secure competitive advantage, we find ourselves now addressing an early majority eager to catch-up.

Today’s ready acceptance reflects just how pertinent matter management is to those business areas causing concern, including risk management. Consider the scope and capability of a firm-wide diary, data and document management system: it is powerfully a repository of information, a logging framework for all activities, a method for developing in house know-how and precedents for future use, a means to control risk, a way of imposing minimum standards of operation and agreed corporate methodologies and a basis for key electronic communications (such as case inception, access and reporting) with clients and other parties.

A matter management system does not try to be over-clever. It deals with basics. The only IT prerequisite is that every staff member has desktop access to one central database in which are kept real-time records of all matters: each matter has a discrete structure from within which you can access all parties’ details, expert databases and practice standards; monitor critical dates and timetable activities; allocate tasks and build in warnings and escalations; create and manage documents, correspondence and emails with complete version control; enquire and report on up to the minute data; and if a requirement give clients access, via the internet, to their own cases at any time of the night or day.

Matter management thus allows firms to work within a highly organised, standardised framework, with sophisticated safety nets in place to ensure work is processed effectively and to time. It also correlates directly with the main case requirements as specified by Lexcel. The standard requires the maintenance of an index, conflict of interest checking, monitoring of the number and types of cases to ensure they are within a firm’s capacity, the existence of case plans, matter audit trails, detailed time and cost recording, document management, structures for client reporting, client care procedures and the recording and monitoring of critical dates.

Deploying a matter management system achieves all of these at a stroke – and simultaneously removes the underlying causes of claims. Missed time limits? Diarised case plans with automatic alerts ensure you hit your critical dates. Delay? The storing of all files in a single place, instant desktop access to all information and electronic communications help cases move quickly. Inadequate delegation and supervision? Proven workflow definitions allow support staff to progress cases under supervision with built-in escalation procedures to safeguard the transaction. Undertakings? Use the case inception processes with in-built conflict checks, instant case plan creation and automatic allocation to individuals against agreed criteria. Communication failure? Give your clients on-line access to their case plan so they can review and add activities, cutting delay and offering alternative communication methods. Lack of knowledge of the law? Utilise the firm’s archive of previous matters for precedents and preferred approaches. Poor organisation? Deploying electronic diaries with configurable alerts and escalations keeps things on track, while standard templates give defined methodologies; plus one-click access to all associated correspondence and documentation via the case plan.

There is no reason why such a concept should not be deployed as a single, standard system for all firms, to handle all clients and all matters. The alternative is to risk the consequences – potential return of fees, payment of an excess, wasted time dealing with resultant claims, loss of a client and increase in premiums, or the ultimate sanction, removal to the Assigned Risks Pool.

Extended across the practice, deploying matter and case management to all fee earners and support staff and not just to niche departments such as conveyancing and PI, will have created a comprehensive framework for the effective control of risk plus so many other benefits to the practice - efficiency, reporting, client access.

Traceu Stanley, Lexcel Manager, adds: "While the Lexcel quality mark does not absolutely demand the use of IT to meet the Lexcel standard, surely the effective use of a good IT matter management system is the most effective way to deal with heavy workloads. A good IT system can further help to reduce mistakes and surely that must be good news for any legal practice."

Bill Kirby is sales and marketing director at Axxia Systems. He can be contacted at kirbyw@axxia.com.