Management and performance reporting: How well do you know your firm?

Management reports are essential to gaining and disseminating important information about a law firm, including its people, processes and profitability. For those firms that do it well, the rewards include better management, reduced risk and ultimately, increased profitability. Justin North, a consultant at Baker Robbins & Co, explains the risks of inadequate performance reporting and how firms can use their existing systems to get it right.

At the core of improved management is better business information. Hence, accurate and up-to-date management and performance reports are the essential companion of all senior managers and partners. All too often, however, this is a common area of contention among management personnel of all levels of technical sophistication, within law firms of all sizes.

Practice-management vendors often preach the phrase, “You cannot manage what you cannot measure,” to potential law-firm clients in order to further enhance the power of their software’s functionality. Although a valid concept, how many firms in the post-implementation stages of this type of software are only utilising the bare-essential functionality that is on offer from the product?

More relevantly, how many are actually measuring and presenting management and performance information without the need for vast improvement? When designed, developed and delivered correctly, management reports ensure that those people responsible for the management of the firm’s people and strategic direction are empowered with a true reflection of their current position. When the design, development or delivery of these reports is flawed, the roll-on effect is uninformed management and decision making. This is a risk position that is never advisable, even in the best economic climate.

It is important at this point to emphasise that the term “management and performance reports” should be understood to not only include the traditional end-of-month reports, but also the more mature concept of event-driven progress to targeted-measures reporting. This is based on the philosophy of information being pushed out to management during the month in order to enhance proactive management.

Traditionally, performance and management-reporting development and design has been allocated as an “add-on” or “sub-project” of a larger practice-management system implementation, and is rarely addressed as a project in its own right.

Firms implementing time and billing software have often relied on the fact that the core product may be accompanied by a series of pre-built or standard reports or (on the more advanced systems) a proprietary query or report-writing tool. It is this original misplaced reliance and dependency on product-specific standard reports that result in the firm traditionally failing to give enough attention to management reporting in general.

To this end, it is only once the time and billing technology is fully “live” that the true reporting issues start to surface. It is at this stage that the users, specifically the partners and finance personnel, discover that the flexibility of the standard reports may be non-existent and the management information is difficult to both extract and present in a meaningful way. They also find that the entire process requires enough manual intervention and delivery time delays to cause serious data-integrity doubts.

It is this gap between the original business objectives of the system selection and implementation exercise, and the actual post-implementation functionality that is the backbone of the reporting problem.

Often, when assessing the success of practice management, or time and billing-system implementations, the management of the firm rarely looks back and assesses the primary business objectives, ignoring these in favour of the more visible and tangible secondary measures of success, such as the improvement of time recording, billing processes and workflows. In fact, if asked, most are simply happy that they have finally arrived at the “go-live” point after experiencing continued project delays and data-conversion problems.

As a result, many firms that have completed implementations over the past few years may need to pause and revisit the strategic objectives that were initially targeted. Moreover, in a post-implementation environment, senior management needs to ask if there is tangible evidence to support the fact that this new technology has directly improved (or contributed to the improvement of) the way in which the firm is managed – not operated, but managed.

Mixing management with technology

Given the current economic environment and the resulting restrictions on technology spending within firms, replacing existing systems with the latest and greatest market offerings is rarely an option. This is especially true if the current systems successfully provide the primary operational functionality that they were first implemented for.

The advised alternative is to look for ways to better leverage the existing functionality of these systems and the information available within their data structures. Firms should now be evaluating those pieces of functionality that exist but may not be fully utilised, in addition to the current working processes and workflows that can benefit from extensive improvements and the integration possibilities that have not yet been explored. Management and performance-reporting improvement is one such area.

In essence, to paraphrase some industry clichés, the focus now is on obtaining more “bang for your buck” or working smarter with what you have by both exploring and then exploiting what already exists within the firm, without looking at replacement products.

Admitting that you have a problem

In order to assess the depth of reporting problems within your firm, senior management needs to periodically ask how many partners (if any) are happy with the quality of their management reports, including the content, style, production time frame and delivery mechanisms.

Short of taking a complete poll on the views of the partnership, answering “yes” to any of the following suggests that the firm could benefit from reviewing their reporting processes:

Are the partners receiving end-of-month financial reports more than one business day after the close of the billing period?
Are paperless reports available for those who want them, or are the current reports a combination of standard, paper-based system reports, coupled with a variety of spreadsheets and other attachments?
Does the content and style of reports vary from one department or office to another and is it dependant on the eccentricities of individual partner requests?
Does report production involve manual intervention (for example, manipulation within spreadsheets)?
Do partners regularly approach accounts personnel for further explanations as to reports received. Moreover, do partners simply “file” the reports when received in the aluminium “in-box’ under their desks that also holds their discarded sandwich wrappers and unsolicited conference invitations?
Finally, do your partners have to wait until the end of the month or financial period to source all the above information in an up-to-date format?

Alternatively, answering “no” to any of the following examples also indicates that issues exist that can be proactively addressed by improving management and performance reporting:

Do all the heads of each practice group within your firm know their department’s monthly billable targets, and how (at any given time of the month) their team is progressing towards these targets?
Do your partners understand the relationship between their outstanding collections and their work in progress, or even the firm’s calculations for lock-up?
Do your partners know, at any given time, which fee earners are under utilised or the realised rate of each fee earner?
Can your partners truly identify which clients and matters are profitable for the firm?
Are your partners presented with performance reporting on individual fee earners that highlights billable, non-billable and productive non-billable time?

The list of potential examples that further highlight the problems are endless, which is why, without giving detailed and dedicated attention to the issues of management and performance reporting, a number of firms have found (and still find) themselves frustrated at the end of each month by the reliance on a heavily manual and time-consuming process within their accounts departments.

Historically, when a firm recognises a reporting issue, quick-fix solutions, such as revised spreadsheets with clever macros and calculations or custom third-party reporting developers, will enter the equation. This can result, however, in the firm accumulating a legacy of hundreds of spreadsheets that are owned and operated by a select few individuals within the accounts department (which in turn results in the “what if Jim is hit by a bus” scenario). It could also result in the firm facing the large costs and related issues that can be caused by the poor project management of a rushed third-party customisation and development exercise.

Both of these “loose bandage” solutions may stop the bleeding temporarily but they do not address the more permanent objective of seriously addressing, or focusing on, management and performance reporting as a business-improvement exercise for the firm.

The first steps towards recovery

The primary goal of any improvement of this nature is to supply the management of the firm with the essential financial information it requires to effectively and informatively manage the firm’s clients and staff. To this end, the first step to recovery is simply admitting the potential for improvement exists and that the current situation is not inevitable, regardless of the size of your firm or the complexity of your accounting situations.

When considering the initiation of such a project, it is paramount to remember that success will depend on the initial (and essential) support of your senior management. They need to recognise the need for these business improvements and actively sponsor the effort.

Once this management focus is achieved, the next step to solving the problem is to create a dedicated reporting-improvement project within the firm, setting clear objectives, establishing time lines and delivery goals, and implementing effective project management and communication.

The next steps

When moving forward in your project, remember that it is technically possible for a firm’s end-of-month performance and core-management reporting figures to be produced and delivered on-screen in an interactive manner, within only hours of the closing of a financial period, without anyone in the accounts or IT departments touching the keyboards (yes, even large global firms). Even more surprising is that such a solution does not need to be excessively costly or use cutting-edge third-party products, or new technology.

In order to achieve the highest level of success, your project must be independent of any larger software implementation, and separate again from the normal daily tasks and functions of the finance or IT personnel. It must exist and be recognised in its own right as a business-improvement project. Moreover, the project should be sponsored and staffed directly from within the finance-management team and should not be seen as an IT or technology-driven project.

An additional requirement is the recognition that the project is a business-improvement exercise, rather than a technology-improvement project. Only then can a dedicated and successful solution begin to be sourced.

At this point, the project can then move into the tangible and detailed business-analysis and reporting-design phase. To be truly successful in the design phase, it must be undertaken without being conceptually ring-fenced by technology issues. The design of the improved reporting must be led by the finance and management teams

with direct input from the partners. It must also be goal oriented towards the end users of the reports. Historically, this is where a conflict between the IT and finance department can stall such projects. The design phase should, therefore, include some key goals

Design phase – key goals should include:

Reducing the lead-time for producing and delivering management and performance reports;
Standardising the look and feel of these reports across all the firm’s entities;
Delivering the reports via a secure web-based interface, such as your firm’s intranet;
Simplifying the information delivered to ensure that even the most financially illiterate partner can easily understand any issues that they are required to address;
Introducing a series of agreed firm-wide key performance indicators;
Aiming for the production of a single-synopsis page view of the above indicators that can easily be interpreted using exception highlighting;
Eliminating the need for manual intervention in the production of reports.

Once the desired state of your management reporting is conceptualised, the enabling technology can be explored and the specification and development processes begin. It is as a result of this final step that your original visions for improvement start to become the firm’s reality.

If you are still in doubt about your firm’s current management-reporting condition and need further motivation to act, one last and very simple way to understand the degree to which management information is being under-utilised, is to consider the following:

When was the last time that you saw your entire firm’s key financial-performance indicators broken down against their respective departments and budgets, both in a single accepted, firm-wide standard format and in a single electronic location, all delivered to you in a truly acceptable time frame?
When was the last time you and your management personnel saw these figures, honestly understood the issues they represented without requiring detailed commentary or analysis, and actually used these to improve the management of your firm? Answer honestly and you may see that the time to act is well overdue.

Justin North is a consultant at Baker Robbins & Co. He can be contacted at: JNorth@brco.com.