publication of the International Legal Technology Association
Issue link: https://epubs.iltanet.org/i/231030
A PRICING PARTY: BALLOONS, WIZARDS AND CRYSTAL BALLS should be a key component of any historical data mining project. Similarly, the "burn rate" or spend in a specific period will often open up key aspects of litigation pricing. •Determining how many data points are needed to compare matters successfully can be tricky. A simple test to determine whether more digging is required is to keep asking, "Can I draw an actionable conclusion from this data?" If the answer is "no," strive to uncover more key cost drivers to help you make connections between data points and develop reliable conclusions. THE NEXT STEP … THE PRICING WIZARD Instead of reactively analyzing comparable matters to assist with pricing legal work, firms should consider developing a more proactive approach to pricing that leverages both knowledge management and process improvement principles. The approach is akin to taking all the effort involved in selecting balloons and unwrapping gifts and boiling it down to an algorithm. The concept is to create a tool that allows attorneys to estimate effort for a particular type of matter by answering questions about key cost drivers and proposed staffing. These types of tools have been referred to as "pricing wizards," "scenario generators" and "answer bases." Building such a tool requires a fairly significant commitment of resources but has the potential to make a firm's budgeting and pricing processes more streamlined, more efficient and more accurate. Accordingly, while the initial investment might be substantial, the benefit is equally substantial. Desired Output: One of the initial considerations involved in building a pricing wizard is determining the output of the tool. An estimated cost for the matter might initially seem like the most straightforward and focused approach, but it does not allow one to review and adjust staffing/ leverage and rates dynamically. Another approach (the one we have taken) is for the output to be a populated budget template containing timekeeper ranks, rates and estimated hours for various tasks by timekeeper. This approach allows an attorney to easily adjust the staffing model to determine optimal profitability as well as customize the budget by tweaking expected effort or staffing. It is unrealistic to expect a pricing wizard to forecast accurately the price and effort required for anything but quite commoditized litigation. What it can do, however, is provide a better place to start than a blank budget template, with staffing levels and amounts that have some basis in previous experience. A pricing wizard can also provide a quick way for pricing teams and review committees to check proposed budgets and uncover effort allocations that are inconsistent with what might normally be expected. This provides both a reality check and a basis for further discussion with the attorneys who proposed the budget. Measuring the Impact of Key Cost Drivers: Budget templates are certainly not a new concept, but designing a system that prepopulates estimated hours by task and timekeeper based on specific assumptions is a more advanced approach to pricing. The core challenge to creating such a process is identifying the key cost drivers and then developing a way to estimate the impact of those drivers on expected effort. Some drivers are more objective in nature and simply involve a unit multiplier approach. For example, a firm can use historical financial and knowledge management data to develop a reliable estimate of hours by timekeeper for taking a single-fact deposition. Then, the wizard simply needs to ask the budgeting attorney how many fact depositions are expected and then apply a multiplier. Accounting for cost drivers unrelated to specific tasks is more complicated. For example, how does one account for the increase in costs due to longer case duration or more documents to review?