Peer to Peer Magazine

PEER TO PEER: THE QUARTERLY MAGA ZINE OF ILTA 62 According to a 2012 Citi/Hildebrandt Institute survey, year after year large firms are experiencing an increase in revenues from AFA agreements. As a percent of revenue, AFAs rose from 7.6 percent in 2008 to 13.4 percent in 2012. Nevertheless, a 2011 Altman Weil survey showed 32 percent of firms had AFAs that were less profitable than hourly projects, with 20 percent not sure about the relative profitability of their AFAs. That is a huge percentage of large firms either losing money or operating blindly as they continue negotiating new alternative agreements. The key to success in this new AFA landscape is efficiency. AFAs can be as profitable for your firm as hourly fee structures, and they can deliver important benefits to your clients. However, only those firms with a deep understanding of their operations combined with highly efficient project management skills will emerge dominant in the AFA arena. Three areas in which you can improve your workflow and thus your results under an AFA agreement are business intelligence, technology and education. BUSINESS INTELLIGENCE When hosting a well-attended webinar on business intelligence for law firms, I discovered that 80 percent of attending firms were not using any business intelligence beyond time and billing systems. What data should be collected, and how should the data be used? Your goal is to move your enterprise into an entirely data-driven business model. This goal is important in negotiating, managing and learning from AFAs. Without this data, you cannot measure your profitability and understand your realization rates. In addition, you will be doomed to a cycle in which you continuously negotiate risky AFAs and gain little knowledge from their use. From a strategic perspective, how do you leverage business intelligence for a successful AFA? Follow these steps to start the process: (republished with permission from Blue Margin, Inc.) 1. Define and Understand the Firm's Criteria for Success: Your firm's criteria for success might include what attracts clients to you (skill sets of existing attorneys), past legal accomplishments/wins, sales (future business), core practice area productivity, the firm's use of technology, etc. 2. Identify Management Decisions That Support Criteria for Success: Examples include revenue by practice area or the number of anticipated annual contracts 3. Define Key Performance Indicators (KPIs): Using your KPIs, test your criteria for success 4. Track Performance: Use data points that provide insights into your criteria, such as capacity, realization, attorney-to-staff ratios, profitability and overhead 5. Develop Performance Reports: These reports should include KPIs and the data to measure them 6. Strategically Disseminate Reports: Distributing reports can drive clarity, accountability, teamwork and productivity 7. Regularly Review Original Criteria: Continuously assess your success using the reports, and make changes when necessary Once your firm is data-driven — and you are negotiating AFAs based on precedence rather than gut instinct — you might discover alternative fee agreements are more profitable than hourly agreements. Simultaneously, you will provide your clients with more efficient billing. AFAs Are Here to Stay! FEATURES

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