Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC Law Firm Best Practices Solutions: Focus on the Expense Side of the Equation Profitability -Part 2

Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC Profitability is a huge focus for Iridium Working with our clients to identify and solve core issues We want to drive the conversation Two Offers Profitability White Paper Free Profitability Consultations WHY ME?

Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC 5 (1)A brief recap of Session #1 (2)Expenses: The Basics (3) Implementation Decisions (4) Working with Special Expenses (5) Best Practices for Expense Handling Sections

Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC SECTION #1 Brief Recap. Of Session #1.

Why Invest in a Profitability Solution? If you cannot measure profitability, you cannot improve it Increase firm focus on profitability at all levels Identify poor performers and take corrective action – quickly Improve pricing Business Intelligence for Law Firms. Period. © 2014 Iridium Technology LLC

Where are you with Profitability Today? Business Intelligence for Law Firms. Period. © 2014 Iridium Technology LLC Lots of variations along this spectrum Nothing But we always wanted to do that! Crawling Walking Process Multiple Slices Yearly “Belief” Running Robust Process All Slices Every Month “Certainty” Excel-based Few Slices Yearly “Voodoo”

How do you get Profitability Analysis? Supporting Data: Assignments, Hours, FTEs Supporting Data: Assignments, Hours, FTEs Input Expense (2): Payroll Input Expense (2): Payroll Input Expense (1): PMS Input Expense (1): PMS Input Revenue: PMS Input Revenue: PMS Ad-hoc Analysis Ad-hoc Analysis Dashboards KPIs Vendor Reports Vendor Reports Custom Reports Custom Reports ? Profitability “Engine”

The #1 Secret… … to a successful profitability implementation is… Keep it simple! Perfection is not the goal; the goal is fair/accurate/defensible profitability analysis Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC Best Practices: Seek to minimize: allocation methods, rules, profit accounts, payroll granularity, etc. Try to avoid: Exceptions

Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC SECTION #2 Expenses: The Basics.

Load Expenses From Multiple Sources Other external data sources  Payroll data  External expenses / foreign office transactions  Exception data Business Intelligence for Law Firms. Period. © 2014 Iridium Technology LLC Best Practices: No limits on external data. Period.

Direct vs. Indirect (Overhead) Expenses Direct:  Payroll expenses  Anything with “someone’s name on it” Indirect/Overhead  HR, IT, Admin, etc.  Will be allocated Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC

GL Transactions for Working Attorneys Journal Entries stamped with a WA… options:  Ignore the WA, treat as overhead  Assign all WA GL transactions as direct expense  Selectively assign WA GL transactions as direct expense Business Intelligence for Law Firms. Period. © 2014 Iridium Technology LLC Best Practices: Highly dependent on your GL procedures All options should be supported

Defining Working Attorneys (HR Data) Only Working Attorneys will receive expenses Non-Working Attorneys will have all expenses pushed away Define WA’s based on Rank/Title/Personnel Type Business Intelligence for Law Firms. Period. © 2014 Iridium Technology LLC Best Practices: Apply a filter for Working Attorneys with low hours A person can be a WA in one period and not in the next…

Working Attorney Assignments and FTEs Assignments and FTEs determine allocations Assignment = Office, Department, Team, Title Each WA needs an assignment and FTE in each period Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC Best Practices: The importance of clean/complete assignment data Build validation routines

Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC SECTION #3 Implementation. Decisions.

Profit Accounts (or Profitability Types) A Profit Account is a grouping of GL Accounts. Fewer Profit Accounts is better! Technical: Smaller cube, faster processing, faster querying Easier to reconcile Business: Easier to validate, easier to explain to users Defensible: Reduces user inquiries

Typical Expense Allocations Title Points (FTE Adjusted) Billable Hours / Billable Dollars Office Square Feet Assistant Assignment Custom methods Business Intelligence for Law Firms. Period. © 2014 Iridium Technology LLC Best Practices: Use only a couple allocation methods Many clients use “Title Points – FTE Adjusted” for everything Office Square Feet is a lot of work for minimal value Many clients use Assistant assignments with good results

Rules A rule is applied to a Profit Account Take these expense accounts… … and apply this allocation method … … across this group of people Example: Take the 8 GL accounts for office expenses Roll them into a Profit Account for “Rent” And allocate those expenses using “Title Points – FTE Adjusted” To all timekeepers within each office

Rules (2) Reduce the number of rules… (less than 10 is great!)  Direct Expenses: as assigned  Occupancy, office-specific: by office  Dept-specific expenses: by dept  Everything else (Overhead): firm-wide Note: all rules are just calculating ratios  You have 8.2% of billable hours in your department  You have 14.1% of title points in your office  (etc.) Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC

Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC SECTION #4 With. Special Expenses. Working.

Partner Compensation / Draws Draws are only an estimate or portion of final compensation True partner compensation expenses are not known until the end of the year Business Intelligence for Law Firms. Period. © 2014 Iridium Technology LLC Best Practices: Since the draw will almost always be below the actual… … Go with a “plug” amount instead of the draw Adjust the plug multiple times per year based on projected income Replace the plug with the final result Variation: load draw + plug

Part-Time Timekeepers Part-timers: All firms have part-timers… What should be their share of expense allocations? Business Intelligence for Law Firms. Period. © 2014 Iridium Technology LLC Best Practices: Most firms use FTE Adjusted allocations But several of our clients prefer to give part-timers a full share

WA’s with High Costs and Low Hours Rainmakers, other timekeepers with low billable hours Both will have high expense rates, and this will “punish” the matters that they worked on Business Intelligence for Law Firms. Period. © 2014 Iridium Technology LLC Best Practices: Cost Exception: Push $500K in rainmaker expenses to WA’s in her department  Cost Exception - Credit: $500K  Cost Exception – Received: +$23K (or push to overhead) We prefer to adjust expenses instead of hours

Expense Assignment for New Hires Some firms want to give new hires a “learning credit” (expense reduction) Goal is to avoid “punishing” matters Examples:  $5,000 credit in first three periods  Only assign 50% of overhead expenses Business Intelligence for Law Firms. Period. © 2014 Iridium Technology LLC Best Practices: If you want to do it, then do it (Again) We prefer to adjust expenses instead of hours

Expense Customizations / Exceptions Is your firm exactly like other firms? You have differences:  Reporting requirements  Allocation methods  Rule requirements  (etc.) Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC Best Practices: No limits on customizations or exceptions. Period. Defining granularity, allocation methods, rules, etc. Say “No” to black boxes

Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC SECTION #5 Best Practices. Handling. for. Expense.

Handling Expense Exceptions While we encourage clients to limit exceptions… … there are valid business reasons for many exceptions Examples:  Flag three partners as exempt from certain expense allocations  Handle IT expenses differently for the HQ office Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC Best Practices: Data driven solutions (avoid hard-codes)

Profit Cube Reconciliation with P&L? Pro: Defensible, easier to reconcile Con: Reconciliation comes at the expense of limiting your allocation and analysis options Examples: cost smoothing, non-timekeeper revenue, other revenue, inter-office transfers, etc. Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC Best Practices: Reconciling with the P&L limits your options Do not set expectation of reconciliation “We have GL-based financial reports – the profit cube is optimized for profitability reporting and analysis”

Business Intelligence for Law Firms. Period. © 2015 Iridium Technology LLC Thank You! I hope you can join me for “Part 3” Contact Info: LinkedIn Action Items: Slide Deck ** Profitability Best Practices white paper Free Profitability Consultations