Cost management, project management and matter profitability

The requirement to file cost budgets in civil litigation is enforced strictly, as the Mitchell case showed.  However filing a cost budget is just the start.  Attention is now shifting to improving the cost and case management capability of litigators.

A view from the ALPs

During a lunchtime talk I did recently for the Association of Litigation Professional Support Lawyers (ALPs) I asked attendees if they would complete a short questionnaire.  (Regular readers will know that I am keen on data).  Most did so, for which I am grateful.  The questionnaire was informal and the sample group small, so it would be wrong to read too much into this.  Nevertheless I think it offers an interesting insight into what the larger law firms are doing in relation to litigation cost and case management.

70% of those responding were able to say that their firm applies ‘a standard method to monitoring and managing litigation matter costs in real time’.  I find this quite impressive.

Most respondents (58%) also believe their firm puts in a ‘moderate’ amount of effort into monitoring costs in real time, although there are clear signs that many firms are putting in considerably more effort than this (35% thought their firm put in ‘a lot’ of effort into cost monitoring).

Results from the ALPs snap survey were less impressive when considering the slightly wider aspect of case management as opposed to cost monitoring.  Just 21% of respondents were able to say that their firm has a ‘project based method for managing litigation matters which is explained to clients at the outset’.  Moreover the clear positive response to this statement was even lower than appears because, without exception, the ‘yes’ votes came with caveats.

A client inclusive approach to case management?

In hindsight, I should have split the question above into two parts.  I should have asked if firms have a project based method for managing litigation; then I should have asked whether the method is explained to clients at the outset.

As things stand the answers to the snap survey leaves two possibilities:

1. Most firms have not yet developed a project based case management method, focusing instead solely on meeting their judicial requirements re cost budgeting.
2. Firms have developed a project based approach to litigation case management, but they don’t share this process with their clients.

I suspect reality lies more with the first than the second possibility.  Surely law firms are not going to hide their good work regards project based case management away from their clients?

As things currently stand, clients do not have to sign-off Precedent Form H, the cost budget form submitted to the Court.  This perhaps lends further weight to the notion that litigators are focusing on meeting their minimum requirements re cost budgeting rather than developing a more holistic, and client inclusive, approach to case management.

Earned Value Management (EVM)

Monitoring project costs in real-time is a key means of ensuring project (ie legal matter) profitability as well as simply ensuring minimum compliance with the litigation cost budgeting regime.

When considering project cost budgeting and management, professional project managers will most likely refer to the technique known as Earned Value Management (EVM).  The standard definition of EVM is that it is

A project management technique for measuring project performance and progress.  It has the ability to combine measurements of scope, schedule and costs.

Time did not permit during my ALPs talk to ask what formal method firms were using to monitor and manage litigation costs.  However I’m sure that some aspects of the methods employed will be EVM-like.  The principles of EVM are quite easy to understand and apply.  As ever, the devil lies in the detail.

EVM for lawyers

Actually, EVM is not practiced as widely and consistently by professional project managers as may be first assumed.  The Price Waterhouse Cooper 3^rd Global Survey on the State of Project Management noted that the EVM technique is applied most in the USA but that it has yet to gain widespread popularity and use elsewhere.

This is primarily ‘due to a lack of EVM expertise and experience’.  The survey also gave other reasons for EVM’s relative lack of popularity, such as the high overhead in cost and time to apply it along with the ‘tedious data collection and reporting procedure’ which seems to be associated with EVM.

As with other aspects of project management, EVM needs to be adapted to the needs of lawyers and their clients if it is to be of any use.  Adaptation can be done by applying EVM principles and leveraging existing tools and practices already familiar to lawyers.

A high level EVM framework

Before considering adapting EVM to legal work, it is first necessary to understand what an EVM process looks like.  The high level EVM process is set-out as follows:

1. Organise: Define and organize the total project (legal matter) effort and assign responsibilities for the work.
2. Plan and Budget: Plan, schedule and budget the work required to complete the project (legal matter) successfully.
3. Focus on cost data: Assess the cost of work and materials required.
4. Analyse: Compare budgeted and actual costs during project (matter) operation, analyse variances and develop estimates of final costs.
5. Revise the Plan: Be prepared to change the project (matter) plan in light of cost variances and cost projections.

Law firm culture and EVM

One look at even this high level description and many may immediately feel that this would never work in law firms.  Especially, perhaps, their law firm!  But wait.

At its simplest, project costs are made up of labour and materials required to complete the project.  The cultural emphasis placed on time recording and the regulatory requirements to track cost to the client of ‘materials’ (aka disbursements) means that lawyers are actually very good at recording and monitoring cost of labour and materials.

What is still lacking perhaps is greater appreciation and acknowledgement that project management techniques exist which can tie everything together: scope, schedule, costs and profitability.

In my next post I will discuss how EVM principles may be adapted by law firms and applied to matters of all kinds, not just litigation.

Meanwhile, a couple of questions for you:

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