Creating the best law firm MIS (Part Two): How to build an effective management information system

Law firms need fast and effective management information systems in order to make the right business decisions. Yet many current practice management systems don’t deliver on this.

Earlier this week, I shared my thoughts on why most law practice management systems set law firms up to fail. I’m now going to explain how to remodel your existing practice management system so it delivers effective and timely management information, to help your law firm succeed.

Below are some of the key areas to consider and features you should be looking for when you start planning or adapting your management information system.

 (1) Clear business rules

Every law firm has its own business rules. For example: Are your fee targets compared with top line fees or net after write-offs? Is backdated time included or excluded from previous months’ reports? What formula do you use to calculate debtor days?

In order to deliver clear management information from your raw operational data, you need first to be clear about your business rules. These business rules have to be accommodated and included in every report that is produced. Once set out and agreed, everyone can begin working towards the same goals.

Add clear help text on every display page of your MIS to explain your business rules to your staff.

(2) Ensure easy access for all firm decision makers, including fee earners

Management information needs to be quickly and easily accessible to fee earners. Your partners/directors are at the frontline of your business development activities so it’s crucial they can quickly access key information about commercial activity and performance.

Similarly, your fee earners are at the frontline of service delivery and their day to day actions ultimately determine firm performance. Is the first 10 minutes each day better spent “fee earning” or chasing outstanding bills? Only an individual with the aged debtors information at their fingertips is actually able to make this decision.

Lawyers are great with words: that is their forte, and what makes them great lawyers. But they often don’t have time to get heavily involved in the numbers. But while they don’t want to be running reports, they do need access to information. This information needs to be presented in a clear and understandable way.

This excellent article by Peter Scott reiterates the importance of clear financial reporting and ensuring lawyers both understand the reports and know what actions they should take as a result. It sets out practical tips on how to do this and maintain healthy cash flow.

(3) Display information, not data

Tables of numbers are not efficient ways to see patterns in data. It is important to convert the raw data to useful management information so that patterns can clearly be seen: users need to be able to see the wood for the trees.

Did you know? There are typically between 200 and 400 tables (“pots” of data”) in many of the most popular practice management systems used by law firms today. Somewhere buried in those tables, usually in a combination of 2, 3 or more of them, is the useful business information that lies behind the raw data.

The image below shows a typical dashboard from our SmartEye management information system.

SmartEye-dashboard

These dashboard displays are focused on management information not data; information such as:

  • Is the firm meeting its total fees delivered target?
  • Is our debtor-days increasing or decreasing?
  • Is last month’s fee write off value within an acceptable range?
  • What is the average profitability of mortgage repossession matters, and how does that compare to commercial debt recovery?

(4) Measure everything that matters

In designing a firm-wide management information system, it is important to ensure that you measure everything that matters, and exclude those things that don’t matter. As the old saying goes … “you get what you measure”  … and so all firms need to check that their management information systems are designed to encourage the behaviours that the firm wants. In a firm that only measures fees delivered, for example, some may soon (consciously or otherwise) start billing above the appropriate rate for a case, knowing that the subsequent unhappy client and eventual write off will not “count against” them in performance reviews.

So any MIS needs to be rounded in its approach to measurement, taking into account as many factors as possible whilst still retaining focus. I often have to remind firms that it is a contradiction in terms to expect fee earners to focus on 10 or 12 key performance indicators.

So areas of for measurement in a typical law firm can cover many areas:

  • Standard financial measures – time recorded, fees billed lockup and new matters
  • Client / matter profitability, analysed by
    • Work type
    • Source of business
    • Geography
    • Client sector
    • Expenditure in key areas
      • Business development
      • IT / Support
      • Training
      • Profitability at the business unit level, be that
        • Department
        • Team
        • Office
        • Compliance exception alerts
          • Financial SAR risks (client monies, budget limits)
          • Legal process risks (AML / file reviews)
          • Complaints handling

A well-designed management information system will cover all of these areas, giving management a 360-degree view of performance in their legal business.

What scope does your MIS have and what do you measure?

Do you agree with my analysis?

You can tweet your thoughts to @EXENLS

If you’d like to discuss making improvements to your law firm MIS, contact us by email or call 0845 6806 843.

Blog post by Graham Moore, Managing Director, Exen Legal Solutions

GM-1

Law Firm Practice Management System and Business Intelligence expert. Managing Director of Katchr.

If you’d like to discuss how large or small law firm software and legal financial reporting systems could help you run your practice more profitably, please give me a call on 0845 6806 843.