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Flat Fee Matter Management - Tracking Available Hours and Dollars

Flat Fee Matter Management - Tracking Available Hours and Dollars
Flat Fee Matter Management - Tracking Available Hours and Dollars
Written by
Paul W Carlson, CPA
Published on
Dec 13, 2023

Paul W. Carlson, CPA (00:00):

Hi, this is Paul Carlson, CPA, with Law Firm Velocity. This EDO is more of an experiment in trying to use accounting software for architecture and engineering firms in the law firm environment. As something we've seen with working with so many firms is that firms that do matters on a flat fee basis do not get the information they need from standard law firm practice management systems, that those systems are all based on hourly billing and once you shift to managing hundreds, if not thousands, of flat fee matters, you don't get the metrics that you need out of those other tools. And so here we're looking at probably the key screen we'd be using from this system, and this is Deltek Ajera, so this is accounting software for architects and engineers. And what the engineers have figured out is they understand financial project management, that there's some background in how they have to bill into government contracts, and just the culture that these applications have all come up with that their focus has always been on financial project management. So let's look at this dashboard and then talk through some of the other tools in here.


So this widget lists the matters or projects that are currently open with this firm. That if the firm had hundreds or thousands of matters, that this view would be filtered so the users would only see things that of interest them. So if they are the project manager or the person responsible for a matter, they would see their matters on their screen, or if they're a paralegal, that they would see the matters for their group. So one person isn't going to have to fish through all the open matters, that these tools can be programmed so that the users only see matters that relate to them.


So first, let's start with hours budgets, we'll jump in and to show how these are set up, but you can specify hour budget for a matter. Then the tool will track how many hours have been worked against the matter and it shows how many hours are remaining. And so this way users can see how they're doing on that project. Then the mirror is to do everything based on dollars. So this matter, we have a 3,500 flat fee. We have spent $263.


And here the concept is these $3 went into the matter and we're going to assign rack or house billing rates or rates that we need to earn on the time that goes into matters. The usual heuristic is the billing rates should be three times the person's direct labor costs, or their hourly payroll rate. And so here we can see that we've used up $260 worth of the fee into the matter, and then from here we can see we have $3,200 left. Then here we have the matter status. So we can list like, we will, again, see this in a couple of minutes, let's show the status of the matter. You could create a column that says matter health, that you could have a status of healthy. Poor for matters that are in trouble and need attention. And we can do start and end dates. So we can, again, filter this and we can see only the matters that are due within the next two weeks. You can use color coding on the matters. It's like these are red because they're past due. And so this gives us the overview of the matters.


Let's see here. These totals can be useful in seeing that, at this point, all open matters, that we need to have 43 hours of labor over the next period of time to wrap up these matters. So as a firm is growing, and growing quickly, that we have to keep this number under control, that if the number of hours we need to finish, all the remaining work starts to spike, that we need to add more labor in to ensure that we can provide those hours and get the work done.


All right, with that, let's jump in to see how this is set up, and then we'll look at some reports. So let's start with project templates. And for the firms that do flat fee matters, that where they need to get to the point where they have a standardized process or standardized skew for the work for all the different types of projects that they complete. And so here we have an example template that we've identified to do an EB-y investor program case that we've specified that there's four tasks, or four main steps within this type of case, and in this tab we've said that it takes three hours of paralegal time to do the task one, and it takes five hours of paralegal and attorney work to do phase two, and then attorney time to wrap up these other pieces. With this, we're setting the standard of how long it has taken to run each of these projects. So this is a template, so every time we get another case of this same type, we just copy this and it provides, and all this detail is copied over.


Let's go look at an actual case. So here we're looking at a matter. So this is where we've used that template and we've created an actual matter. So we have the person's names, this is for Adam Smith. And here again is the manage tab and we have all of the time. Once we look into the snapshot, I have some sample time on this, we can look at a phase level that task one has a three-hour budget, and we've used one hour. Task three has a four-hour budget, and we've used two. So we can monitor the matters at a granular level. I think that's all I wanted to see here.


So again, so we can see how we can keep track of hours and dollars that go into each matter. So let's now start looking at some of the different management reports that this system provides. So first is an employee utilization report. What this does is a summary of the billable marketing vacation overhead time reported on a monthly basis, that as a firm grows, you wonder what everyone's doing for the last month or the last week, you can run this report, and I've been entering time as Pat Hill, and so I have six hours for the period and I'm 100% billable, which is the way it should be.


Other tools we can look at is people will start to ask, "Am I making money on these projects?" So I'm using sample data, so this doesn't work out so great because there's things that are broke here. But here we can show that our matter, that it gives us a profit of $41 and a profit margin, or profit percentage. And how this is calculated is this is revenue, or the fee collected, minus direct labor, and so the tool behind the scenes will actually calculate out everyone's direct labor rate, so their hourly rate for both hourly folks and salary, and they will actually put their exact payroll cost into the matter as direct labor. And then on top of that, you can add in overhead. So you can say that the firm has roughly 200% overhead rate, and it'll add those additional overhead costs into the matter and it will calculate this profit.


Actually, when we set up the system, we create a custom report that does this better, but this shows you that you can get those revenue details. Where this gets to be really interesting is after you've closed a dozen matters for a same case type, is you would run a filtered version of this report for those dozen cases and it's going to show you how much time it takes to actually complete that case type, that a lot of firms really struggle getting a standard because it's so hard to go in and get the time by a total project and then by each individual phase. Where this system captures it for you, you can create a skew that's rough as a first cut, and then over time just keep iterating and fine-tuning it and you'll actually get you some decent skews over time.


So project profit. And let's take a look at the project scheduler that most firms don't use this tool but is something that could potentially be used. So what this is is we can schedule people's time into each matter for the next several weeks. So say we have an Adam Smith matter that we've assigned Pat Hill, the paralegal, into the matter. We can say, pat needs to work on this project for four hours to complete the needed work next week. So this is from a matter by matter granularity. The other option is to do it by employee. So this is Pat Hill and this is all the matters that she can potentially bill into. And so now we can go over here and say she's going to work six, five hours here. And so after you populate this, then we can get a report and it will show which employees are over or under scheduled, or which employees are over or under utilized, and we can go back and shift workloads.


So the big trick to this is, one, everyone within a division or a group has to use this tool. That for the schedules to be accurate, you can't have one person within the group doing scheduling and the other person not, because the person doing scheduling is going to grab all the available time, and the person who doesn't use the tool is going to be left with no time for their projects. And if this is really something that's important, usually firms will assign one person to be the scheduler and that they will go in and schedule and make sure that everyone has a full workload for the next couple of weeks. Or you optimize this either by making sure that all employees have a... You make sure that all employees have a needed workload, or you make sure that all matters are getting done on time and that all matters are getting the time scheduled they need to be delivered on time.


Close those out. I think those are my reports. So I think that was just a quick introduction of how we could possibly use this more project-based tool to run law firms with flat fee based cases. Bye.