Key Perfomance Indicators

Key Performance Indicators (KPIs) – be S.M.A.R.T!

The purpose of setting KPIs is to improve immediate/mid-term performance and, ultimately, look to proactively move a business forward and measure this drive against the market competition. This is growing increasingly true of the legal profession in many areas from legal costs as a specialty for Costs Lawyers, to mainstream areas of law, such as personal injury.

A paper by George T. Doran entitled ‘There’s a S.M.A.R.T way to write management’s goals and objectives’ in the November 1981 issue of ‘Management Review’ broke down the acronym S.M.A.R.T as follows in terms of objectives:

  • ·         Specific
  • ·         Measurable
  • ·         Assignable
  • ·         Realistic
  • ·         Time-related

When applied to KPIs, the above 5 ideals are very much transferable to the basics of law firm management, and decisive step is to define within your structure how to apply these, allowing for a realistic correlation to the direction of the business.

Each firm will have its own drive, but there are certain members of staff, such as fee earners, where numbers are pivotal and each of the above categories applies when setting such indicators. To name a few examples most readers will be familiar with:

  • Chargeable time (a fixed number of billable hours required over a working day/ week)
  • Billing (how much of the above chargeable time converts to an invoice)
  • Cash in the bank (how much of the invoicing translates to payment and over what period of time)

It is vital to ensure that all possibilities are considered to form an accurate forecast moving forward for purposes of business development. Depending on the fee earner in question, and the clientele you are acting for, the above may not be relevant to every individual across the board, and an individual approach may be required to paint an accurate picture.

By drilling into the detail with each member of your staff, this can lead to productive performance reviews, allowing for potential opportunities to be spotted which not only improve business performance, but also personal performance.

Following on from the above, it is crucially important that the KPIs set allow the ‘buy in’ from Staff so that they are genuinely able to influence, and be engaged with, their own performance or that of their immediate team/department.

This also translates into communication from senior management at a strategic level to fee earners on the ground, who are allowing you to accurately forecast the productivity of your business model and look at how it will progress in the future. Even though any individual fee earner on their own is unlikely to be in a position to influence the gross or net profit of a business.

This means that by following a S.M.A.R.T approach, your KPIs should have a Specific purpose for the business; that it is Measurable so that a value can be quantified from this; defined to be Achievable; the development and improvement of KPIs must be Relevant to the success of the business; and must be Time phased to allow you to see the value over a predefined period.

A typical set of KPIs for a law firm may consist of:

  1. New customer acquisitions
  2. Analysis of the types of clientele (SMEs, private individuals, etc.)
  3. Turnover
  4. Bad debt
  5. Profitability of areas of work
  6. Fee earner time
  7. Invoicing / payment terms

All of these are all well and good, but must be measured correctly both individually, and as whole, since overlooking one may inadvertently affect others. Too often KPIs are applied in a negative way, being unachievable and unrealistic, furthermore there is often no explanation given, and a blanket approach applied leaving fee earners in a confused state as to how they will hit their targets.

The message therefore is not just to create KPIs for the sake of creating them, but to introduce them so they can be measured at a strategic level and analysed as part of a layered approach.

By Shirley Rothel – Director, Head of Finance & Operation, COFA

 Shirley Rothel