I have been told, and if recent inquiries are any indication, there has been a resurgence in the interest in Key Performance Indicators ("KPIs") among solo practitioners and small law firms.
Any discussion of KPI should start with a word of caution – KPIs are simply tools – they are no substitute for the use of common sense and good judgment when it comes to the management of your law practice or firm.
Successful practices and firms constantly seek a balance between the business and people. By advocating the use of KPIs I am not suggesting that all that counts in a law practice or firm can be counted but rather what gets measured is what gets done.
Before exploring some simple but effective KPIs it is important to understand what is required to make a particular calculation or ratio a KPI.
The number being measured should meet the following three criteria to qualify as a KPI:
As a result, just because a colleague or their firm utilizes KPIs that you do not, doesn't mean that you are managing badly. The importance practices or firms place on specific KPIs will change over time as they move along their individual evolutionary track.
Context is critical to the effective use of KPIs. For many the only benchmark they have is their own past experience. Unfortunately, access to benchmarking data in the legal profession is limited. This is particularly true in Canada, especially for solo practitioners and small firms. As a result, in order to have some context they must overcome their reluctance to compare themselves to US practices and firms of similar size.
The KPIs identified in the remainder of this article have been grouped into the following three categories:
The following sample of KPIs are not meant to be all inclusive and is sensitive to the data readily available from accounting systems frequently used by practitioners and small firms.
Typically KPIs have focused predominately on the productivity and financial aspects of law firms. Practitioners and firms continue to explore business development / marketing KPIs to understand what will have the most meaning for them.
To ensure the most accurate measurement possible, productivity KPIs utilize the concept of full time equivalent ("FTE"). FTE reflects how many actual timekeepers or staff your practice or firm had for the period being measured. For example, a lawyer who was with your firm for six of the past twelve months would be treated as one-half of an FTE in determining your lawyer count.
Financial KPIs are evolving as the fundamental economics of law practices and firms change. This is resulting in differing views of what is critical to both tracking and measuring your firm's financial success. I direct you back to two of the criteria required to make a calculation / ratio be a KPI - it must reflect the practitioner's or firm's strategy and goals; and it must be key to their success. Using these two criteria will enable you to focus on the relevant financial KPIs.
The manner in which KPIs are presented is critical to the effectiveness of the KPIs. No matter what KPIs you track, reams and reams of paper or screens usually only serve to lessen the impact that the KPIs can have on your practice or firm's decision making.
KPIs are like any effective tool used to manage your practice or firm, in Albert Einstein's words "if you cannot explain it simply, you don't understand it well enough". One final note of caution - no one KPI tells the full story, but rather they must be viewed collectively to achieve the best informed decision making results.
Stephen Mabey is a CPA, CA and the Managing Director of Applied Strategies, Inc. Stephen's focus is on law firms in general and on small to medium size law firms in particular. He has written about and advised on, a wide range of issues including - leadership, business development, marketing, key performance indicators, strategic planning, mergers, practice acquisitions, competitive intelligence, finance, mergers, practice transitioning, compensation, organizational structures, succession and transition planning, partnership arrangements and firm retreats. In 2013, Stephen was inducted as a Fellow of the College of Law Practice Management in recognition of his sustained commitment to the highest standards of professionalism in law practice management. For more information, visit appliedstrategies.ca or connect with Stephen Mabey on LinkedIn at ca.linkedin.com/in/smabey.