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From Law360
By Allison Grande
Law360, New York (August 05, 2010) — Inaccurate timekeeping causes major headaches and can lead to significant losses in a firm’s bottom line. But firms can take some simple steps to improve their timekeeping capabilities and maximize their profits, experts say.
A survey conducted by consulting firm Adam Smith Esq. and software company Smart WebParts LLC from mid-May through early June found that average “leakage” due to an individual’s failure to accurately report all billable time ranges from $20,000 to nearly $40,000 annually per individual, while the overhead costs of keeping time can add up to roughly $16,000 per person per year.
“Timekeeping or lack thereof is the kind of dirty little secret that can cost law firms a significant amount of revenue,” Adam Smith partner Janet Stanton said.
While firms have faced the problem of how to accurately and efficiently record billable hours for years, Stanton points out that the results of the survey — which collected feedback from 86 law firm partners, 72 associates and 51 senior staff — highlight the significant degree to which lackadaisical timekeeping is impacting the bottom line.
“With more rigorous timekeeping, all of that sound revenue can be recovered for the firm’s bottom line without anyone working any additional time,” Stanton said.
Although lawyers still dread the task of keeping tabs on their daily movements — respondents to the survey called timekeeping “the bane of my existence” and “the worst part of firm life” — doing so represents an opportunity to increase revenue without incurring additional costs.
“Many attorneys dislike timekeeping and view it as a necessary evil … and as a result treat the recording of their time as an afterthought,” said John L. Trunko, a St. Louis-based attorney and former senior legal auditor with Stuart Maue Mitchell & James Ltd. “Sloppy and undisciplined timekeeping practices decrease productivity, result in lost fees, and can create serious client-relations and other problems down the road.”
Address the Issue
As with any potential problem, the first step for most law firms is admitting that their timekeeping structure has room for improvement.
Jenner & Block LLP’s Executive Director and Chief Operating Officer Meredith Mendes realized three years ago that changes could be made to the firm’s timekeeping process in order to save lost revenue.
“When you begin to look at money that’s being lost simply because people are not accurately writing down their time, it becomes shameful,” Mendes said.
Given the benefits firms stand to gain from increasing the accuracy of their timekeeping methods — lawyers who keep contemporaneous time records enjoy a 25 to 40 percent higher income than those who don’t, according to Law Practice Management Consulting founder and CEO Gisela B. Bradley — it is not surprising that one of the conclusions of the Adam Smith timekeeping survey was that lawyers “would be eager to explore alternatives that invite greater accuracy and, most importantly, would be easier to use.”
“In this environment where every bit of profit matters, to be able to increase profits without anyone working an additional hour is powerful,” Stanton said.
She added that since the release of the survey’s results in early July, a number of firms have inquired about ways to evaluate their timekeeping methods in order to capture more hours and to reduce the time it takes for timekeepers to capture billable hours.
“The firms we have spoken to have not gotten so far as to initiate changes yet because it is still early in their evaluation process, [but] they have an eye toward changing what they do and how they do it,” Stanton said.
New Technology Can More Efficiently Track Time
The typical timekeeping method at law firms involves lawyers or their secretaries entering daily tasks — including phone calls, e-mails and other correspondence with clients — into the firm’s intranet system on a predetermined basis.
However, this system leads to the dreaded “leakage” problem because it relies on lawyers remembering sometimes days after the fact how long they spent performing a certain task, according to firms.
Software programs have the potential to make the act of remembering significantly easier and less burdensome for timekeepers by delivering the exact time spent on a certain task directly to a lawyer’s phone or inbox, according to experts.
“Timekeepers are not writing down time contemporaneously, which is a burden when trying to enter their time later,” Stanton said. “But as technology advances, better ways to capture time and have that information come to you are being made more available.”
A nationally recognized law firm recommended IntApp Inc.’s Time Builder system which, like comparable software programs, provides a journal of attorney activity by automatically monitoring and cross-referencing key productivity applications such as document management, e-mail and phone systems.
The program is also directly integrated with time entry systems such as Elite WebView and Advanced Productivity Software’s DTE, a feature that allows attorneys to more easily track and enter time, according to the company.
Mendes said that Jenner & Block had recently launched a pilot program that allows a few of its attorneys in Washington and New York to use this type of software to receive automatically generated e-mail reminders of how they’ve been spending their time and when they need to enter this data into the system.
“One partner in New York loves it, while another has said it’s not for them,” Mendes said. “It really depends on your role and workload. If you’re working on a bunch of different cases, then it tends to be better.”
Use Old-Fashioned Methods To Finish the Job
While software programs facilitate remembering and make it easier to track these hours, they do not eliminate the task of recording activities into the firm’s time system.
This deficiency means that firms may still have to employ more old-fashioned methods — such as offering incentives for entering input on time or sending out public reminders to repeat offenders — to achieve compliance.
“We send out e-mails and make phone calls to remind people to put their time in, and sometimes the embarrassment factor gets the job done,” Mendes said.
In the end, though, the chosen timekeeping method has to not only work for lawyers but also for the firm’s existing standards.
“Some firms use a more militant approach than we do, but these strategies [such as requiring repeat offenders to donate a certain amount of money for their missed entries] never really caught on and just didn’t work with our culture,” Mendes said.
Alternative Fee Structures Are Not a ‘Solution’
While recent reports show that alternative fee structures have been successful for firms and are likely to increase in the coming years, these arrangements do not necessarily exempt firms from having to keep tack of their work, according to experts.
“A lot of people think that an alternative fee arrangement or a flat fee allows firms to escape the task of having to track hours,” Stanton said. “However, if you don’t have all the hours associated with the project going forward, you’re not in a position to recommend an arrangement that’s good for not only the client but also the bottom line.”
Although firms using these alternative structures do not bill their clients by the hour, knowing the amount of time spent on a certain project is vital because it allows the firm to make sure it has secured the maximum profit for its work.
“If you look at other industries that are more advanced in project management or fixed fee billing, you still see that partners calculate costs of engagement based on estimated hours worked and cost per hour,” Mendes said. “With alternative fees, you still need to know how many hours you put into a project. It’s fundamental to professional services, and you can’t determine if you are making money if you don’t know the costs.”
