BI Fundamentals - Metrics from Financial Data to Improve Firm Efficiency
The responsibility of for dealing with and tracking your firm’s financial numbers every day doesn’t fall only to the financial department. As a firm administrator, you also need to see and track billable hours, accounts receivable, accounts payable and more. All of the numbers your firm is already capturing can be a gold mine of information to help your firm grow strategically
When you are capturing the right information, and understand how key financial data metrics paint a picture of your firm’s profitability, you’ll be able to make sense of – and use- your business intelligence.
Metrics and Business Intelligence: Not Quite a Paint by Number
Making sense of all of the data points your firm captures can be onerous (if not impossible) if the data is captured in separate, siloed systems or is only maintained on paper. However, if your firm’s financial management system communicates with and integrates your information for you, you should be able to identify and use key performance indicators (KPIs) to your advantage.
While you capture a lot of information, there are certain KPIs that can reveal hidden business intelligence your firm needs to plan for strategic growth.
1. Money Actually Spent by Department, Compared to Budgeted Amounts
Tracking money in and money out can yield a lot of information about your firm’s productivity, profitability and performance for a given time period. When you track this amount regularly (for example monthly), you will have the data you need to spot trends over time, which can help guide firm decisions. You always want the firm’s overall spend and budget at top-of-mind, but don’t stop there. Drill down by department to get a better picture of how each piece of the firm is working toward enhancing the whole.
From this raw data, you can identify areas for improving performance and productivity. Moving from a paper-based to a paperless system is one change that should yield measurable results in every department.
2. Expenses Associated with Engaging Outside Counsel
If your firm is consistently engaging outside counsel to help with a certain type of case or project, it may be time to consider expanding your firm’s reach to include a new practice area. When you bring that expertise in-house, you should realize cost savings. This may seem elementary. However, if you are not aware of what you’re spending on outside counsel, this deduction can be surprisingly elusive.
Conversely, you may need to invest in outside counsel to improve client satisfaction ratings or bring in new clients for a different practice area. The key here is to understand your firm’s growth plan and where you are now on that path.
3. Accuracy of Your Budget Forecasts
Budgeting, and creating forecasts, is a smart move for any business. For a law firm that wants to be competitive and grow, forecasting income and expenses is an important way to both manage expenses and expectations and provide an unlikely source of motivation for partners and associates.
If new business development activities weren’t where you had forecast them to be, your firm can use the data you’re collecting to identify why development activities aren’t yielding the results you projected. On the flip side, if new business development is better than anticipated, you can mine the data to identify what worked well so you can replicate it in the future.
Client acquisition costs are another metric your firm should be watching in your budget forecasts. Most of the time, your client acquisition costs will probably remain within a pretty narrow band. When costs stray outside of those expectations, you can dive deeper into the numbers to identify what was responsible, and learn from it.
4. Client Experience
Your firm may already be capturing information that can give you valuable insights into your clients’ experience with the law firm – you just have to know what you’re looking for (and what you’re looking at). If you are not already asking clients to provide feedback, consider implementing a survey tool, such as the Net Promoter Score which asks clients for a simple rating of how likely they will be to recommend your law firm to their friends and family members who need similar services.
You already know that your current and past clients can be an amazing source of referrals for your firm, so finding out what they thought of their experience can help you look more closely at processes like client intake and communications, so you can make needed adjustments.
Make the Most of Your Firm’s Metrics & Business Intelligence
You can only use the information you’re actually capturing; firms still using paper-based or siloed approaches will likely struggle with extracting actionable business intelligence.
When you choose to leverage technology by implementing a law firm financial management system, you will have control of what you’re capturing, who can see that information, and how you report on and use that information to spur growth and change at every level of the firm.
Look for a financial management system that will:
- Centralize the data you are capturing
- Give you flexibility to use that data whenever, and wherever, you need to
- Allow you to customize reports and automate workflows and delivery
- Customize user access and security
- Provide real-time access to your data, so you can react nimbly
You cannot use your firm’s key performance indicators and take advantage of business intelligence unless you are capturing relevant information, and capturing it in a way that allows you to easily view and report on it.