The Science of Data in Support of Pricing (Live from P3)
This is a live post from P3, the Practice Innovation Conference. This session is
The Science of Data in Support of Pricing. I have appended the session description and speaker bio at the end of this post. [I post this as a session ends so please forgive any typos or of my misunderstandings of what speakers said.]
Issues with Quantity and Quality of Data.
Dechert: The technology is only as good as the data that drives it. A challenge is getting lawyers to enter data that supports pricing. Also, we have to collect data from multiple systems. In some systems, data may not be correct. “We are still far away from having universal technology”
Simpson: We have a lot of data. The challenge is analyzing it and put it in a form I can use. I’ve given up on task codes – it’s bad data. It’s hard to know how to use the big volume of data we have.
Progress in Data?
Mayer Brown: The way we deliver today is very different today than it was 5 years ago, for example, different resources (eg, lower cost) and deployed technology such as document assembly and reengineered our processed. Because of all the changes, historic data has limited value. To support pricing, we developed a matter classification system for matter type, industry, area of law, and distinct matter characteristics. This is in a system rolled out one year ago. Previously, it was very manual and not systematic to collect these data. Using SharePoint to collect information on fee arranagement; that gets written to finance system. This supports fee analytics and improves the quality and quantity of data.
Case Study of a Matter Where Process Improvement Had a Direct Impact on Pricing
Dechert: We do perform case studies in our department and offer to marketing. We recently had a leading global asset management company with a class action matter. They came to us seeking a discount. The firm looked at similar matters, especially the mix of phases and tasks and timekeepers. Using these data, firm was able to estimate the cost. That was basis of offering a fixed fee, spread evenly over five months. Offered weekly reporting. This allowed the firm to avoid discount, maintaining the firms profitability, and offered the client value and certainty.
Follow-up Q: what has been the impact on other matters of doing the above? It has caused internal (partner) and client repeat business.
Mayer Brown: PPP case study (private public partnership). Legal fees are often public record, so these matters tend to be price sensitive (and because government is involved). Using matter classification described above, the firm found 25 matters with similar attributes. We analyzed that data, examined the processes to do the work, looked at at data down to timekeeper and task to determine if it was the right mix. This led to creating a type of pricing menu of fixed fees and other structures. Partners had several major “aha moments” in going through this analysis. For example, partners saw the need to re-allocate tasks to other timekeepers or just not do certain tasks. This allowed the firm to address the clients’ needs, especially predictability. We were much better positioned to articulate value to the client with this approach.
Follow-up Q: was the firm doing this transparently, sharing analysis with client. No, that was less the goal. It was more focused on articulating value.
Simpson: we find it helpful to be very transparent about approach to pricing, having partner and client in the room, going through detailed assumptions and phases. We won a very large deal because we were more transparent (including profit margins) than competitors. Client had questions but was persuaded by the analysis, data, and transparency.
Dechert: we are transparent on rates, phases, and hours but don’t share profit information.
Simpson: One client was consistently writing off 15 to 20% of bills. To counter this, firm set up access for client to time billed, in real time. Client was very appreciative. Firm was able to monitor access and saw only a couple of accesses. When client asked for discount, firm countered that client had access to hours and could have said something mid-stream. That dramatically reduced the discount requested. The firm did not try a push approach (sending clients reports regularly) because that would not have worked culturally.
Dechert: We do a lot of extensive fee reporting to clients, with charts and graphs. It keeps the clients informed about matter progress. The prep of these reports is not billable. The firm offers partners these reports for their clients and many accept the offer. Some clients ask for customization, which can increase the workload. We are working on better visual display, which we think will reduce customization requests.
Identify New Tech to Support Data Mining and Analysis
Mayer Brown: There are many technologies today. Many firms use Matter Analyzer, which provides benchmarks. Software will re-classify task codes. Statistical approaches are emerging. But we are not collecting the right type of information still. We don’t have contextual data to describe matters. For example, don’t have data on number of depositions or motions in litigation or scope of due diligence in a transaction. These factors drive costs but does not see any firm collecting these data.
I ask about whether partners will be able to forecast the numbers (the key parameters) for pricing, or putting these in scope and then having scope change discussion. Answer: less about doing this and more about having the right conversations with clients / prospects.
Simpson: We have Crystal Reports for a lot of reporting. I typically add 20 to 25% to partner estimates, which usually ends up being correct
Identify Types of Matter Where Historical Data Helps
Dechert: With litigation, it’s not so valuable because of the big variability. It;s hard to use previous matters. So we have a dashboard that allows pulling multiple prior matters to get at averages based on assumptions about how those prior matters might apply. But for transactions, especially more routine ones, having these data are very valuable for pricing.
Simpson: We often set forth assumptions and plans and then re-visit quarterly to re-set. Focus more on phase than entire matter, especially in litigation.
Do You Use Other Types of Pricing that does not Rely on Analysis?
Simpson: Data can never be absent, we always need to refer to it. But in some regions, clients will offer a price, take it or leave. Then the data is about whether we can deliver profitability, not negotiation.
Mayer Brown: We are experimenting, with some matters, with cost-plus pricing, especially for matters we can accurately predict, that is, routine matters. Cost-plus lets us price effectively and predict our margin. But we are not specifically pricing this way to clients.
Dechert: We also face many fixed fee matters where clients are only willing to pay that fee. So then there is no analysis. We have to decide if we can deliver at a good margin or just discount.
What Does the Future Look Like?
Simpson: It’s ok say no to business if it will not be profitable. We monitor utilization. When we are good utilization, we will say no more often.
Dechert: Lawyers and clients have growing awareness of pricing. This is making the work easier and better over time
Mayer Brown: Clients all have access to a lot of data from ebilling and/or vendors. Many have access to more data than their firms do. Law firms have to catch up on their data. We need to put in infrastructure to collect matter-level data.
[Audience Q&A not captured]
Speakers: David Libesman, EVP & CRO at 9Dots Management Corp, LLC; Barry J Mehew, Global Director Pricing Strategy & Legal Project Management, Mayer Brown LLP; Catherine Schmidt, Manager, Matter Analytics & Pricing, Dechert LLP; and Eddie Raychaudhuri, Chief Pricing Officer, Simpson Thatcher & Bartlett LLP
How far has your firm progressed in data analysis and what new and innovative approaches to data mining are firms using to support pricing? In this panel discussion including peer members from top law firms, we will tackle…
- What progress has been made in terms of the quality and quantity of data collected by law firms?
- The new technology available to support the mining and analysis of data
- Is using historical data a valid approach to support pricing in today’s market?
The other pricing approaches being used by firms today that don’t rely on data analysis.
- Alternative Legal Provider (44)
- Artificial Intelligence (AI) (57)
- Bar Regulation (13)
- Best Practices (39)
- Big Data and Data Science (14)
- Blockchain (10)
- Bloomberg Biz of Law Summit – Live (6)
- Business Intelligence (21)
- Contract Management (21)
- Cool Legal Conferences (13)
- COVID-19 (11)
- Design (5)
- Do Less Law (40)
- eDiscovery and Litigation Support (165)
- Experience Management (12)
- Extranets (11)
- General (194)
- Innovation and Change Management (188)
- Interesting Technology (105)
- Knowledge Management (229)
- Law Department Management (20)
- Law Departments / Client Service (120)
- Law Factory v. Bet the Farm (30)
- Law Firm Service Delivery (128)
- Law Firm Staffing (27)
- Law Libraries (6)
- Legal market survey featured (6)
- Legal Process Improvement (27)
- Legal Project Management (26)
- Legal Secretaries – Their Future (17)
- Legal Tech Start-Ups (18)
- Litigation Finance (5)
- Low Cost Law Firm Centers (22)
- Management and Technology (179)
- Notices re this Blog (10)
- Online Legal Services (64)
- Outsourcing (141)
- Personal Productivity (40)
- Roundup (58)
- Structure of Legal Business (2)
- Supplier News (13)
- Visual Intelligence (14)