Measuring AFA effectiveness part II: leveraging historical data

A couple weeks ago, we published the first post in this series which focused on the intangible benefits of alternative fee arrangements (AFAs). Today’s post will highlight the process for determining a flat or fixed fee arrangement that benefits both your legal department and your law firms.

Getting Granular

Firms will leverage their vast network of internal case and matter data to make sure they’re charging the appropriate amount for their work performed, level of expertise, and level of risk, with an obvious incentive to maximize return.

But as a legal operations group, how can you leverage your data to make sure you’re actually better off using a flat fee? How can you use data to determine if you should base these flat fees at the task level, phase level, or matter level? My general sense is that the more granular you can get, the more control and accuracy you’ll have (of course, this is only when proper analysis is done).

6 Steps for Executing Value Based Fee Structures

The Association of Corporate Counsel (ACC) shares the following six steps as a starting point for executing value-based fee structures. This applies to both law firms and their clients as both sides need to follow a structured process.

1. Defining value
2. Scoping the work to be performed
3. Assessing who is best-suited to perform this work and on what terms
4. Implementing effective fee terms and management processes
5. Managing the legal work and the project coordination
6. Evaluating the quality of results and processes

The Value of Historical Legal Billing Data

Accessibility to historical billing data about your invoices and matters, as well as the ability to easily navigate through this data, is a must. It allows you to group together similar cases and matters amongst practice areas or assess matter or task complexity, so you and your legal department can complete the above steps and determine the best strategy for moving forward with AFAs.

If you don’t have historical data available, it might be time to implement legal e-Billing and matter management software. This way, you can easily extract the valuable data found in your invoices and matters. Other benefits from such solutions include streamlined legal operations processes, increased transparency into legal spend, and better cost control thanks to automated accruals, budgets, and billing guideline enforcement.

Driving Evaluations with Modern Legal Technology

Historical data is also particularly helpful for the ‘Evaluating’ step outlined by the ACC as you’re able to determine success criteria for tasks and matters that need to be evaluated.

Within the SimpleLegal legal ops platform, we structure our legal reports in a way that makes analysis as easy and straightforward as possible. Most of our reports allow for flexibility in grouping by, subtotaling by, and filtering on all the relevant categories (practice area, matter, vendor, etc).

While I can’t give a one-size-fits-all list of reports or questions that will definitively show AFA effectiveness compared to hourly billing, a few reports within SimpleLegal offer a great starting point:

• Practice Area (Matter Group) Activity by Vendor Report – Compare multiple law firms side by side
• Task Code Cost Comparison by Vendor Report – Measure spend by task code or vendor
• Rate Comparison Report – Hourly data to assess and compare vendor costs

Are You in Control of Your Legal Billing Data?

Measuring AFA effectiveness and their value is a complex task that requires analyzing many pieces of data. But this is only achievable if you have control of your legal billing data and the ability to easily report on this information in ways that make sense for your specific business questions.

And don’t forget – data evolves and the reports themselves need to keep pace. If your reports seem stale, they likely are. Make sure that your legal reporting soltion(s) are adapting to meet your modern departmental and business needs so you can anticipate those needs rather than reacting which takes considerable time to catch up.