The document discusses how to increase utilization and realization levels at a law firm. It identifies utilization as being driven by sales processes, operational management, and organizational culture. The document recommends diagnosing utilization by analyzing the stock of sold work, sales processes, and how operational management maximizes billable hours. It suggests tracking utilization weekly and connecting sales and operations to improve short-term utilization. For realization, it recommends setting price and profitability hurdles and training partners in commercial processes.

1. How to Increase Utilisation and
Realisation Levels
March 2015

2. Overall Financial Model
• Utilisation is one of the key drivers of financial success in a law firm
• A possible set of drivers that would produce a profit for each 100 unit partner of $2 million is as
follows – best practice in this market today:
• Effective fee rate – blended rate for all lawyers incl partners - $440 ph
• Utilisation – 85%
• Leverage – 4.3
• Overhead rate as a % of revenue – all costs other than lawyer salaries – 28%
• Write-offs – 2%
• There are many combinations of these drivers that produce the same outcome – but those
combinations narrow if you assume the size and breadth of a major firm
• This is the $2 million target that the best practices in the leading firms deliver today
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3. Utilisation Drivers
• Utilisation is an outcome of:
• The ability of the sales processes of the firm to sell enough work across:
• Service lines
• Geographies
• Lawyer levels
• The ability of the operating processes to maximise the level of utilisation for any given stock
of sold work
• There is a straight line curve that shows the relationships between sold stock and utilisation
levels - assuming proper operational management
• The organizational settings that support a high performance culture
• Improving utilisation therefore needs to explore all the elements that contribute to both of
these drivers – selling and consuming stock of sold work
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4. Diagnostic: Utilisation – Stock Gaps
• The first step in understanding how to increase utilisation levels is to get the facts around three
key elements:
• What is the stock of sold work across the business?
• Is the sales machine selling enough work to feed people at higher levels of utilisation?
• Are people maximising the usage of sold work to maximise short term utilisation levels?
• Are the organisational settings set correctly?
• The first key analysis is to map the level of sold work across the firm:
• Service line, Geographies, Lawyer Levels
• And compare these stock levels with the levels required to achieve a hurdle rate of utilisation
– say 85%
• This analysis will show where the stock gaps are across the firm
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5. Diagnostic: Utilisation – Sales Processes
• The next step is to assess the effectiveness of the various key sales processes across the firm:
• Sales management
• Bid processes
• Account management
• Extension management
• This analysis will determine which of these processes, and the people capabilities that drive
them, need to be improved which will produce the higher sales levels required.
• The effectiveness of the sales machine can be measured as follows:
• Penetration levels of key clients – should be at least 35% of wallet
• Extension rates on current work for current clients – should be 80% of sales
• Sales conversion rates across the board – best practice is 50% - 2 proposals for 1 sale
• Quality of sales management processes
• The continuous management of sales pipeline and operating capacity to focus sales force
– partners supported by BD teams – on feeding ‘hungry mouths”.
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6. Diagnostic: Utilisation – Operational Management
• The second key analysis is to assess the ability of the firm to convert sold work into billable hours
• To do this we need to do three pieces of work
• What do people spend their time on now?
• Fee earning work
• Marketing & selling
• Producing thought pieces
• Training & development
• Admin…etc
• Is there a sufficiently high focus and priority on people spending most of their “40 hour
week” on billable work?
• How the Practice Groups go about maximising utilisation on a day to day basis
• What are the organisational settings, and how do they impact on utilisation?
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7. Process: Utilisation – Operational Management
• What do people spend their time on
• Take a statically valid sample of lawyers at all levels from across the firm:
• Different utilisation levels
• Different lawyers levels
• Different practice groups
• Different geographies
• Interview each lawyer in the sample and determine where the key utilisation leakages come
from across the firm and which ones are key:
• Where does the time go?
• What is getting in the way:
• Complexity?
• Too many meetings?
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8. Diagnostic: Utilisation – Operational Management
• How do the PG Leaders go about driving high performance levels from their teams
• Quality of reporting systems that focus on utilisation, realisation rates and the strength of the
sales pipeline:
• History
• Forecasts – next week, month and quarter
• How do the PGL’s short term schedule work to their team members?
• How do the PGL’s energise the sales system when there is forecast utilisation gaps?
• How do PGL’s “sell” their resources when they are short of work, and also “buy” resources
when they have over-sold their capacity?
• How do PGL’s deal with performance issues – i.e. somebody who has plenty of work but is
not burning that work quickly enough?
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9. Process: Utilisation – Operational Management
• Part of this second area of analysis would cover the organisational settings:
• What is measured for partners and lawyers?
• What is rewarded?
• What is trained?
• What is expected?
• What is communicated?
• What is performance managed?
• What is focused on?
• How is agility achieved?
• All of these points and others create the environment that sets the culture
• No doubt that some of these settings will need to be changed to maximise utilisation levels
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10. Diagnostic: Utilisation - Summary
• The results of these analyses would tell us where the issues are:
• Sales deficit:
• Do we have a sales problem? – i.e. not enough stock
• Do we have a sales mix problem – i.e. some parts of the firm are very busy whilst other
parts are not?
• Do we have big enough multi-disciplinary jobs that suck in large volumes of resources
from across the firm?
• Operational management issue:
• Do we have a professional staff mobility problem between practice groups and
geography?
• Do we manage tightly the operating capacity with the sales pipeline?
• Do the PGL’s understand their business model and how to actively manage the key levers
available to them?
• Do the PGL’s tightly manage the scheduling of lawyers onto jobs to maximise utilisation
given current stock levels?
• Do we have the ‘right’ PGL’s who are properly trained and supported by good systems?
• If there discipline around the timesheet system?
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11. Diagnostic: Utilisation - Summary
• The results of these analyses would tell us where the issues are:
• Organisational settings/culture:
• Are low utilisation levels allowed to continue with no sanctions?
• Is utilisation a key personal KPI?
• Are utilisation expectations set too low?
• Do the professional staff understand the impacts of poor commercial behaviour?
• What is the strength of the work ethic?
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12. Implementation Utilisation – Action Plan
• These findings would suggest where the major focus of attention should be to get quick benefits
to utilisation levels across the firm
• From my experience these are likely to include:
• Weekly reporting of utilisation levels by lawyers and by practice group across the firm
• Previous week, MTD and YTD
• Forecasts over the next week, month and quarter
• Weekly management focus from the top leadership team cascading down to the PGL’s
• Short term actions designed to maximise utilisation levels this week from current sold work
• Stronger connection between the sales machine and the operating capacity across the business
– the BD Director has a major role to play here
• Increasing the capability of the PGL’s to drive this process on a day to day basis
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13. Realisation
• The key to driving up realisation rates is to improve the commercial behaviours of partners in
selling and operating matters
• Some thoughts on this
• Undertake a brief pricing study to determine realistic prices for a premium position in each
segment of the market – both line of business and geography
• Set a hurdle rate for the profitability of each job – say PEP of $1.5 mill
• Establish a process that deals with potential sales that are less than the hurdle rate
• Establish a review mechanism for approving write-offs beyond a certain limit
• Train the partners in firms
• Business model
• Commercial process
• Maybe using stimulation
• Have a very focused management system on write-offs per partner
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14. Contact Details
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John Colvin
Principal
E: jcolvin@johncolvin.com.au
M: +61 409 183 174
S: +61 2 8823 3485
Level 36, Governor Phillip Tower
1 Farrer Place, Sydney NSW 2000, Australia
Sandra Heinig
Senior Associate
E: sh@johncolvin.com.au
M: +61 416 731 897
S: +61 2 8823 3485
D: +61 2 8823 3487
Level 36, Governor Phillip Tower
1 Farrer Place, Sydney NSW 2000, Australia
Sian O’Shaughnessy
Research Analyst
E: sian@johncolvin.com.au
D: +61 2 8823 3485
Level 36, Governor Phillip Tower
1 Farrer Place, Sydney NSW 2000, Australia