Whipping the WIP: Profit in professional services
PWC’s Annual Law Firms Survey found that UK law firms write off 20% of WIP (work in progress).
Scary, but I don’t think it’s true.
The reality is worse. Much worse.
Top tier US legal practices generate 41% better profit per equity partner than their UK equivalents. US firms have smaller, more agile teams and arguably a more entrepreneurial spirit, but, most importantly, they have strong profit and WIP discipline.
This discipline is missing in many UK firms.
I know some will say that not all WIP should really have been classed as WIP in the first place. Automatic billing for 15 minutes for an email saying ‘noted’, or putting in a casual telephone chat about the client’s weekend plans may well get removed at source – ‘what if the client asks to see the file’ after all… and rightly so.
But, even taking account for this, the numbers are still bad. Why is UK WIP management still so notably poor? How else is profit impacted? And what can firms do about it?
WIP should be a partner level problem:
Measuring individual lawyers top-line contribution alone is not the same as measuring and managing profit…
Sainsbury's don’t sell a tin of beans without knowing how much it costs. Why should a business that sells legal services be any different?
What else are partners doing if they aren’t measuring profit? WIP needs to be on the agenda at every partners’ meeting. Set weekly practice meeting KPIs & ‘red flags’. Ensure the visibility of effort against budget at all levels. Which leads me neatly onto…
Time tracking on fixed fee work:
Once a practice moves to fixed fees, as inevitable as Christmas arguments with the in-laws – lawyers stop tracking time properly. This is also sloppy management, not least because it inevitably leads to….
Under-scoping the next job.
Lawyers who don’t track time spent, under-estimate the effort needed for the same job next time. Which means the predicted profit on the fixed price work is wrong. I know this is obvious, but it doesn’t seem to stop it from happening.
Lawyers who under-scope work, then work longer hours to try and catch up on billing targets. Then they rush things and make mistakes… This is a vicious circle AKA ‘circling the drain’. And, then, this adds to the problem of…
Poor scope creep/change management skills
Sitting neatly on top of the problem of perpetually under-scoping work, 39% of legal matters experience some sort of change or scope creep.
The overwhelming majority of lawyers don’t feel confident about having this conversation with the client – so most don’t, they just swallow the loss. This is because they have never been trained to do this.
How big is the WIP gap in your firm? And, just as importantly, do you have any other tips on profit and WIP to share?