Utilization – Expectation V/s Reality

Introduction-

Legal utilization is complex for many law practitioners. As a whole, attorneys work hard to show their financial benchmarks by billable goals. For the fact that utilization becomes a differentiator for the success of the firm. Utilization rate in a very simple form can be said as a term referred to how much of a person’s or business’s potential output is being used.

Clients expect more yet, offer less. The primary reason for this is most of the attorney’s work goes unnoticed and unbilled, as they do more non-billable work and hence end up doing more and getting less out of their work. It comes as no surprise that, on an average, attorneys spend two-thirds of their days’ work on non-billable work.

The firm’s utilization could be more than the whole of the industry. This sounds a little too much to expect, but in reality, this could turn out to be true with two some proven simple techniques…

Declutter – While the expectation is that a junior attorney or even a bunch of attorneys need to do all works at the legal firm which mostly accounts for their wastage of time and does not yield them any results. Also, such tasks do not lead them anywhere closer to their goals.

Tasks like – scheduling meetings and appointments, follow-ups with clients, sales, marketing, email reports, documentation, billing, invoicing, accounting are some of them.

Whereas in reality – these tasks could be outsourced and legal practitioners could be more counterproductive. The earlier the attorneys outsource and remove themselves from tasks, the more they will be able to increase their utilization.

Systemize – If in case, your work procedures and methods aren’t in order and not systemized, it becomes difficult to have an efficient workplace. Certain work needs to be removed from doing it ourselves and rather delegating them as quickly as we can. Fix the mistakes or problems they created a long time back and ignoring the mistakes and accept the consequences. The key component here is to be consistent

In the legal business, utilization is a key number as the lawyers charge their time to clients and for those that need to maximize the productive time of their staff.  It can reflect the billing efficiency or the overall productive use of an individual or a firm.

Utilization Rate and Goals – We believe that every law firm should have an overall utilization rate goal set at the individual/team and department level. In this case, practice level as there may be various practice areas a law firm will deal with. This works, if the attorneys perform at a targeted rate as they work at different times of the day or of the week. And since a firm’s profit is the difference between an hour billed to the client and an hour paid to the attorney who did the work for that matter, problems may arise when you use averages to compute a capacity utilization rate for the firm. Utilization rates must be calculated based on the cost from the general ledger not hours from a timesheet. Another problem is that people who cost the most are generally least billable. Owners and partners have to dedicate a great deal of time and effort to non-billable activities like business development, website marketing, paperwork, etc, but they tend to pay themselves the most, so the utilization rate based on hours is usually much higher than the utilization rate based on cost.

Utilization Rate and Firm-Wise budgeting – The most important and highest use of utilization rate is for budgeting purposes. For a legal firm to run efficiently and in profits, it’s very critical for the owner attorneys to know the firm’s capacity to generate revenue. Each attorney’s cost multiplied by market-specific direct labor gives you your billing rate. The figure derived multiplied by the number of hours available gives the firm’s possible revenue. And that number of times your targeted utilization rate gives the actual revenue you can expect in a year. However, measuring utilization based on hours may cause an attorney to overcommit to work as it may look that the firm has more capacity to do a lot of things than it does. Hence, an attorney may get overwhelmed and fool himself. Therefore, the right approach could be to consider the utilization rate based on the cost.

Conclusion

To understand utilization, we need to understand how occupied everyone is and how well they are spending their time. How many hours are billable to the client and how many go as non-billable?

A good tracking system for activities gives us a better sense of capacity for additional work, or the need to delegate assignments to ease an overwhelmed employee.

Finally, to have a well-balanced utilization rate, considering some amount of non-billable time is also necessary. Ideally, an attorney’s “available time” should be the total no. of hours in a year deducting whatever time they are allowed for non-billable planned hours.