How to allocate your resources properly in an Alternative Fee Arrangement

Daan Pruijssers

29 March 2018

There has been a prominent rise in the use of Alternative Fee Arrangements. Law firms are increasingly looking to give themselves a competitive edge over the competition by putting the client’s perception of value at the top of their list. However, the benefits of AFAs are not solely financial, there are other invaluable pros to this pricing method. The firm’s legal spend becomes more predictable and savings are made on costs without compromising the quality of the work. But how do you allocate your firm’s resources properly within an AFA? We will discuss this further in the coming paragraphs.

The value of historical data

Ideally when working with AFAs historical data should be available and easily searchable. This means you can find and analyse similar cases from the past, which in turn enables you to allocate your resources more effectively and set an accurate price for the matter.

But what if you don’t have historical data available? Your timesheet could hold the key. In essence, tracking your time during a matter handled under an AFA will help you and your colleagues in future cases – because you will know exactly which tasks took up the most time. This means you can streamline the whole process and make future cases more profitable for your firm.

Time Tracking in AFAs

How can firms know if they’re making or losing money if they’re not tracking their activities? Measuring the effectiveness of an AFA requires the analysis of many pieces of data. Law firms that use historical data relating to all activities carried out can then allocate their resources much more wisely in the next case. Therefore it is crucial that you have insight into the time spent and control over your legal billing data. On top of that, all of this information needs to be searchable and ready to be made into a report. 

Allocate your resources

Fixed price projects begin with planning a budget upfront and then managing the work to keep within that budget as the project proceeds. When a law firm is billing by the hour, it can be easier to maximize billing and with that profitability. If an employee has nothing to do on one project, you can assign them tasks on a new matter and keep them billing.

It can be difficult to manage the projects and the deadlines that come with them when a firm has many fixed price projects on the go. This could lead to the contradictory situation where lawyers are encouraged to be efficient on fixed fee projects, but inefficient on matters that are billed by the hour.

Does the AFA spell the end of the billable hour? Lawyers have long been rewarded for putting in extra hours and making sure a matter is covered from every angle. Many may have a hard time adapting to delivering the quality needed whilst working within strict limits. Traditionally, most firms expect lawyers to bill a certain amount of hours per year. If firms do a lot of their work on a fixed price basis, many will find that goal unreachable.

Ultimately, we expect AFAs in all forms to continue to rise, and that means gathering historical data will become ever more important in order to make matters more efficient and therefore more profitable. Tracking time is a great way to gain insight into all the tasks and activities that are carried out within a case on a fixed fee basis. Having said that, we don’t expect the billable hour to disappear entirely just yet.

 

 

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