Podcast Ep #107: Beyond Tracking Hours: The Law Firm Metrics That Improve Flow [Agile Lawyering Part 7]

Imagine getting into your car, but the only gauge on your dashboard is the tachometer showing you how hard the engine is working. No speedometer, no fuel gauge, just RPMs. That's how most law firms run. They obsess over how busy people are, utilization rates, billable hours, but they don't have any idea how effectively they're actually delivering work to clients. To me, that's crazy.
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Today, I'm going to give you some straightforward metrics you can use to build a far more effective dashboard for the promise-keeping machine I've been talking about in this series. This is one that's going to help you build towards that smooth and predictable flow I keep talking about and will complement those team-based subjective feedback loops I recommended last week.

You're listening to The Agile Attorney Podcast, powered by GreenLine. I'm John Grant, and it is my mission to help legal professionals of all kinds build practices that are profitable, sustainable, and scalable for themselves and the communities they serve. Ready to become a more Agile Attorney? Let's go.

A quick note. The concepts I'm gonna talk about today should be useful to you no matter what kind of practice you're part of or what tools you use. If you'd like, stay tuned at the very end where I will briefly discuss how my software tool GreenLine helps support and reinforce the Agile practices from today's episode.

Welcome back, everyone. So, I'm now seven episodes into this Agile Attorney 101 series, and if you've been following along, then you'll recognize that we've been building something pretty substantial. We started with thinking about what it means to adopt an Agile identity and mindset, moved to how making your work and workflow visible is the first step to better agility, and then learned to diagnose flow problems and understand where work gets stuck.

From there, we stabilized things with quality standards and protected your capacity with WIP limits. And then last week in episode 106, I introduced the importance of regular cadence meetings that create rhythm and feedback loops in your law practice.

And that's a lot. If you've implemented even some of these concepts, then hopefully you're already seeing some real improvements in how your practice operates. I'd actually love to hear how it's going for you, so drop me an email if you can and let me know how you're doing or if you have questions.

Now, so far in this series, I've been pretty careful about when and how I talk about measurement and data. And that's intentional. I'm a huge fan of data, but the wrong metrics or too many metrics or adding metrics at the wrong time can add to your overwhelm, not reduce it. So instead, I led last week with subjective feedback loops.

That's people talking about in their own words what they're experiencing and then making adjustments based on that. And that human insight is essential, and it's also the easiest way to start gathering information about what's happening in your practice and why.

But today, I'm going to get into some more objective data that will complement those subjective signals. And sometimes the objective measurements will validate what people are saying and sometimes they'll contradict it. But both situations will give you valuable information. And when objective data supports what your team is reporting, say they're feeling rushed and your metrics show that WIP has been climbing for three months.

Well, that gives you a high degree of confidence in diagnosing the problem. And if the metrics contradict, maybe your team's saying they're working as fast as they can, but your completion rate is declining, well, that's when you dig deeper. You'll have to challenge assumptions and investigate what's actually happening.

And the thing is when the systems disagree, one of them is probably revealing something important that the other one is missing. But neither type of feedback is the truth by itself, and that's why I like to establish those cadences I talked about last week before diving too deep on metrics. The cadence builds trust and momentum and then the metrics come in to reinforce learning instead of being used as tools for command and control. I want to make sure the metrics are adding to the human insight that makes those meetings valuable.

And I also want to be clear that I'm talking about metrics as measurement tools in that feedback loop, not necessarily as targets you should be shooting for. You may have heard of Goodhart's law, which says when a measure becomes a target, it ceases to become a good measure. And we will, in fact, need some targets too at some point. But I want to be careful and intentional about how we introduce them.

Which brings me to a new core mantra I want you to keep in mind through the rest of this episode. Manage the work and not the worker. In legal, we tend to obsess over managing people. But I want to show you why that creates problems and how shifting your focus to the work actually gives you more clarity and predictability, not less.

So let me start with the two incredibly common, but I think mistaken ways that traditional law firms focus their attention on worker effort instead of on system productivity. The first is obsessing over utilization rates. For those who aren't familiar, utilization rate is the percentage of your available time that gets spent on billable work.

So if you've got a 40-hour work week and you bill 32 hours to client matters, you've got an 80% utilization rate. And in a lot of firms, especially big ones, partners and practice managers track this religiously. They set targets, maybe that 80% number or even higher, and then they measure whether people are hitting those targets and they get grumpy if they don't.

And look, I get the appeal. Utilization feels like it should matter. If more people are billing more hours, that means more revenue, right? And if someone's utilization is low, then maybe they're not pulling their weight, or maybe they need to be managed more closely.

But here's the thing, think back to episode 105 when I talked about WIP limits and working within your capacity. The whole point of that wasn't just to make you feel less overwhelmed, it was to actively bring down your utilization rate to a manageable level.

There's actually a mathematical concept I didn't mention back then, but I'm going to go ahead and name today since this is my metrics episode. It's called Little's law and it basically says that for every additional unit of demand you place on a system, the more work items the system is expected to handle, then the longer it takes for that system on average to deliver any one unit of work to completion.

The kicker is that Little's law is one of those relationships where the impacts are exponential, not linear, which is to say at lower utilization rates, the impact on delivery speed isn't really that noticeable. But once you get up to about 70% utilization, then work will noticeably slow down. At 80%, it really starts to grind, and above 90% utilization, the average delivery time starts to go through the roof. That's the gridlocked freeway.

And for the purposes of Little's law, it doesn't matter whether we're talking about individual people or entire workflows. The busier they are, meaning the more highly utilized they are, the longer it takes them to deliver any one piece of work. This is why limiting WIP and working within capacity actually increases your throughput. You finish work faster by dealing with less of it at once, which means you deliver more total work over time. Utilization targets fight against that. They push you to keep everyone busy all the time, which is exactly what clogs up your system.

The second common but mistaken approach is to focus on hours targets. The idea is everyone's got to hit 1,500, 1,800, maybe 2,000 billable hours a year, whatever the magic number is. But the problem is that hours targets reward time spent, not value delivered. They actually reward inefficiency and encourage people to keep matters open longer. From a systems perspective, someone billing more hours often delivers less client visible value if their work finishes slowly and piles up compared to someone billing fewer hours but in a system that consistently finishes work.

Now, if you're a billable hour diehard, or even if you've just grown up in the culture of the billable hour, then you might be asking, "Well, so what's the problem?" But I'm guessing if you've made it this far into the series, you're at least open to the idea that there might be better ways to exchange value and motivate behaviors.

And the not-so-secret dirty little secret of the billable hours model is that so long as things don't get so bad that you lose the client, the firm ultimately benefits from the inherent inefficiencies that develop under that model. Friction and rework are things a lot of firms bill for. They don't necessarily feel good about themselves doing it, although I've come across some firms that do, and gross, but the whole legal industry over time has seemingly accepted that that's just the way things have to work.

I don't think that's true. Now, let me be blunt. When you get your law practice operations flowing more smoothly, you and your team will work fewer hours on each individual matter. That's part of the point. But if you've already been writing off a lot of time, that's going to be a good thing because you won't have nearly so much time that you feel like you need to write off. In billable hour math, your realization rate will go up.

But I find billable hour math to be really kind of stupid. I mean, sure, it makes sense in its microcosm, but from a bigger operations picture, it looks to me like our legal industry twists itself into knots and invests this insane amount of administrative time to patch up a flawed premise instead of treating the root cause.

And I'm not going to get into alternative pricing models today. Most hourly billers actually won't need them for a while because of those write-off improvements and other operational efficiencies. But I'll warn you, when this Agile approach starts really working for you, you will eventually want to ditch hourly billing if you don't already want to ditch it already. The thing is, when you get there, it will feel like the obvious decision.

With that said, let me get back to the topic at hand. When we're managing the work and not the worker, which is to say we're looking at something other than individual utilization and hours worked, what should we be measuring instead? I'm going to give you a total of six metrics that I think of as the items on the dashboard for that promise-keeping machine that I keep talking about building.

Most of them are things you might be tracking to some extent already and none of them are complicated. You just need to actually start looking at them. And each of them answers some important questions about your practice's flow, so let me introduce the metrics through the lens of those questions.

The first and most important question is what is our delivery rate? How many matters are we actually getting all the way to completely done in a given time period? This is a speedometer on your promise-keeping machine's dashboard. Miles completed per hour, matters completed per month. And like the speedometer, it's the gauge you should be checking the most. But I bet you're not because you might be busy tracking stupid hours instead.

Most law practices are effectively trying to measure the progress of their road trip by looking at the tachometer, the RPMs, or how hard the engine is working. That tells you effort, but it doesn't tell you distance traveled.

Delivery rate is the metric that tells you how many promises you're actually keeping in a given period of time. And honestly, most of this 101 series so far has been about helping you dig out from overwhelm and finding a balance so your delivery systems can more effectively deliver work. All of it is in service to improving your practice's throughput.

And that's the official name of this metric, throughput, units delivered over time. It also happens to be close to the classic economist definition of productivity because to be productive, you have to actually deliver something. But this is another thing that law firms do that makes me crazy.

They try to define productivity as hours billed over time, billable hours per day, per month, per year. And I get that that makes a certain kind of sense in the bizarre world of billable hour math, but from an operations or an economics perspective, it's a nonsense number. When you have time in both the numerator and the denominator of the equation, it cancels itself out and it leaves you with gobbledygook.

I actually mentioned throughput briefly a couple of weeks ago when I talked about that transactional firm. When we put WIP limits and quality standards in place, their average throughput went from 20 matters per month to 31 matters per month. That's an average of 11 more promises kept every month or 132 over the course of a year. No matter how you charge for that work, that's the kind of improvement I want you to be shooting for.

And throughput also is what you celebrate in your weekly planning meetings. It's the look back part where you ask what did we actually finish last week? How many promises did we keep? And we want to celebrate it because that's the number we're looking for. Everything else should be in service of that.

The second question is what's our current workload? In other words, how many things is our system trying to carry at once? Is this law practice full? Is it overloaded? Is it light? This question is answered by the metric matters in progress, or as I've usually been calling it, WIP. And that's simply a count of how many open matters you have in your system at any given time, from the point where you commit to taking on the work to the point where the matter is fully closed.

It could be a weighted count. If some of your matters are bigger or more complicated than others, but don't go crazy with the rating scale. At most, I would do t-shirt sizing: small, medium, and large, worth one, two, and three points respectively. Or maybe just small and large might be fine. Just keep it as simple as you can.

This count is your inventory. It shows you the total load in your system, but it's also the measure of delivery debt that I've been talking about too. It captures all the promises you've made but haven't yet delivered in their full and final form. You could track this as a monthly average. I would probably just use periodic spot checks at first. Just at the end of a week or a month, just count up your matters or ideally let your workflow management system count them for you.

Now, two quick side notes about the matter count or WIP. Number one, this is yet another reason that I strongly encourage teams to close their dang matters in their practice management tools, like I talked about in my close the closable spiel last week. If you close your matters in your software, then your software can easily count the remaining open ones for you. If you don't close the matters in your system, then you're going to need to do the counting manually.

Number two, since I'm already ranting about billable hour math in this episode, I'll point out that the legal industry has its own special definition of the term WIP because of course it does. And you mostly see it in larger firms where they define WIP as hours worked but not yet billed. And again, it has a certain logic to it in this billables-obsessed world that we're in, but from an operations perspective, it is I think another nonsense number.

The third question is what is our commitment rate? Meaning, how many new matters or new promises are coming into our delivery workflow? Now, I want to draw a bit of a fine distinction here between arrival rate and commitment rate because the rate of new work coming into your practice is a simple metric that is rendered very complicated by the culture and conventional wisdom of law practice management operations. So I'm going to spend a minute unpacking it. Stick with me here.

The general thinking in the legal industry and in capitalistic society more broadly is that growth is good or even more simply, we all want to make more money. And the only ways we can do that are to raise our prices for existing work or do more of that work. And since we can't raise prices beyond what the market will bear, we eventually will just have to take on more work if we want to grow.

Now, I don't necessarily think the desire for growth amongst law firm owners is as universal as a lot of people presume, but I will accept the idea that all things being equal, we would rather make more money than less.

So if growth is good, then a primary concern of any legal business manager has to be fueling that growth, getting new work in the door, whether that's more total matters or bigger matters or whatever. And this is where so much of the marketing messaging from legal marketing firms is focused. They promise that their product or service will help your practice show up in more places. That might be billboards, television, search result pages.

Then they purport to help you convince some of the people who see your practice to actually contact you, thereby becoming a lead. Then there's this whole universe of tools and concepts that help you convert the leads into prospects, nurture those prospects to become consults, and so on until the end result of your activities is a signed engagement agreement for your firm and a new matter for you to deliver, a new promise for you to try to keep.

Now, I've got no beef with the marketing process overall. It is necessary and it works. But here's where it gets complicated. This mistaken assumption that the delivery rate of your practice's sales and marketing system must flow seamlessly into the commitment rate of your practice's legal work delivery system.

And how I just phrased it is actually the key to understanding this better. These are two different systems in your law practice. I sometimes call the first one the getting the work pipeline and the second one the doing the work pipeline. And yes, these two pipelines are connected, but they need a valve. And actually, they need more than that. They need a control mechanism and a feedback loop that helps you understand when and how to adjust the flow.

So when I talk about the arrival rate for your doing the work pipeline, that's the same as your delivery rate from your getting the work pipeline. But just because something has arrived doesn't mean you need to commit to it right away, and that's where I draw this fine distinction and why I call the relevant metric commitment rate, even though you'll sometimes see it as arrival rate.

Remember from previous episodes that the feedback loop guiding your commitment rate is that rope from drum buffer rope, the thing that ties your intake valve for accepting new work to the output rate of your delivery system overall. To say it again more plainly, in a capacity-constrained system, we don't start new work until existing work has been delivered. And in my nerdy systems thinking world, we call this a balancing feedback loop.

So what do we do then if our getting the work pipeline is delivering more new ready for work matters at the end of its process than we're actually able to accept because your marketing system is outperforming your delivery system? Well, the temptation and by far the most common practice I see is to just get started on them anyway.

But hopefully by now you can see why from a system's perspective that's a mistake. Looking solely at your doing the work pipeline, your average commitment rate needs to be tied to your throughput rate, full stop. If your business development system is producing more work than your delivery system can handle, then that's where you need a queue between the two systems, a waiting room between signing that engagement agreement and actually getting started on the matter. This is the buffer in drum buffer rope.

Now, I know that that suggestion is going to trigger some pushback, maybe even a fear response in a lot of you. You're thinking, "Well, what if by making that new client wait for us to get started, they get impatient and leave? What if my getting the work pipeline dries up in the future? I'm going to really regret not taking on that extra work today.” After all, aren't we supposed to be making hay while the sun is shining? And I get the concern, but the fear is an irrational one for at least four reasons.

Number one, with the possible exception of personal injury and big corporate law, which are really the only legal practice areas that have genuine market competition, law is a seller's market right now. We have a well-documented shortage of lawyers in the United States and in other countries too. And if you want details, go listen to episode 23 of this podcast. The reality is is that even if your hard-won new client wanted to go hire another lawyer, in most practice areas and most geographies, they're going to have a hard time finding one.

Number two, from a revenue standpoint, it actually doesn't matter if you lose that client. In fact, you might be better off not taking it. This gets back to the point I keep making about the administrative overhead of having too much work in your system. When you're already at or over capacity, your utilization is already as high as it can effectively get. Adding new work just increases tracking and switching costs, which means actually delivering less work and, if you're billing hourly, probably writing off more time.

Number three, this is the sunk cost fallacy at play. Yes, you've invested good money and effort in nurturing that lead and acquiring that new matter. So you're determined to keep pushing more money and more effort into it so you can get a return on that initial investment. But as I've said before, it's called a fallacy for a reason, and at some point, that extra investment is just not worth it.

And finally, let me reassure you that you can actually intentionally design these waiting buffers into your systems and help make it so your client won't really notice that they're in a queue at all. It's kind of like the little sideshows when you're in line at Disneyland. You can keep people engaged enough to not want to leave. I won't go deep on that here, but let me just reiterate that the actual risk of losing that new work from making it wait is a lot lower than I think your lizard brain is worried that it is.

So to bring it back to metrics, you want to track commitment rate specific to your delivery pipeline. You probably also want to track the arrival rate of those potential new matters coming out of your biz dev pipeline, but if that arrival rate is consistently higher than your commitment rate, then it means you may actually need to throttle back your marketing efforts for a while.

Eventually, the goal is to speed up your delivery pipeline so that it can safely absorb all that potential new work. But it's really hard to create capacity when you're already over capacity. So the only reasonable answer is to slow things down for a moment, something that I've sometimes called an intake pause. Slow is smooth and smooth is fast. Remember that from the first episode.

So hopefully you can see how these first three metrics, throughput, matters in progress, and commitment rate, work together to keep the balance and therefore protect the flow of work in your practice.

The fourth question is how long does it take work to actually get done? And I mean that from a calendar standpoint, not a stopwatch one. And the metric that answers this is called cycle time. Cycle time on a matter is measured from your commitment point when it officially enters that doing the work pipeline through to final completion, which is usually the done column on your Kanban board if you're using one. It's the same boundaries you use in counting matters in progress or WIP.

This is another metric that I mentioned for that transactional firm in episode 105, and the thing that happened with them is completely consistent with Little's law I mentioned earlier. Again, Little's law says that average cycle time is a function of the system's utilization rate. So when the matters in progress metric shrunk for that firm, meaning they had fewer matters to pay attention to at once, therefore their utilization rate went down, their cycle time naturally sped up.

In this case, they only reduced WIP by about 10%, but their cycle time improvement was close to 40%. And that's the exponential nature of Little's law at play.

Now there are other things you can do to improve cycle time as well, and I'll do more on that in a future episode. But the thing I want to say for now is that cycle time is one of those metrics where you definitely want to be looking at averages and actually a little bit more than that.

In fact, one of the things you'll find is that your average cycle time could be a little misleading if there is a wide range of values at play. If it takes you 40 days to deliver matter A, but 100 days for matter B, then your average cycle time will be 70 days. But predicting that matter C will take 70 days is still a bit of a gamble.

Now, I don't want to drag you too deep into the math of all this, but if you're statistics-minded, then you may recognize that a lot of variability in cycle time will mean a large standard deviation for your average. In the above example, it's basically 70 days plus or minus 30.

A slightly easier way to get a more accurate prediction is to look at your 80th percentile number instead of the 50th percentile or that median number. That's the cycle time that four out of five matters will fall underneath, a much better number to be communicating to clients and to each other than the 50/50 coin flip of the median.

The other thing I like about cycle time is that without getting actual information from your client, cycle time is a great proxy for customer experience. Assuming that the quality of your legal work doesn't suffer, that almost all clients would rather get their matter resolved faster than having it hanging over their heads.

Now, a quick aside on cycle time for litigators and anyone else with more complex matter types, I get that there are a lot of variables that can affect cycle time on your matters. I want you to track it anyway. Some of that variability is just the nature of the beast, but in my work with actual litigation practices over the years, I've learned that you can influence and sometimes even control more of those variables than you initially think. We want to be tracking cycle time so that when we run experiments to try to eliminate some of that variability, we have a baseline we can measure against.

Now for the final question, you're going to need two metrics. One of them, you're almost certainly tracking already, possibly to an exhaustive extent, and that's working time. And yes, this is hours worked, but I should be clear, I care about hours worked, not hours billed.

And yes, I just spent some time earlier in this episode complaining against billable hours, but the problem there is billable hours as a target. From an ops perspective, we still want to track working time as best as we can, although here's the good news, you probably don't need to track it in six-minute increments. If you already are, that's fine, but if you're not, 15 or even 30-minute increments is still going to work.

So the fifth question then is how effective are we at moving matters forward? And the metric here is one that I actually introduced back in episode 103, flow efficiency. And flow efficiency is the working time on a matter divided by that matter's cycle time. This tells you what percentage of a matter's total time your team is actually spending working on it versus that matter just sitting idle. So for cycle time here, we'll take the number of working days for delivering that matter and multiply it by eight to get that eight-hour workday.

Let's say you've got a matter with a cycle time of 60 working days from commitment to completion and the total working time on that matter, meaning all the hours your team spent researching, drafting, calling, emailing, whatever, adds up to 30 hours. That's a flow efficiency of a little over 6%, which means that matter spent about 94% of its time just waiting for something to happen.

And as I mentioned in episode 103, that would actually be pretty good flow efficiency by legal industry standards. I often see it closer to 1%. But where you start isn't as important as the improvements you make. And flow efficiency is one of those metrics that will almost certainly benefit from that matters in progress cap I keep recommending.

Flow efficiency is also the thing I'd love to see you measuring instead of individual utilization rates. Remember, I want to see you managing the work, not the worker, and flow efficiency tells you how good a job you're doing at that.

So you've got these five questions and six metrics counting working time. How do you actually use them? Well, different metrics probably need different tracking frequencies, and the actual frequency will vary depending on the complexity of your practice and the matters that you handle. But as a rule of thumb, I like to think throughput and commitment rate should be tracked weekly.

These are the two metrics that really need to stay in balance, so your weekly planning meeting is a great time to take a look at them. How many matters did we complete this week? How many new matters did we commit to? They don't have to be perfectly aligned week by week, but you want to know if they start to diverge.

And I'll also say, even though I'm saying you should track throughput weekly, don't be afraid to celebrate completed matters in your more frequent stand-up meetings too. When a team finishes a matter, we should acknowledge and celebrate it.

Now the other metrics, matters in progress, cycle time, flow efficiency, you can track those less frequently, probably monthly. The other thing about cycle time and flow efficiency is that they're really trend metrics. We calculate them monthly, but we look at how they're changing over time and then use that information to adjust our valves or guide what experiments we run.

I also want to repeat, these aren't performance targets for the individuals or for the team. They're meant to be diagnostic tools. You're tracking them to understand your system, to see how well work is flowing, and whether your promise-keeping machine is running the way you want it to. If you turn them into targets, you're starting to ask for trouble.

All right, so hopefully that helps you see how you can start to build that dashboard for the promise-keeping machine and know how to begin to use it. You'll note that I've just taken you from subjective assessments to objective measures, but next week I'm actually going to take you back to a more subjective perspective, only this time it will be through the lens of your client as opposed to that of you and your team.

I mentioned a minute ago that cycle time can be a proxy for client experience, but it's just one rough data point. If we really want to build a practice that serves clients well, and honestly that's the whole point of having this promise-keeping machine in the first place, we need to understand the full client journey.

How and why do they encounter their underlying legal problem? What are the triggers that make them decide to look for professional help? And then once they're working with you, how do the components of your delivery system help them navigate their issue and reach that acceptable solution they're looking for?

Once you've created some capacity in your practice to actually think more deeply about that customer journey, and if you've been following along with the series, hopefully you're starting to get there, you're going to be amazed at how important understanding the client's point of view can be for defining and designing an effective delivery system to meet your client's needs along the way. So stay tuned for that.

As you probably realized as you listen to this episode, these metrics are not commonly tracked in the most popular law practice management tools. You can get to most of them, but you may need to do some number crunching to do it. But we built GreenLine with a metrics dashboard that tracks these things automatically.

You can see throughput at a glance, you can spot check your in-progress matters count, you can track trends over weeks or months, and the dashboard gives you exactly what we talked about today, objective data to complement the subjective feedback you're getting in your cadence meetings.

If you're a real data nerd, you can go deeper and build any number of custom reports or views directly from the database, and we'll help you get things configured as part of our comprehensive onboarding services. The main thing is you'll be able to spend time using the insights you get from our metrics dashboard to improve your system instead of chasing the data itself. If you want to see how GreenLine works in practice and supports the concepts from the series, head on over to greenline.legal and look for the book a demo button. I love showing off what we've built.

All right, that's it for today. If you found this episode useful, please help spread the word by sharing it with a colleague or a friend. And of course, to keep up with this 101 series, please hit that follow or subscribe button in your favorite podcast player.

If you have questions or thoughts about today's episode, or if you have topics you'd like to hear me discuss, please don't hesitate to reach out to me at john.grant@greenline.legal.

As always, this podcast gets production support from the great team at Digital Freedom Productions, and our theme music is “Hello” by Lunareh. Thanks for listening, and I will catch you again next week.