Managing the delivery of legal services Focus on costs, uncertainty & materiality

1. Aligning lawyers and their clients around value Managing the delivery of legal services Focus on costs, uncertainty & materiality James R. Buckley ACC SoCal Chapter event June12, 2014

2. Introduction • Questions for the Audience • Goals for the evening • Structure of the program

3. What it takes to manage the delivery of legal services • Service delivery • LPM, KM, PI • Vendor management • Law firms • Non-lawyers • Infrastructure • Communications • Technology • GRC • Financial Management • Budgeting • Forecasting • Monitoring • Managing • Business goals/objectives • Assess significance & uncertainty/risk • Stakeholder interests • Assumptions & constraints • Legal work plan, with checkpoints and off-ramps • Test assumptions • Reconfirm business objectives and goals • Maintain team and client alignment • Respond to changed circumstances Monitoring Execution Planning Our focus today is on managing execution, with a particular emphasis on Legal Project Management, Knowledge Management, and Process Improvement

4. First Principles for managing the delivery of legal services • LPM, KM, and PI are business tools:The practice of law is about helping the client to achieve a business goal – it is not an end in itself • The client’s business goals are paramount*: They must anchor every legal strategy and ground all implementation decisions • Legal is part of a broader team: However critical their role, lawyers need to see their work as integrating into a bigger picture – emphasis on communication • Not just what, but how: How the work is done is often nearly as important to the client as results – particularly where Stakeholder impacts are concerned • Cost matters:The resources consumed by Legal must be in proportion to the benefits pursued and the risks being managed – a business case/ROI approach

5. The delivery of Legal Services is driven by two principal factors Their influence impacts . . . • The level of the legal spend • The appropriate legal management approach(es) for the matter • The nature of fee arrangement High (Material) Significance(to client) Low (Immaterial) Low (Known) High (Unknown) Uncertainty(in the legal solution)

6. LPM, KM, and PI address different regions of uncertainty “Process Improvement” “Knowledge Management” “Project Management” Low (Known) High (Unknown) Uncertainty Increasing management effort

7. The significance the client attaches to the matter further shapes the management approach Insignificant matters: Low value does not support extensive management effort The most cost-effective approach is to assume that the matter is driven by what is known and to manage accordingly Material matters: Impact of even trivial levels of uncertainty make use of KM and PM techniques cost-effective In between: Infinite combinations of approaches may be cost effective Emphasize Knowledge Management • Emphasize • Process • Improvement Emphasize Project Management High (Material) Significance Low (Immaterial) Low (Known) High (Unknown) Uncertainty Significance/Uncertainty “Heat Map”

8. Summary to this point . . . Back to our goals: Three simple ideas to be smarter about evaluating outside counsel (and managing our own work): • How well does the firm address the items in the execution checklist? • How well does the firm’s messaging and positioning align with the “First Principles”? • How well does the firm seem to understand the relationships illustrated by the “heat map”? With these simple concepts in mind, let’s consider a law firm’s description of its management approach

9. Over to Janet Hickson, Partner at Shook, Hardy & Bacon

10. Finally: The fee structure should parallel the management approach Pricing by level of uncertainty and significance to • share risk on cost growth and • create incentives for efficiency • Fixed Fee Traditional Hourly Rate High (Material) Fixed fee w/readjust. Capped fee Blended rate Significance Reduced rate w/incentive Fixed fee w/incentive Low (Immaterial) Contingent fee High (Unknown) Low (Known) Uncertainty Keep this framework in mind when thinking about pricing

11. Typical matter profiles in this space • “Commodity” work • High volume • Distinct types of matters • Fee: Fixed price • Focus on eliminating inefficiencies with PI • High-end commodity work • High volume • Different management approaches depending on focus • Fee: Not-to-exceed basis • Focus: Consistency, profitability • Portfolio work • Modest volume • Template-driven, scaled by significanceto client • Fee: Negotiated budget approach within bands • Focus on factors that drive variability using KM, especially in budget • One-off work • Low volume • Segment work to manage by uncertainty level • Fee: Cross-section of approaches by phases or parts, including hourly rate • Focus on uncertainty, agility, communication, and integration with LPM Emphasize Knowledge Management • Emphasize • Process • Improvement Emphasize Project Management D B Significance C A Low Uncertainty High Use a mix of techniques and pricing to span the uncertainty space

12. Conclusion • Focus on costs, uncertainty, and materiality as the driving factors for managing the delivery of legal services. • Use three simple tools to become smarter in managing your own work and evaluating outside counsel: • Execution checklist • First Principles • The Significance/Uncertainty Heat Map • Align management approaches (LPM, KM, and PI) and fee structure to the profile of the work in the Significance/Uncertainty Heat Map

13. Background materials

14. The parade of legal management ideas Source:The New Reality: Turning Risk into Opportunity through the DuPont Legal Model (5th ed.) Legal Project Management Convergence Strategic Risk Management Early Case Assessment Knowledge Management Six Sigma (PI) Alternative Fee Agreements Recoveries Initiative “[T]he ACC Value Challenge is based on the concept that law departments can use management practices that enhance the value of legal service spending; and that law firms can reduce their costs to corporate clients and still maintain strong profitability.” “Key Value Levers” Aligning Relationships Value-based Fee Structures Staffing and Training Practices Budgeting Project Management Process Improvement Use of Technology Data Management Knowledge Management Change Management

15. In a nutshell: “process improvement” • Several related approaches systematically examine processes to eliminate “waste” from processes in business • Lean: A streamlining technique developed by Toyota in the 1990s • Focuses on process flow to eliminate “waste” • Six Sigma: A set of process improvement techniques, developed by Motorola in 1986 and popularized by GE • Improve quality by identifying and removing the causes of“defects” (errors) and minimizing “variability” • Business Process Improvement: Initiative launched by IBM in 1984 • Improve service and support by requiring their processesto be at least as good as their manufacturing counterparts • Process improvement typically includes the following steps: (1) Identify the need for change (5) Gather feedback (2) Analyze the current process (6) Analyze results (3) Obtain management commitment/ support (7) Make improvements (4) Create an improvement strategy (8) Continuously monitor against benchmarks Waste = Defects, overproduction, waiting, non-utilized talent, transportation, inventory, motion, extra processing

16. In a nutshell: “knowledge management” • KM: Identifying, capturing and reusing information pertinent to the more efficient delivery of legal services obtained by prior experience and other pathways • In firms, focus formerly on form files and work-product libraries • In matters, addresses uncertainty by identifying recurring patterns or templates • Understand the common elements • Identify sources of variability affecting outcomes • Practice groups and standing teams are natural repositories for KM • Important targets for KM include • Cost and budget data that can be mined for future use in other matters • Lessons-learned following the conclusion of matters How do you capture and reuse the know-how you develop in your practice?

17. In a nutshell: “project management” • A formal methodology, applied with varying degrees of formality • Starts with client business objectives, requirements, assumptions, and constraints, and establishes the definition of “success” • Develops a plan for achieving objectives with the efficient use of resources, within constraints set by client • During execution, the team balances the interactive relationship among scope, schedule, and cost • Progress is monitored to assure objectives are being addressed and business case for the legal solution remains valid • A circle is drawn around all parties with an interest in the work or its outcome; team engages in effective, continuing communications with these “stakeholders” • Addresses uncertainty by breaking the matter down into buckets of different kinds of uncertainty, and managing each accordingly Scope Quality Cost Schedule Adapted from Project Management Institute

18. James R. Buckley is a principalofQLex Consulting Inc. He is an experienced consultant with an extensive track record in counseling Fortune 500 and AmLaw 200 firms in the application of business techniques to the practice of law, including training and managing culture change within legal teams. For nearly 20 years, he was Vice President & Associate General Counsel of Lockheed Martin Corporation, where he had extensive experience managing complex litigation. Originally trained at Gibson, Dunn & Crutcher, he is the author of the seminal articles on legal project management published in the ACC Docket in 2005. “The practice of law is not an end in itself; it is a means for helping clients achieve their business purposes by managing risks, pursuing opportunities, and securing business operations.” Contact info: james@qlexconsulting.com Cell: 310-489-9266