ADERANT Delivers Improved Operations and Profitability

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1 ADERANT Delivers Improved Operations and Profitability An Executive Briefing on the ROI of ADERANT Expert Executive Summary Ever hear of software you can t afford not to have? According to a recent independent study, ADERANT s performance-enhancing software for law and professional services firms may come close. An exhaustive and detailed analysis of users of the ADERANT Expert financial and practice management system uncovered compelling, quantifiable bottom-line benefits. That s probably why during a time of economic uncertainty, many firms seeking to improve their financial and operational performance chose to invest in ADERANT Expert. ADERANT Expert delivers results that go far beyond simple cost-cutting, generating positive returns across all three value drivers that law firms consider critical to their success: increasing matter profitability, improving business operations, and streamlining work processes. Demonstrated improvements were found in areas such as revenue and profit generation (higher average billing and realisation rates), cash flow (accounts receivables and workin-progress), execution speed (less time for file openings, budgeting, reporting, and other recurring tasks), and staffing expense. In total, the study showed that firms that installed ADERANT Expert enjoyed typical paybacks of less than 18 months and return-on-investments in excess of 200%. This briefing paper, written for firm executives, goes past the marketing hype and demonstrates the real-world financial impact of using ADERANT Expert. From increasing billable hours to doing more, faster with less staff to freeing up cash through working capital improvements readers will learn how organisations have found greater financial success with ADERANT Expert. Executive Briefing on the ROI of the ADERANT Expert - 1

2 Improving Performance & Profits Today, perhaps more than ever, the economic and competitive landscape requires professional services firms of all shapes and sizes to streamline their business models, improve their service delivery, and increase their profits. That encompasses everything from taking market share to enhancing client services to optimising the organisational structure. An in-depth research study shows that ADERANT Expert, a comprehensive suite of integrated financial and practice management applications, enables firms to unleash powerful performance improvements. Hobson & Company an industry leader that specialises in quantifying the benefits of technology deployments documented the payback, net present value (NPV), return on investment (ROI), and other key financial metrics at 12 law firms with ADERANT Expert installations. The multi-national Hobson study identified more than 30 distinct, verifiable benefits derived from ADERANT Expert. Clients were able to: Increase revenue through improved business development as well as optimised client pricing and terms. Improve cash flow through accelerated collections, reduced bad debt, and reduced work-in-progress (WIP) inventory and write-offs. Free-up time for revenue-related activities by streamlining tasks across the enterprise, including opening matters/projects, conducting conflict searches, collecting and analysing data, and validating budget requirements. Reduce expenses through improved efficiencies and optimised staffing mixes. AFTER ADERANT EXPERT For the first time, we are seeing actual reductions in both direct and overhead expenses, rather than just a slowing in the rate of expense growth, as was the case previously. Leading Legal Consulting Firm These day-to-day improvements combined to deliver impressive overall financial returns at the firms studied, with typical paybacks of less than 18 months and ROIs in excess of 200%. Figure 1 shows actual results from three firms using ADERANT Expert. FINANCIAL METRIC Investment Payback NPV ROI FIRM A 3-YEAR VALUE $836, months $1,470, % FIRM B 3-YEAR VALUE $1,200, months $2,291, % FIGURE 1: BENEFITS BY ADERANT EXPERT COMPONENT AND VALUE DRIVER * NOTE: NPV assumes a 10% cost of capital. In addition, investments in ADERANT Expert are protected by its technology architecture. Built with industry-standard technologies from Microsoft, ADERANT Expert provides a proven and open foundation for both today and the future. The ADERANT ROI Model: Built from Customer Experience The financial effectiveness of ADERANT Expert in realworld applications isn t an accident; it s the result of careful design reflecting substantial client input. A meticulously crafted ROI model shows firms how they can achieve optimal financial returns with ADERANT Expert. The ADERANT ROI model was built from detailed interviews with law firm clients. The model centres on three core value drivers that clients identified as critical to their financial and business success: Increasing matter or project profitability. Improving business operations. Streamlining work processes. FIRM C 3-YEAR VALUE $1,600, months $2,364, % The Hobson study found that ADERANT Expert delivered measurable bottom-line benefits across the key areas that impact a firm s performance: new business intake, matter and client profitability analysis, conflict searches, budgeting and financial reporting, accounts receivables, and work-in-progress inventory and write-offs. Executive Briefing on the ROI of the ADERANT Expert - 2

3 Increasing Matter Profitability At most firms, the bulk of day-to-day activities revolve around client matters or projects. And it s also here where a firm s real financial value resides. So it s vital that matters are priced and resourced correctly, especially since even small variances can have a substantial impact on profitability. Interviews revealed the key challenges that firms face in managing matters for optimal profits: Ineffective tools that don t use past client experience to guide pricing for new business, including alternative fee arrangements. Limited access to profitability information at specific levels of the business (such as clients, matters/ projects, lawyers, practice groups, service lines, and offices) to drive strategic decisions. Lack of integrated workflow systems to guide the client and matter intake process, including enforcing rate structures and billing policies. The Hobson study found that ADERANT Expert enabled firms to address all of these challenges, thereby increasing average billing rates, improving the profitability of individual clients and matters, and optimising billing terms. Key Finding: Higher Average Billing Rate Firms set billing standards for fee earners in all practice areas to make sure matters are profitable. However, with as many as dozens of new files opened every day, it can be cumbersome to enforce these standards. As a result, profitability suffers. We have no way to make sure that rates are in compliance with the firm s policies and procedures so that they do not have a negative impact on the profitability. CFO likelihood of lawyers or consultants offering unprofitable rates to keep current clients or win new business. In addition, because ADERANT Expert accelerates the time it takes to open new matters, firms can more easily capture billable hours that might have been lost previously. One firm that participated in the study used ADERANT Expert to boost its average billing rate by $2 per hour for partners and $1 per hour for associates. Across the firm s operations, those hourly increases generated $920,000 in annual incremental revenue. Partners/Associates + $2/hour + $1/hour Standard Billing Rates + $920,000 Key Finding: Optimised Billing Terms In addition to helping enforce rate standards, ADERANT Expert improves overall firm profitability by providing valuable insight into how similar services were priced in the recent past, including matters priced under alternative fee arrangements. That provides a reliable benchmark from which to create pricing scenarios and adjust for factors such as market conditions and client relationships. The result is confident pricing that wins the business without making a mistake that hampers profitability. AFTER ADERANT EXPERT Expert helps us better gauge the cost of a new client since we can look up the cost of similar work in the past. Controller At one of the firms studied, providing fee earners with ready access to prior matter and client pricing resulted in increases to the billing rates of both partners and associates, generating more than a quarter-million dollars in annual incremental revenue. ADERANT Expert uses intuitive, built-in workflow to ensure that new matters reflect each firm s polices and procedures, including billing rates. This reduces the Executive Briefing on the ROI of the ADERANT Expert - 3

4 Optimised Billing Terms Realisation Rates Partners/Associates + $2/hour + $1/hour + $276,000 Partners/Associates + $2/hour + $1/hour + $579,000 Key Finding: Improved Profitability of Individual Clients and Matters To meet profit goals, managers and financial staff need the flexibility to analyse profitability from multiple perspectives, such as at the client, matter/project, lawyer, practice group, or office level. Unfortunately, lack of easy access to accurate, real-time profitability data, along with an inability to allocate costs appropriately, often makes it cumbersome for firms to identify and address less profitable arrangements. Improving Business Operations In conjunction with maximising the profitability of new clients and new matters, successful firms are using ADERANT Expert to increase profits by optimising their business operations. The Hobson study found significant improvements in three vital areas that also have a significant impact on a firm s cash flow: accounts receivables (A/R), work-in-progress (WIP) inventory, and WIP write-offs. We can t identify matters that we re losing money on or that we re not getting the appropriate profit margin on. We don t know what billing arrangements are costing us money or where it would be better to utilise a partner rather than an associate. Financial Systems Manager ADERANT Expert s in-depth analysis capabilities provide greater insight in true profitability and enable firms to improve the profitability of both matters/projects and clients. For example, a robust allocation engine allows direct and indirect costs to be assigned automatically to specific matters. In addition, ad hoc analysis capabilities including the ability to slice and dice the data in various ways help firms determine the best approach for improving profitability, such as changing the staffing mix to let associates perform work currently assigned to a partner. What impact do these capabilities have on managing results? At one firm, the ability to hone-in on specific matters and clients that didn t meet profitability goals resulted in about a 0.5% improvement in the realisation rate of both partners and associates, generating annual incremental revenue in excess of half a million dollars. Key Finding: Accelerated Collections Timely collection of monies owed, especially in cash businesses such as law firms, can improve cash flow in a dramatic way. ADERANT Expert provides users with multiple tools to improve cash collections and reduce average A/R aging. By enhancing visibility to potential trouble spots, ADERANT Expert helps firms identify high-risk clients and practice areas in advance, enabling them to mitigate potential payment issues. We issue a bill and when it comes 30 days old we start chasing it. If we could tell that a client is unlikely to pay or to pay late we d start chasing the client earlier. Head of Finance Systems The impact can be substantial. At one firm that participated in the study, ADERANT Expert resulted in a five-day reduction in A/R aging, from 60 to 55 days. When calculated against the affected portion of the A/R daily balance, that improvement generated $825,000 in annual incremental revenue. Executive Briefing on the ROI of the ADERANT Expert - 4

5 A/R Aging - 5 days Accounts Receivables Aging + $825,000 ADERANT Expert provides users with the tools to optimise WIP inventory. It gives a firm s fee earners an easy method of recording billable hours on a daily basis. Just as important, ADERANT Expert provides practice group leaders with customisable and graphical data views to perform in-depth analysis, enabling them to identify and work with those fee earners who are not completing their timesheets by the end of each day. Key Finding: Reduced Work-In-Progress Write-Offs The adage time is money is especially true for law firms. Accelerating the matter inception process capturing time, opening a file, commencing billing can translate into lower WIP write-offs and higher profits. ADERANT Expert helps in two ways. First, its file opening and workflow capabilities, conflicts search engine, and profitability tools combine to reduce significantly the time it takes to open new matters. Second, ADERANT Expert provides users with the ability to capture time even for unopened client matters. As a result, ADERANT Expert users are able to reduce significantly their write-offs of work-in-progress. One firm studied reduced its WIP write-offs from 2.25% to 2% of sales. Calculated over the firm s annual revenue of $160 million, the improvement translated into annual incremental revenue of $400,000. WIP Write-Offs AFTER ADERANT EXPERT By targeting underperformers we can improve our working capital management. We think this means that we are earning an additional $500K a year because we re converting WIP to cash faster. Head of Finance Systems How does this impact performance? In the Hobson study, one sample firm reduced its WIP aging from 35 days to 30 days. That five-day decrease, when calculated against its $750,000 WIP daily balance and an assumed 10% cost of capital, resulted in annual incremental revenue of $394,000. WIP Aging - 5 days WIP Inventory + $394,000 As % of Sales -.25% + $400,000 Key Finding: Reduced Work-In-Progress Inventory Although law firms provide services, they still have inventory in the form of billable hours. The shorter amount of time those hours sit in inventory, the faster the firm generates cash and the less likely there will be collection issues. Streamlining Work Processes Streamlining work processes is essential in today s highly competitive and challenging business environment. In reality, successful firms don t downsize their way to success; they find ways to grow profitably. Most law and professional services firms already have made the relatively obvious cost reductions, but that s not a long-term formula for success. To drive market share growth, firms need to help staff be as productive as possible, thereby enabling them to focus on value-based activities that boost profits. Executive Briefing on the ROI of the ADERANT Expert - 5

6 Research has identified several core process issues that negatively impact productivity. These include complexity in opening new matters/projects, cumbersome and slow conflict searches, and time spent on the entire budgeting and planning process. The Hobson study showed that ADERANT Expert addresses all of these process inefficiencies. Key Finding: Reduced Staffing for Conflict Searches Many firms struggle with easily and effectively searching for conflicts and then presenting the results in a meaningful way so lawyers can determine quickly if there is a real conflict. In many cases, searches are done manually, relying on a team of people to search multiple data sources and compile relevant information. ADERANT Expert simplifies the process dramatically, delivering substantial savings. Users can electronically search all connected databases and then view results in a hit list format that facilitates speedy reviews. For example, conflict clerks can add comments to specific hits, launch customisable data views from the hit lists, and drilldown into the details both within ADERANT Expert and other data sources to improve the accuracy of search results. People have to dig through file cabinets to do conflict searches. We have a team of people dedicated to this role. Financial Systems Analyst Here s how one law firm benefited. The number of conflict clerk full-time equivalents (FTEs) was cut from five to just one. With annual salaries of about $46,500 or about $72,000 when accounting for benefits and related costs the total reduction in annual salary expenses was more than $288,000. # of Clerks (FTEs) Five to one Conflict Searches Annual Savings (Fully Burdened) +$288,300 Key Finding: Reduced Time to Consolidate, Validate, and Update Budgets Managing the annual strategic planning and budgeting process from initial planning to accurate, timely revision management is a vital part of a running a world-class firm. But the actual tasks associated with the planning and budget exercise can be overwhelming without the proper processes and tools. The budgeting and planning component We have over 20 people working of ADERANT on different versions of the Expert provides spreadsheet and they all have to the foundation be combined into one version. to simplify and There is a high risk of human error streamline these because one error in a formula can activities. It throw the whole budget off. eliminates the Financial Systems Manager cumbersome task of combining multiple spreadsheets into one budget. Instead, users can enter their own data directly into a central database, with automated calculations to improve accuracy. In addition, updating budget assumptions is no longer a daunting activity. ADERANT Expert enables mass updates for changes to items such as payroll, benefits, and taxes; it also provides for what if scenario modeling for budget adjustments in response to changing market conditions. Other powerful features include multi-currency support and options for populating new budgets using prior data. How do these capabilities benefit the firms studied? In one case, ADERANT Expert cut by 90% the time that a firm s senior financial analyst spent just updating budget assumptions. Equally striking, one firm was able to reduce the number of financial analysts needed to consolidate and validate budget components from two to just one, resulting in a fully burdened cost savings of more than $100,000. Budget Consolidation & Validation Financial Analysts Two to one Annual Savings (Fully Burdened) +$108,500 Executive Briefing on the ROI of the ADERANT Expert - 6

7 Key Finding: Accelerating Information Access Timely and accurate information is the life-blood of firms, and that maxim certainly applies to the requirement that partners, practice leaders, and staff have ready access to financial data needed for informed and rapid decisionmaking. But obtaining, understanding, and utilising that data can be difficult without the right tools. That s where ADERANT Expert comes in, delivering quantifiable benefits for ondemand information access as well as report creation and distribution. Many of the efficiencies derive from providing staff with graphical dashboards tailored to key roles at law firms that deliver real-time access to critical firm metrics. In addition, the reporting function is transformed through capabilities such as single-source, enterprise-wide report delivery; web-based report generation, viewing, and distribution; and drag-and-drop report creation. Results from the study show that ADERANT Expert helps firms move beyond the traditional, time-consuming report generation model, thereby freeing-up analyst time for more productive endeavours. Examples include reducing the time that four analysts spent running ad hoc inquiries from 4.5 hours per person per week to 1.5 hours per person per week, reducing the time that two analysts spent creating month-end reports from two weeks to two days per person per month, and reducing the time that two analysts spent distilling month-end reports from two days to a half-day per person per month. Ad Hoc & Monthly Reporting Time Required for Ad Hoc Inquiries - 12 hours/week Time Required for Month-End Reports - 19 days/month Conclusion The recent global economic crisis has had a profound impact on law firms. To survive, many firms have been forced to eliminate not only support staff but also partners and other fee earners. Law and professional services firms are preparing for a dramatically changed business climate marked by continued cost pressures, aggressive competition, and more demanding clients. They also know they can t continue to downsize their way to success. That s why forward-thinking executives are embracing effective technology solutions to gain a competitive edge. Past recessions have taught smart companies a valuable lesson: firms that remain hunkered down in survival mode lose out to those that leverage technology to boost market share, streamline operations, and grow profits. Fortunately for the legal and professional services industries, there now is clear and convincing evidence that the ADERANT Expert financial management system helps firms grow their businesses profitability. Firms using ADERANT Expert increased their matter/project profitability, improved their operations, and streamlined their processes all while enjoying a robust return on their investment. About ADERANT ADERANT is a pioneer in the legal industry and developed the first Microsoft Windows-based financial management system for law firms, called CMS. Our commitment to product innovation continues today in ADERANT Expert, a full suite of business and financial management solutions used by law and professional services firms of all sizes. ADERANT StarLaw, our integrated document, records, and management application, was developed specifically for the unique requirements of law firms. ADERANT Practice Manager is a complete time and billing plus accounting system deployed in the cloud for smaller firms. We are a global organisation with 600 clients, including 30% of the AmLaw 200 firms. We consistently achieve on-time, on-budget implementations and very high client satisfaction rates year after year. For more information, please visit Executive Briefing on the ROI of the ADERANT Expert - 7

8 About Hobson & Company Hobson & Company helps technology vendors and purchasers uncover, quantify, and validate the key sources of value driving the adoption of new and emerging technologies. Our focus on robust validation has helped many technology purchasers more objectively evaluate the underlying business case of a new technology, while better understanding which vendors best deliver against the key value drivers. Our well-researched, yet easy-to-use ROI and TCO tools also have helped many technology companies better position and justify their unique value proposition. For more information, please visit (0) info.uk@aderant.com 2010 ADERANT Holdings, Inc. ADERANT Expert is a registered trademark of ADERANT Holdings, Inc. All other brands and products are property of their respective owners. Rev Executive Briefing on the ROI of the ADERANT Expert - 8