BUDGETING & PLANNING BY DAVE BILINSKY & LAURA CALLOWAY. Why Budget and Plan?

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1 BY DAVE BILINSKY & LAURA CALLOWAY the recurring monthly charges of internet-based legal and factual research systems until, slowly but insidiously, year after year, technology has become a bigger and bigger line item in every lawyer s list of expenditures. Why Budget and Plan? For hundreds of years, lawyers and law firms didn t really have to take time out of their busy schedules to make budgeting and planning decisions. They knew roughly what their expenses for occupancy, staff, library books, and miscellaneous items were likely to be, so the only real goal was to stay busy enough to cover those expenses and have something left over to take home. The practice of law was considered to be a profession, not a business, making activities like budgeting seem out of place in any case. A big technology investment for a lawyer during this period might have been the purchase of a new fountain pen, but times have changed. The pen morphed into the manual typewriter, which spawned the correcting electric memory typewriter, the copy machine, the stand-alone word processor, the networked personal computer, and the scanner. One copper telephone line has become a PBX or VoIP phone system, with a bunch of cell phones and tablets thrown in for good measure. Legal research moved from a few new hardback books to purchase every year to Technology is now ubiquitous in the law firm. It s almost impossible to imagine anyone effectively, much less profitably, practicing law without a full range of technological tools, and the ethics authorities in many jurisdictions have issued opinions stating that a reasonable understanding of and ability to use basic law office technology is now a component of lawyer competency. In addition, lawyers face encroachment from the providers of online services such as automated wills, business documents, and other forms that take away what was once bread and butter legal business. But, as the need to adopt and incorporate knowledge automation tools into the practice of law has accelerated, have lawyers begun to recognize that they must budget for the purchase of legal technology and plan for its obsolescence and periodic replacement? The ABA Legal Technology Resource Center (LTRC) sought once again to answer this question in the 2016 Legal Technology Survey Report, and to see how the current state of technology budgeting and planning in the law office compares with that in previous years, by asking respondents whether or not their firm budgets for technology. 1

2 Based on the responses, it seems that many, but not nearly all, lawyers have accepted that legal technology is necessary, and that its acquisition and eventual replacement must be factored into the firm s budget. This year, 53% of respondents indicated that their firms do budget for legal technology, down from 58% who indicated in 2015 that their firms budgeted for technology. The number of respondents in the don t know column continued a trend, dropping from 13% in 2015 to 11% in 2016, indicating a somewhat wider awareness of what is going on in their firms regarding this issue, while those in the no column increased slightly since the 2015 Survey, from around 28% to almost 36%. Overall, firms seem to be aware of the need to budget for technology expenditures, although they may still be somewhat equivocal about taking the time to do so. 36% 33% 11% 2016 Yes No Don't Know 9% 2015 Yes No Don't Know If we break down the responses, we can see that firm size seems to have an effect on whether technology budgeting and planning takes place. When we compare the firms that answered affirmatively to this question in this and the past three years, it appears that while the percentage 53% 58% of firms in each category has held relatively steady, the respondents from larger firms are much more likely than solos or members of small firms to say that they actively budget for technology expenditures, with firms of 500+ attorneys having the largest percentage of respondents answering yes to this question this year Solo Respondents reporting that their firm budgets for technology. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Once again, the 2016 Survey doesn t attempt to determine why the smaller firms are less likely to say that they budget for technology purchases. However, a passing familiarity with the personnel structures and practices of large and small firms probably allows us to guess the answer. Larger firms much more frequently employ nonlawyer staff members who are paid to assist the firm with planning and budgeting tasks, including researching technology and other purchases. In addition, the larger an organization is, the greater its need to budget and plan if it is to stay in business and be profitable. And larger organizations can often take advantage of volume discounts by planning and coordinating their technology purchases. Solos and small firm lawyers, on the other hand, are often balancing all firm management tasks with practicing law, and are less likely to have the time to commit to formal budgeting and planning activities. Many small firms could be better described as expense sharing arrangements, and in these firms, technology purchases are much more likely to be made individually and on the basis of immediate need or local tax holidays, seasonal sales, and special offers from manufacturers, rather than to 2

3 be planned and paid for by all the firm members. What Are Budgeting Trends? When the respondents who indicated that they or their firm had a technology budget for 2016 were asked whether that budget had increased, decreased, or stayed the same compared to 2015, a plurality of respondents (44.5%) indicated that the budget had increased over the previous year, up from 40.5% who noted an increase between 2014 and The next largest group (32.8%) stated that their technology budget had stayed the same. The number of respondents who didn t know decreased from around 24% in 2015 to 19.5% in 2016, and only 3.2% indicated a drop in technology spending, down from 4.4% in Since the cost of devices continues to fall, this would seem to indicate that firms are slowly adding to the hardware, software, and cloud-based services they are utilizing. When broken down by firm size, it appears that small firms are working to catch up technologically with their larger competitors. Almost 48% of solo respondents and 49% of respondents from firms between 2-9 lawyers reported increasing budgets, while the percentages of respondents from larger firms reporting increases was smaller. Interestingly, 12.5% of respondents in firms of lawyers reported that their firm s technology budget dropped from last year. Additionally, 30% of respondents from firms of 50+ lawyers indicated that they did not know the answer to this question. 70% 60% 50% 40% 30% 20% 10% 0% Spending Changes by Firm Size Solo Who Makes the Decisions? Not surprisingly, nearly 99% of all solo lawyers make the technology purchasing decisions in their firms. For the next tier (firms of 2-9 attorneys), almost 40% indicated that technology purchasing decisions are made by all of the partners. As we continue to move up in firm size, the decisions tend to be made by smaller groups or a single individual, presumably acting on the advice of others. In firms of attorneys, the largest single group of respondents (41%) indicated that the decisions are made by a managing partner. For firms of 50+ attorneys, the largest single group of respondents in each tier stated that decisions are made by the executive committee of the firm. Larger firms also tended to have technology committees or boards of directors which had direct input on purchasing decisions, though managing partners play a considerable role at many firms of 50+ lawyers. Top technology purchasing decision makers: Small Firms (1-9) 21% 19% 49% Solo Practitioner All Partners Managing Partner Top technology purchasing decision makers: Medium Firms (10-99) 20% 30% 38% Managing Partner Executive Committee All Partners Increased Decreased Stayed the same Don't know 3

4 Top technology purchasing decision makers: Large Firms (100+) 28% 33% the lawyer range. Per year, spending topped out at $30,000 for firms of lawyers, but fell back to $28,029 for firms of 500+ lawyers. Not surprisingly, the larger the firm, the larger the percentage of don t know responses to this question. 31% Executive Committee C-Level Execs Don't Know Don't Know Greater than $20,000 Annual Expenditure On Hardware Again, passing familiarity with the practices of firms of all sizes would indicate that as the size of the firm increases, so does the need to ensure that all systems are as integrated and consistent as possible and are managed in a coordinated fashion. The delegation of technology purchasing decisions to a small group or an individual tasked with the overall functioning of the firm would be an expected shift of management authority as the size of the firm increases. Furthermore, the ability to and utility of involving all partners in purchasing decisions diminishes as the size of the firm increases. The managing partner s role also changes as the size of the firm changes. It is not surprising that the managing partner is the most likely to make such decisions in firms of 10-49; that would be about the sweet spot for one person to make these decisions. In smaller firms with less partners, each partner would be expected to have greater say on purchasing decisions, ultimately affecting the bottom line. In firms larger than this, the numbers of partners and the complexity of the systems dictate that a committee be tasked with the purchase decision. The Legal Technology Spend Hardware Expenditures The average technology spend for hardware for all firms in 2015 was $6,161, but the figure differs widely depending on firm size. For solo practitioners, the figure was a low of $1,646. Firms of 2-9 lawyers spent an average of $4,472, while the figure jumped to $12,607 for firms in $10,000-$20,000 $5,000-$9,999 $3,000-$4,999 $1,000-$2,999 $500-$999 Less than $500 0% 5% 10% 15% 20% 25% 30% 35% Software Expenditures Respondents were also asked to indicate how much they spend annually on software (including web-based/cloud software) to manage their practice. Responses to this question were all over the board. As in 2015, the largest single group of respondents (29.5%) indicated that they did not know, followed by 16.3% who reported between $1,000 and $2,999, 13.7% who reported more than $10,000, and around 12% who reported less than $500. The average yearly spend on software and cloud based services was $5,021, up from $4,673 last year. Clearly, there is a great divergence in how much lawyers and firms spend on software, but that amount continues to increase. Don't Know $10,000+ $5,000-$10,000 $3,000-$4,999 $1,000-$2,999 $500-$999 Less than $500 Annual Expenditure on Software 0% 5% 10% 15% 20% 25% 30% 35% 4

5 Training Expenditures Although the 2016 Survey did not specifically ask about budgeting and spending on technology training, we can assume that at least part of many firms budgeted expenditures go toward that purpose, and with good reason, as even the best technology won t produce the desired results if you don t know how to use it. Over half (52.4%) of respondents indicated that a part of their jurisdiction s basic competency requirement included a requirement that they stay abreast of the benefits and risks of technology. Solo lawyers had the fewest respondents indicating that they did not know (18.5%), while the largest group of respondents indicating that they did not know about their jurisdiction s requirement (31.1%) came from firms of 500+ lawyers. When asked which types of technology training were available in their firms, the largest single group of respondents (70.5%) indicated that at least one of the listed training options was available, leaving 29.5% of all respondents to say that they did not have access to technology training through their firm. Web-based classes offered by vendors and manufacturers were the most frequently cited option (40.3%), followed by tutorials included with software programs (34.1%), live classes provided by vendors or manufacturers and live classes in-house (25% and 24.5%, respectively), and web-based classes offered by organizations other than vendors or manufacturers (21.5%). As with many other resources, large firms were much more likely to have training available, with only 18.9% of respondents in firms of lawyers and 3.6% or less of lawyers in firms of 50+ lawyers indicating that they had no training available, while almost half of solos (45.7%) stated that they had no available training resources. In determining the most effective use of a firm s training budget, of the respondents who indicated that training was available to them, the largest single group (23.6%) rated training by in-house staff as the most effective method; live classes and web based classes offered by vendors or manufacturers tied for second place (18.4% respectively). Interestingly, solos rated web-based classes and tutorials included with software as being their most effective methods. Once the firm size rises to 50+ lawyers, live in-house training is rated most effective. Most Effectve Types of Technology Training Live classes offered by in-house staff 24% Live classes offered by vendors manufacturers 18% Web-based classes offered by vendors/manufacturers 18% Tutorials included with software programs 8% Live classes offered by outside organizations (excluding vendors) 8% Web-based classes offered by outside organizations (excluding vendors) 8% We-based classes offered by in-house staff 2% CD/DVD/Videos 2% Other 4% None of these 8% What s Next on the Shopping List? There are some interesting developments on the horizon. Microsoft has extended the deadline for support of the Windows 7 and 8.1 operating systems until July This is a very positive development, since 34% of lawyers report using Windows 7 as their primary operating system. If this date had not been extended, users would have been facing fairly significant hardware upgrades, implementation, and training costs, since these operating systems were set to expire in July Firms should be planning for the retirement of these older machines between now and July What is more concerning is that 4.5% of respondents still report using Windows XP and 1% report using Vista as their primary operating systems. Support for Windows XP has ended and any machines that cannot be upgraded to currently supported operating systems should be retired, moving data to equipment with supported operating systems. Failure to do so can open the firm to significant security concerns. Extended support for Vista will end in 2017 (mainstream support ended in 2012). 5

6 These are matters that should be incorporated into every firm s long-term budgeting and planning process. Conclusion Notwithstanding the need to keep renewing machines and software as equipment wears out or its programs are made obsolete by new operating systems, and as firms grow and need to add additional capacity, it appears that many lawyers still are not actively making technology purchasing plans. As we are constantly reminded, lawyers are busy practicing law and often refuse or neglect to plan and budget for technology purchases until circumstances force them to do so. While amortizing software and hardware over as long a life-cycle as possible may be appealing at first blush, it may be a false economy not only in terms of lost productivity but in terms of security and privacy costs as well. About the Authors Laura A. Calloway is the Director of Service Programs and a Practice Management Advisor at the Alabama State Bar. Before joining the bar in 1997 to establish the Practice Management Assistance Program, she practiced law in Montgomery, Alabama. She is a member of the American Bar Association and its Law Practice and Solo, Small Firm & General Practice divisions. She is also a fellow of the College of Law Practice Management. Dave Bilinsky is a practice management consultant and lawyer for the Law Society of British Columbia. He is a Fellow of the National Center for Technology and Dispute Resolution (NCTDR) at the University of Massachusetts. He is also a Fellow of the College of Law Practice Management and past editorin-chief of Law Practice magazine. Dave is the founder and Chair of the Pacific Legal Technology Conference and a past Co-Chair of the American Bar Association s TECHSHOW. He has designed and is presently teaching the first legal technology course in Canada for the University of Toronto Law School. 6