The Future is Difficult to Predict: Graham Moore, CEO of Katchr
If the last six months have taught us anything, it’s that the future is difficult to predict. And yet we already knew that, didn’t we? That’s why most of us spend time analysing historical data. What’s already happened is easy to measure, it is solid and reassuring. Predicting the future is just too flaky. It’s not an exact science so it jars with our analytical brains.
In our work with law firms, one of my most common observations is that too many firms put too much emphasis on backwards-looking KPIs and too little on forward-looking ones. Hours recorded and value billed last month might be (relatively) easy financial data to report on, but how much action do they drive? How many levers do they offer to management for improvement?
Future focussed KPIs help us understand future opportunities and risks by using appropriate historical data to predict what might happen. For example, if our client satisfaction score is trending downwards, that may not be reflected in last month’s billing, but it certainly will be in future months. But with such a predictive indicator, there is time to take action before that impact is felt. Similarly, with the turnaround time on cases, if the time from instruction to billing is trending upwards for a given work type, there are potential future problems (with both cash and client satisfaction) building that require short term action.
Law firms all have access to large volumes of data about the matters they handle, the people that handle the matters, the people that instruct them, the prices charged and the results achieved. If firms can learn from that data, they can surely make better decisions moving forward.
One of the challenges of using data for prediction is the complexity of the models. Producing a historical billing report is usually straightforward – the data usually comes from the practice management system in a fairly useable form. Manual intervention is only required for presentation and occasional tidying up. This means the reporting intervals are usually measured in days or weeks. Cashflow or profitability forecasts on the other hand usually require large amounts of manual input, cross-referencing data from multiple sources, resulting in a complex mesh of inter-related (and often fragile) spreadsheets. However, automation of this process is within the reach of all firms these days, which means that a quarterly, or half-yearly budget review, and a monthly (at best) cashflow forecast, can be replaced by literally daily updates with zero manual intervention. More regular review of up to date information enables data to be properly used to guide decision making.
For all law firm FDs, faster access to future-focussed management information is surely an outcome worth striving for. All four of our contributors regard the pandemic as an opportunity for law firm FDs to truly demonstrate their value.
The continuing uncertainty in the wider economy and the priority focus on finances means many firms are looking to the finance function for more than conventional reporting and analysing.
The planning, and in particular, the forecasting aspect of the finance function needs to be at the very heart of law firm business strategies going forwards in a way that previously, in many firms, perhaps it wasn’t.
For Lindsey Woodland, at Tinsdills, the immediate priority when lockdown hit was to make sure she had the answers to the questions she knew would come once the situation stabilised.
“For the first couple of weeks, department heads were too busy sorting out their own departments to make too many demands on me. But I knew that as soon as everyone’s heads stopped spinning, I would be the first person they would ask about how we were going to get through this. What would the finances look like in 3, 6, 12 months’ time if this happens or that happens. I needed to have those answers ready,” she says.
Making changes for the longer term
Having set up the software, implemented the processes and captured to provide those answers, the value of having solid forecasts to underpin decision-making is not going to vanish when the pandemic is eventually over.
“We’ve got to take some positive things out of this situation,” says Steve Tregenza of Capsticks. “Part of that will be the ability to know what data drives the business and know what to look at, how often, how much.”
And that’s not only a task for finance directors. It is something the whole senior management team should be involved in, taking the data out of the finance silo and integrating it into the general strategic planning development of the firm.
It’s increasingly common for larger firms to create new data-focused roles like data management officers or innovation directors. But all senior management roles need to be focused on data, says Thursfield’s Julia Warrilow.
“If firms have been switched-on throughout this pandemic, they’ll realise that data allows you to make more educated financial planning, which facilitates more rigorous strategy planning and process development. That should have been a big learning point for all law firms over the past few months,” says JuliaView and Download Article