Budgeting – A Practical Approach to Reliable Estimates
(Budgeting, Pricing and Baker Tools)
Legal Project Management Office
David A. Rueff, Jr.
Introduction
• History
• Importance of Budgets
• Budgeting Process
• Pricing Structure
• Budgeting Tools
• BakerManageTM budgeting tool
• BudgetDesignerTM
A. History
1. Pre-2013 Legal Budgets:
• Attorneys have been developing budgets for clients for decades
• Developed for corporation with budget constraints individual with limited resources (or) responses to RFP
• Typically based on high-level phases of the engagement with lump sum figures
2. Most attorneys approach to budgeting:
• Are not trained to budget their matters
• No business analysts dedicated to budget analysis
• Plan based upon intuition without historical information
• No access to historical data and comparisons
• Invest a considerable amount of time mapping out the case and estimating cost
3. Clients now want budgets:
• Previously relied upon their attorney’s judgment regarding cost
• Data now available to compare Firms performance (Tymetrix, Serengeti, Peer Monitor)
• Budgeting now more critical to achieve Client satisfaction as shown by RFPs
B. Why are budgets important?
1. Transparency and Predictability:
• Client and the Firm collaborate on a budget prior to the engagement
• Achieve Client satisfaction by addressing changes prior to action
• Use as a tool for both the Client and the Firm to gauge management of the matter
2. BakerManage Phase Overview
C. Budgeting Process
The Budgeting Process consists of five steps:
- Confirm Scope
- Identify the Framework
- Elaborate Tasks into Subtasks
- Estimate Resources, Rate and Time
- Clarify Assumptions and Risks
- Confirm Scope
- Historically, scope was captured:
- by engagement letters outlining
- the duties of the firm, lawyer and client
- general statement of what the attorney will do for the client
- the nature of the matter (usually in one sentence)
- the expected adverse parties
- how fees and expenses will be charged
- Is this enough for budget development?
- If detail not provided:
- estimates will be based upon the most recent experiences of the Client or lawyers
- will not accommodate the unique aspects of the matter
- will result in inaccuracies as tasks or activities may be missed in planning
- Ethical considerations for limiting scope: “Informed Consent” required by ABA Model Rule 1(e)
- “the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”
- Creating the budget architecture:
- Identify high level phases and tasks to be performed in each phase
- ABA / Universal Task-Based Management System (UTBMS) provides an excellent framework
- Baker Donelson is working to map all matters to the UTBMS codes to capture better information about how we work
- UTBMS Codes / Matter Plans: Codes provided for the following areas of law:
- Litigation (L100+ codes)
- Projects (P100+ codes)
- Counseling (C100+ codes)
- Bankruptcy (B100+ codes)
- Patent (PA100+ codes)
- Trademark (TR100 + codes)
- UTBMS Codes / Matter Plans (example):
- L100 Case Assessment, Development and Administration
- L110 Fact Investigation / Development
- L120 Analysis / Strategy / Advice
- L130 Fact Witnesses / Experts / Consultants
- L140 Document/File Management / Database
- L150 Budgeting Costs
- L160 Settlement / Offers to Settle / Tender / Payments / Non-Binding ADR
- L190 Other
- Elaborate Tasks into Subtasks
- Attorneys should consider elaborating tasks into subtasks or activities (called a Work Breakdown Structure):
- Divides the project into discrete assignments organized by logical groups for a task or phase
- Detailed enough to represent an activity which is assignable to an individual (called work packages)
- Creates a “playbook” for a matter type
- Resources, Rates & Time Estimates
- Develop a schedule and identify the resources:
- thoughtful resource assignments insures against “mindless staffing”
- attorneys typically have “go to” shareholders, associates and paralegals
- budget development requires the evaluation of other resources who may meet the needs of the Client
- Develop a schedule and identify the resources:
- what deadlines must be accommodated?
- what level of experience is needed?
- are subject matter experts needed?
- who is available to work on this project?
- do they have the experience and expertise necessary to perform their tasks
- what are their competing obligations?
- replacing resources in the midst of the engagement will increase costs
- Methods to estimate times for completion and total budget estimates:
- Bottom/Up Estimating –Totals for tasks, phases and the matter are calculated from the bottom up
- most reliable method of estimation
- Top/Down Estimating –Identifies a ball park figure for the entire case based upon prior experience, allocates that amount to the phases, and then further allocates the phase amounts to the tasks
- not as reliable as Bottom / Up Estimating
- a faster method of estimation
- Bottom/Up Estimating –Totals for tasks, phases and the matter are calculated from the bottom up
- Example of a Real Estate PG playbook:
5. Clarify Assumptions & Risks
- Identify Assumptions made in the budget estimates:
- the scope may include assumptions with regard to facts and procedures
- prior to discovery, certain facts may be assumed
- procedurally, there may be assumptions regarding actions to be taken by opposition
- strategically, there may be assumptions regarding terms to be negotiated claims made by the opposition
- the scope may include assumptions with regard to facts and procedures
- What are risks?
- variables which may be encountered during the matter which could increase the estimated cost of tasks and assignments, or otherwise cause the Firm not to meet the client’s expectations
- potential risks should be identified at the outset of the matter and communicated to the client to set reasonable expectations
- develop a set of standard risks per practice area including probability and impact (example – the occurrence of a certain risk will increase Phases of the budget)
- ABA Model Rule 1.5 – Fees:
- factors to be considered in determining the reasonableness of a fee
- the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly
- the fee customarily charged in the locality for similar legal services;
- the experience, reputation, and ability of the lawyer or lawyers performing the services
- whether the fee is fixed or contingent
D. Budgeting and Monitoring Tools
- BakerManage Budgeting Tool
- Identifies the original budget allocations by phase, task, & timekeeper
- Real-time Budget to Actual comparison by daily time entry
- Budget Creation & Storage with Budget Designer
- Budgets can be created at the Phase level by setting phase targets or by building the budget up from tasks and subtasks
- Budget to actual reports and graphics available showing Phase / Task level comparisons
- Budget Over Time
6. Gantt Chart
About the Author David A. Rueff, Jr. is a practicing attorney with 18 years of experience in transactional and litigation practices. He is certified as a Project Management Professional (PMP) and in the Toyota Production System (Lean). David serves as Baker, Donelson, Bearman, Caldwell & Berkowitz, PC’s Legal Project Management Officer, where he works to implement the firm’s legal process excellence initiatives. Contact David at drueff@bakerdonelson.com.