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

Full Cycle

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
  1. 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.”
  1. 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
  1. 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
  1. 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
  • Example of a Real Estate PG playbook:

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
  • 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)
  1. 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

  1. BakerManage Budgeting Tool
  • Identifies the original budget allocations by phase, task, & timekeeper
  • Real-time Budget to Actual comparison by daily time entry

budget to actuals

  1. Budget Creation & Storage with Budget Designer

budget designer

  1. Budgets can be created at the Phase level by setting phase targets or by building the budget up from tasks and subtasks

phase details

  1. Budget to actual reports and graphics available showing Phase / Task level comparisons

budget graphics

  1. Budget Over Time

budget over time

6.          Gantt Chart

gantt chart

LegalShift, LLCAbout 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 [email protected]