This article looks beyond the FUD factor ("Fear,
Uncertainty and Doubt") to examine the economics of upgrading and/ or expanding
your software.
The real financial dilemma comes when you consider
implementing new programs, such as case management, document management, e-mail,
faxing from the desktop, document automation using programs such as HotDocs, and
various specialty software (litigation support, family law, estate planning,
real estate closings).
The initial reaction to the cost of purchasing,
configuring, installing and training your staff on these programs is frequently
one of sticker shock. But do a serious review of the potential benefits. Base
your review on conservative assumptions concerning advantages and high-end
assumptions concerning costs. Your firm’s numbers may vary from the following,
but the principles are the same: do the calculations based on your specific
configuration.
Take a firm with 5 attorneys and 7 staff that is looking
at a case management program. At present, without such a program, a considerable
amount of time is lost looking for files (at the bottom of the pile), hunting
for a paper calendar, phone number, document, etc. There is a general consensus
that implementing such a program will save the average user at least 10 minutes
a day.
So our 5 attorneys each save 50 minutes per week, or 250
minutes total. Say 4 hours. The 7 staff members each save 50 minutes per week,
or 350 minutes total. Say 6 hours. Assuming the attorneys bill at $150 per hour
(a conservative assumption) and the staff time is calculated at $20 per hour,
the firm saves (4hrs. x $150) + (6hrs. x $20) or $720 per week. Based on 48
weeks per year (not counting vacations or time off), this firm will save $34,560
per year by implementing the new software! Now measure this against the cost of
the software and consulting time for configuration, implementation and training.
Depending on which case management version the firm chooses, the software is
likely to cost $2,000-5,000 for 12 users. Assume that data needs to be converted
from a previous version (frequently one of the more expensive parts of
implementing a new system) and that the firm wants to do some initial document
assembly routines to help automate the production of documents. In addition,
assume the firm wants to do a thorough job on training (also one of the most
expensive aspects of implementation). The overall consulting costs could easily
reach $8-10,000 for this firm. So the firm’s total cost is likely to be in the
neighborhood of $10,000-$15,000.
In this example, the firm will recoup its its expenses in
less than 6 months ($15,000 ÷ $34,560 x 12). I hear the objection already: you
can’t factor in any savings for Attorney X, who barely even knows how to turn on
his computer. The fact is that Attorney X is presently losing time waiting for
someone else to find the file, get the phone number, and so on. By enabling his
assistants to retrieve information more efficiently, new software will reduce
the time he currently spends waiting to get information from others. You might
factor in "half-savings" for those attorneys. On the other hand, his assistant’s
time savings are increased. However you modify the numbers to fit your firm’s
circumstances, your firm is likely to recoup its expenses in under 6 months–and
of course to go on saving about $3,000 per month thereafter. A larger number of
users generally means a lower per-user cost of implementation, and hence even
increased savings.
I see the potential savings every time I call to set up an
appointment for case management software:
Attorney: "Yes, we need to set up an appointment. Let me
give you my secretary." (Wait)
Secretary: "Oh, yes. Let me get his book." (Wait)
The appointment is made typically after 5 to 7 minutes of
hold time, which will disappear with calendaring software.
But, you might object, this is just "soft"
dollars, i.e., putative additional time billed available due to time
savings. Therefore it isn't very real. There are also "hard" dollars in this
equation, that is, additional time captured due to using a case management
program. Whereas having additional time available may or may not result in
additional billable hours, capturing additional time is "hard" dollars, that is,
actual cash in hand.
If an attorney using case management
captures an additional 5% time (and normal estimates are usually closer to 10%),
based on billing 1,500 hours per year, then he actually bills an additional 75
hours per year. At $150 per hour, this is over $10,000 additional revenue per
attorney per year.
Equally important is a point many people
overlook when doing this sort of analysis. It also applies in reverse: firms
that do not implement time-saving software are losing thousands of
dollars per year. In the not-so-long term this will make the firm
less competitive, both economically and due to the inability to retain the best
people, who are frequently looking for a greater degree of automation than the
firm is offering.
The argument that "things are working fine
now" most often fails to take these issues into account.
Smart Leasing
"That almost sounds plausible," you may
say, "but we just don’t have the cash flow to front $15,000." That is where a
leasing option can be extremely cost effective. Leases offered by computer
vendors are likely to cost 25-30% more than the original purchase price and are
generally not advantageous. There are much better options–what technologist Ross
Kodner terms "smart leasing" from dedicated leasing companies that will lease
both the software and the consulting time. Many of them offer "staggered" leases
so that if you add equipment, all the leases can expire at the same time.
In addition, you can sharply reduce your
monthly payment by accepting a "more than nominal" buyout at the end of the
lease, particularly for hardware. This is desirable because by the end of a
three-year lease, you probably won’t want the equipment anyway: it will be
hopeless obsolete. How many people are "getting by" using Pentium 166's bought
three years ago? By using a mixed approach (nominal buyout on consulting time;
higher buyout on PCs), you can construct a lease that meets your needs, lowers
your monthly payments, and saves you significant amounts in tax deductions.
