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In many law firms, the mere mention of the words “technology budget” to managing partners or COOs triggers an intense emotional response of anxiety or frustration. Perhaps the source of this kind of reaction is a sense that technology investments are out of control, without a clear understanding whether the money spent on information technology (IT) is producing any results. After all, technology spending within the legal services profession is growing at a phenomenal rate; so much so that on average, it now exceeds 5 percent of annual revenues. In real terms, according to published surveys, this translates into annual spending of $9,000 to $10,000 per technology consumer and $16,000 to $18,000 per attorney. This places technology expenditures behind only compensation and occupancy in magnitude within the average law firm budget. With that much on the line, it’s no wonder that technology spending has become a perpetual hot button. INDISPENSABLE TOOLS There is good reason for this scale of investment in IT for law firms. Systems and computer technology have become tightly woven into the fabric of law office and practice area management. When properly designed and managed, these systems and facilities can provide significant value to a firm both in terms of operational effectiveness and enhanced client service. This translates into strengthening the firm’s financial health and positioning the firm to deliver real competitive advantage. For many firms, getting a clear picture of the real value that IT investments provide continues to be elusive. With a tight focus on profitability and soaring administrative costs, striking the proper balance between limited resources and seemingly limitless demand for IT services continues to be a serious challenge for many firms. This is not surprising as the IT budget frequently reflects a compilation of the firm’s collective wish list — an amalgamation of more projects than can reasonably be accomplished by the IT staff. More importantly, an overly aggressive project list represents more change than can reasonably be absorbed by the firm’s technology consumers. Properly done, the process of evaluating priorities, and allocating resources for the firm’s IT initiatives, can be enlightening and constructive. Getting it right requires an objective assessment as well as placement of the key components of the budget in the proper context . Looking through the prism of the budget, each component of the IT infrastructure can be viewed in terms of value contribution. Striking the right balance between expectations and resources requires close scrutiny of the entire scope of the IT infrastructure and a clear understanding of value contributors and value detractors. In simple terms, this means doing the right things as well as doing things right. It also requires taking a good hard look at the entire IT infrastructure (systems, technology, organization) to align efforts and focus all resources on maximizing the productivity of the attorneys and staff and enhancing their ability to provide high quality legal services to clients. FIRST THINGS FIRST Making the right decisions on allocation of funds for IT starts with having a context for priority decisions. Sorting out the priorities of where to invest precious resources is ideally an extension of the firm’s Strategic Technology Plan (STP). An effective STP defines the key strategies and initiatives that support the firm’s business plan. A living, breathing STP is a dynamic navigational tool that serves as a roadmap for fulfilling the firm’s vision for applying and maximizing the value of IT. Once an STP is developed, management of the plan becomes critical for delivering value to the firm. Effective plan management includes development of metrics to track and report progress. Management programs such as Harvard’s Balanced Scorecard approach are used to formalize the tracking and reporting of progress and increase the visibility of IT value contributions. Firms that have embraced a formal planning process for IT and have an STP are in a perfect position to set priorities and understand the essential investments in IT required to support the organization. Traditionally, IT initiatives have been focused internally, with efforts aimed at operational or expense-oriented efficiencies of the back and front office. With the highest payoffs now coming from an external focus, such as client collaboration, knowledge management, and value added services, firms are now looking at opportunities for revenue-oriented as well as expense-oriented initiatives. SERVICE LEVELS Of course, as service level expectations increase, additional resources are required, in terms of people, systems, and equipment. Service levels measured in terms of help desk responsiveness, system performance levels, system availability, expansion capacity, training, and support must be clearly defined and directly linked to the STP and, in turn, to the IT budget. This requires an active dialog between IT management and the various practice groups. For best results, service levels must be clearly communicated to all. Most importantly, metrics to measure the quality and quantity of services should be defined as well as consistently monitored and reported. Once a track record for service levels is established, productive and objective discussions can proceed regarding resource allocation for various levels of service. SYSTEMS ARCHITECTURE The most critical area of all is the systems architecture. Think of it as the blueprint for all of your technology applications and services. In the broadest sense, the entire IT budget is focused on developing, supporting, and managing the systems architecture. And the true measure of value of these IT investments is how well and how extensively these applications and services are used. Too often, the focus is solely on the “project” or implementation component of these applications. Firms have invested significant sums for major initiatives such as the migration to a new Document Management System, conversion to a new Financial Management System, or a network upgrade. While the initial investment in these systems and services is usually considerable, it is vital that the proper ongoing investment be made to ensure these applications deliver results. This means attending to the essentials such as computer resources to address performance and capacity requirements as well as people resources for management and support. System architecture design also has a major influence on the IT budget. The more extensive and complex the architecture, the more resources are required to support and manage it. The level of integration between systems will also have a major impact on resources requirements. Ideally, the firm’s core applications are well integrated to seamlessly and efficiently exchange information. Unfortunately, many firms find themselves with systems that are not closely tied together. The result is duplication of the same information across multiple systems, and correspondingly elevated operational and management costs. An effective analysis of core applications can identify opportunities for improvement that can enhance the overall cost-effectiveness of the systems architecture. Business processes are also part of the system architecture. Where business processes have not been streamlined, staffing levels may be elevated, which in turn influences the cost of providing technology tools and support. At an average of $10,000 per year per user, additional staff costs can escalate rapidly if the systems are not delivering productivity results. Mainstream processes, such as client intake, conflicts, records management, and billing offer significant opportunity to deliver value by streamlining workflow and improving productivity. IT ORGANIZATION Among the major components of the IT budget, staffing costs represent the largest piece, running from 40-45 percent of the total. Depreciation (35 percent) and operating expense (25-30 percent) round out the remainder of the budget. With this level of visibility, staffing costs are often the most contentious aspects of the IT budget review process. What is the appropriate staffing level? Generally, IT staffing ratios in the area of 30:1 (30 technology consumers for each IT staff resource) has become the norm. Of course, the right staffing level for a firm depends on a variety of factors, including service level requirements, the complexity of the system architecture, and the number of offices. Not surprisingly, service level requirements lead the way as the driving factor. Firms that are the most aggressive in applying technology generally require the highest levels of support resources in areas such as technology training and practice support specialists dedicated to individual practices. What is the right blend of internal and external staff? At an increasing rate, firms are looking to retain internal staff, “insourcing” specific skills such as training, applications support, and project management, focusing attention on the application of the technology to the practice. Purely technical skills, while still largely internal among many firms, are starting to be outsourced to external service providers (ESPs). The growing scarcity of skilled technicians continues to drive up salaries of these valuable specialists. Firms should be looking at whether they really need to have these resources on the payroll. It may be more effective to partner with a reliable ESP and engage these experts on an as-needed basis, such as in retooling the network infrastructure. There are no right or wrong answers when it comes to determining the best staffing levels and the appropriate blend of internal and external resources. The best approach is to be continually watchful for opportunities for selective outsourcing to control staffing expense and to ensure the firm has access to the right technology related skills at the right time. CONCLUSION In assessing your IT budget, look deeper than just the numbers and the associated projects. Place the IT budget in the proper context by: 1. Linking business and technology plans through the Strategic Technology Plan; 2. Establishing service level agreements and tracking performance; 3. Assessing the design of the system architecture; and 4. Reviewing the proper level and blend of internal and external support resources. Use the IT budget review process as an opportunity to align resources, priorities and strategies to maximize the return on your IT investment and deliver value of your IT resources. Tom A. Gelbmann is a consultant with Hildebrandt International in Cherry Hill, N.J.

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