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As law firms and legal departments evaluate their operations and budgets, technology procurement plans and upgrades often jump off the radar screen as easy targets for questioning, if not elimination. As the saying goes, “If it ain’t broke, don’t fix it!” But what these decision makers may not realize is that their systems may be already dead, dying or so inefficient that they can be declared incompetent. The hidden costs of not upgrading a matter management system is often overlooked, but equally important. All legal departments manage matters with almost all work flowing in, around, from and because of matter management. This internal function supports the primary mission of delivering legal services and, therefore, can be considered one of a firm’s most valuable assets. Since matter management software lies at the heart of a law firm or legal department, it’s important to evaluate what is gained and lost by implementing annual upgrades. Each wave of technological enhancements promises new resolutions for many of today’s greatest challenges and processes. Looking for ways to improve the way they work can have a variety of motives for change, including winning new clients; improving client retention; bolstering competitive advantages with knowledge management; creating or enhancing regulatory compliance and internal controls; helping existing staff handle growing workloads; and examining profitability with business analysis tools. Law firms often resist change. However, given enough limitations with its present system, an office will accede to changing the way it works in the hopes of reducing those limitations and improving the way they work. COSTS INVOLVED Typical project costs involve software, hardware, services and support. Justifying these costs can be difficult, but taking into account the hidden costs of not upgrading them should help. These costs include system and staff downtime, retrofitting for integrations, competitive disadvantages and support costs. When an office chooses not to make changes, such as upgrading matter management software or improving the business and practice of law with new business intelligence tools, the obvious savings may seem reassuring in the quarterly budget review meeting. After all, these costs are easy to quantify and generally significant. The perceived savings are like magical earnings to a financial administrator’s ears. In the meantime, clients and competitors are upgrading and installing new systems all the time. The real impact, therefore, may be a negative effect on the firm’s or department’s bottom line with lost business and client dissatisfaction. In deciding whether or not to upgrade, a firm should look at the less-obvious costs of standing still while its competitors’ and partners’ technology passes the firm by. Total the short-term savings of not buying the newest version of a software application and then get ready to subtract. The chart above shows a number of cost items that most law offices will encounter. 1. Growing Impact of Disruptions Upgrades often resolve technological issues with a firm’s current software package. Older software may have file incompatibility problems, security holes and integration issues. Whether the firm has all IT staff in-house or outsources that work, it will definitely use these resources more as software and integration problems develop. That means more IT staff/contractor costs, taking staff away from other projects and longer IT response times. What does an hour of downtime cost? What impact will it have on the firm or department if its legal support staff cannot generate their usual amount of documents for an hour or more? Identify the revenue “loss point” associated with possible technology disruptions and subtract it from the direct costs of the upgrade. 2. Increasing Costs of Catching Up In the long-term, software upgrade costs can actually wash out short-term cost savings if you wait too long to upgrade. The vendor may offer low-cost upgrades from version to version or deep discounts to customers who stay current on all service packs and releases. In addition, upgrades are typically only available for one or two versions later. After that, many vendors require the customer to purchase the software all over again at full retail. Other costs associated with waiting may be training or engineering costs. Identify how much it would cost to wait for a third or fourth generation upgrade and subtract it from the direct costs. 3. Injured Reputation and Business Development Efforts A firm’s level of technology affects its staff’s productivity and the firm’s reputation. Intangibles such as embarrassment when explaining why the firm cannot deliver on a deadline, client resentment due to technological limitations and staff frustration when technical limitations affect communication, start to feel tangible. What is the bottom line impact? Clients with new legal matters to refer out may send them to the lawyers who can open their attachments, who communicate by e-mail instead of fax, who do not have an inordinate amount of “network problems” and who are not suffering from obvious security holes. In recruiting new talent to a firm, will a reputation for having technological limitations work against the firm? Can the legal department continue to justify the additional staff needed to manually review outside counsel invoices? Keeping up with the latest in legal technology is more than an overhead item; it has both tangible and intangible benefits to the firm or legal department. 4. Missing the Opportunities to Save New features in matter management systems already on the market can help the firm’s efforts in marketing, improving client retention, bolstering competitive advantages with knowledge management and business intelligence processes, creating or enhancing regulatory compliance and internal cost controls and helping existing staff to handle growing workloads. The longer a firm waits to employ those tools, the less the firm can save and earn from their benefits. Budgeting: Many corporate clients set budgets for outside counsel work. Some law firms have internal controls in place to mitigate cost overruns and client relation problems. When budgeting tools are built into the matter management software, staff has easier, faster access to budget templates and matter-specific budget details. Today’s budgeting software can help to create budgets in 15 minutes. Combining these tools with matter management software saves time and helps ensure proactive management. Calculate budget creation costs by multiplying the amount of time spent creating a budget by the hourly staff rate and the number of budgets created annually. Now figure out how much the firm would save by creating them in only 15 minutes. Subtract this savings from the direct cost of the upgrade. Forecasting: With so much information accumulating inside time and matter management software, it should be easy to extract the intelligence needed to make better business decisions without additional data entry. By basing resource-need forecasting decisions on actual historical data, business decisions are more accurate. Today’s forecasting software can help a firm determine the most profitable practice areas and increase revenue generation. Portability: The portability of electronic matters and case information helps eliminate dead time when staff are disconnected from the network. If you do not currently have this, subtract the cost of downtime (at airports, airplanes, train stations) from the direct cost of the upgrade. External Reporting: Report generation can now happen “on demand.” The costs in postage and printing incurred to send color graphs and other detailed reports to board members, shareholder committees or clients rapidly disappear when reports are transmitted in html e-mail right from the matter management software. This often alleviates the need for third-party tools. Subtract from the direct cost of the upgrade the postage and printing costs for mailing reports now provided via Web access. Web Publishing: New portal publishing tools built into the electronic matter makes selecting and publishing documents for collaboration easier. Security settings allow users to restrict document viewing based on authorization. If the upgrade provides this built-in feature, subtract the cost of buying this tool separately from the direct cost of the upgrade. Integrations: Upgrading can provide access to the latest integrations and make it possible for the bi-directional exchange of information. One data entry point allows the matter management system to populate a firm’s customer relationship management software, e-mail application, calendar, and accounting/invoicing system. By upgrading, the firm ensures that its software continues to work with the newest productivity tools, its network and other systems. Estimate the cost associated with double data entry and subtract this from the direct cost of the upgrade. CONCLUSION Whether they are obvious and predictable or more remote and intangible, there are costs involved when not upgrading. The hidden costs of delaying upgrades can easily overcome the more apparent costs of staying current. Take another look at the project costs analysis before making that technology budget cut. The conservative mantra of “a penny saved is a penny earned” should yield to the wiser advice — “do not be penny wise and pound foolish.” M. Lewis Kinard, an attorney, is a managing consultant at RealLegal, which provides practice, litigation and transcript management tools to law firms, corporate legal departments, courts, court reporting firms and government entities.

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