Performing support/administrative services to ensure that the organization runs smoothly, efficiently, and in accordance with the firms business requirements

Time allocation should reflect the tasks required to achieve the business plan and strategic goals set by the organization. However, even that may be difficult because professionals tend to focus on tasks they are comfortable doing (usually client service), as opposed to tasks at which they are not as proficient. We next examine time allocation of managing partners and regular partners.

Managing Partner Time Allocation. By definition, managing partners or chief executives must devote more of their time to managing the firm and less to client work. How much time allocation toward firm management is reasonable? The answer to this depends on the size of the firm. One study found that the larger the size of the law firm, the more time partners spend on firm management rather than practicing law. In fact, the study found that the managing partner typically spends 12 percent of his or her time on firm management if there are fewer than five employees but more than 60 percent once the employee count reaches 100 or more. This is a staggering adjustment and in one sense seems counterintuitive. Certainly, a 100-attorney law firm would have additional administrative support for a managing partner; however, this support is counterweighted with the complexities of the business thus requiring greater attention from the managing partner. The finding is congruent with the laws of leverage. If the managing partner can improve the efficiency and effectiveness of 100 or more attorneys, even a slight improvement in this efficiency would greatly outweigh the economic benefit of the managing partner billing a few more hours that month. Why wouldnt a managing partner drop all client service work altogether? The main reason is that they want to stay sharp and practice the business; otherwise, over time, their client skills, knowledge, and capabilities would dull to the point that they may not be a good representative of the firm, which would jeopardize their managing partner status. As the firm gets larger, it will take more and more time to manage, and this time usually comes from the managing partner.

Regardless of the size of the firm, managing partners spend approximately 10 percent of their time on business development to ensure a steady flow of new prospects and revenue stream (see Exhibit 2.2).10

Partner Billable/Nonbillable Hours. Regular partners/vice presidents have large time demands similar to the managing partner; however, the driver of these demands will be more client focus and staff development. Each firm will have its own economic model for partner target utilization. Time spent

100 90 80 70 60 50 40 30 20 10 0

Less than 5 5 to 14

15 to 29 30 to 49 50 to 99 Over 100 Number of attorneys in firm

□ Firm management □ Business development □ Practicing law ]

Exhibit 2.2 Managing Partner Time Allocation (average hours per week)

on other areas such as professional development, administrative tasks, and marketing will all depend on the partners strengths and the needs of the firm. Typically, time spent is 50 percent on billable activity, 10 percent on client relationship development, 20 percent on sales activities, 10 percent on personnel development, and 10 percent on administration. As the firm grows and the administrative management time increases, the partner will typically work more hours to keep the same number of hours in the other activities. Exhibit 2.3 demonstrates this trend.11

Partners in smaller consulting organizations spend approximately 50 percent of their time on billable work and 50 percent of their time on nonbill-able work. Partners at midsize management consulting firms spend the same number of hours as their small company counterparts, yet the percentage of billable time decreases to 36 percent. Hours have been added to manage the overhead of a larger company. The trend continues to a great degree for partners of larger size firms. Again, these partners spend the same number of hours billing, yet that billable time is now only 31 percent of their workweek.

revenue drivers. What differentiates professional services firms from other industries is that they bill clients for the time incurred by their

24.2

27.3

Small firms

20.3

36.2

Midsize firms

23.4

49.6

Large firms

Exhibit 2.3 Partner Billable/Nonbillable Hours by Firm Size (average hours per week)

professionals instead of charging for delivering a packaged product. The billing can be based on an hourly rate, a set fee for performance of a project, or a set fee for a recurring service. Revenue is a factor of the following:

1. Bill rates

2. Billable hours

3. Professional staff leverage

In addition, the following definitions of firm size are useful:

Small: Less than $5 million in annual revenue

Midsize: Between $5 million and $25 million in annual revenue

Large: Greater than $25 million in revenue

Primary metrics besides these factors are used to understand revenue trends, including:

1. Utilization: Billable hours divided by hours available

2. Realization: Actual hours billed times actual bill rate divided by bill-able hours times standard bill rate.

3. Sales pipeline: Initial contacts through bids/proposal submitted