My friend Pam Woldow of Edge International writes a fantastic blog, At the Intersection, “where General Counsel and Law Firms connect.” It is a must read, most recently shown by Pam’s post, The Low Delta Firm. Pam writes:
Client demands for better efficiency, predictability, cost-effectiveness and communication are being translated into a new set of selection criteria for outside counsel. Chief among these is the ability to deliver the goods, consistently, as and when promised.
For in-house counsel, a single metric now rules supreme: Actual to Budget.
For years, it has been a standing joke in the legal world that when asked to propose a budget in order to get a case, firms play “low ball” on the old “it’s better to ask forgiveness than permission” approach to life. As with so many things, the law of unintended consequences comes in to play. As Pam notes:
For the client, the problem, of course, is that this practice produces huge variations between projected budgets and final bills. Obviously, blown budgets and constant overruns play havoc with a General Counsel’s ability to forecast budgets for outside legal spend and make a mockery of the predictability of a legal department’s budget. All too often, it causes the GC to lose face and credibility with the company’s management: Our other departments manage to their budgets. Why can’t you?
According to Pam, the reult in a fast-increasing focus on “delta,” the difference between budget and actual. The result, according Pam:
High deltas mean a firm is not consistently delivering on the promised budget. Perhaps the firm is low-balling estimates and ratcheting fees later, or gaming the relationship. Or maybe they simply don’t know what matters cost and are making“wet-finger” guesstimates. Whatever the cause, these budget-busting practices illustrate the maxim: “To guess is cheap; to guess wrong is expensive.”
Pam ends her fantastic post with this query:
So expect to begin hearing a new phrase that more clients are using to praise outside counsel: The Low Delta Firm. This phrase signals a shift toward greater client vigilance regarding what is promised and what is delivered. Being “Low Delta” denotes a firm that can provide accurate and realistic budgets and then manage to those budgets. It suggests a firm that is willing and able to be held accountable for both efficiency and consistency. Is your firm a low delta firm?
From painful experience back in the early 1990s, I can tell you that the best way to learn how to budget accurately to have a budget “with teeth.” A budget with teeth means that if you exceed the budget, there is some unpleasant, generally expensive, consequence. Like not getting paid or getting paid only 20% of the amount over budget. If you have a client as I did in the early 1990s who refused to pay for any expenditure over the budget (unless there was an approved change order), you soon realize that there is really very little distance between a budget and a fixed fee. If you operate on fixed fee arrangements, there is no reason you can’t be a zero delta firm.
Can your firm be a zero delta firm?