Taking a Glance at the Dashboard

Published October 7, 2008

When you take your car to the shop, the mechanic can give you a detailed picture of performance under the hood by hooking up engine analyzers, lab scopes, compression gauges, onboard computers, and a host of other equipment. When you’re driving, though, all you want to do is glance at the dashboard and see how fast you’re going, whether the engine’s running hot or cold, and how much gas you have left.

In a podcast, Bruce Callow, a C.P.A. and partner in the Seattle, WA accounting firm of Clothier & Head, showed how the “dashboard” concept can be applied to law firm financials. His comments identify the new “digital dashboard” concept of having important financial metrics for a law firm displayed in an easy to understand visual format. Bruce discussed the most meaningful law firm financial measurements and how to show them graphically to law firm management.

These are the basic premises that make a “digital dashboard” effective:

  • Be visual and visually appealing, using either bar graph or line chart format
  • Do not try to present too much information on one graph.
  • Measure against something. The best comparisons for any financial measure are current actual, prior actual and current budget figures.
  • Present 13 months of data on one graph: the current 12-month trend plus the same month of the prior year.
  • Use longer timeframes where appropriate. A graph of profits per partner, for example, might show five years of results.

What financial information should the “digital dashboard” display? Although there will be some variation by firm, the fundamental data should focus on profitability. Charts should progressively show gross revenue (by client, practice area, the full firm), identify relevant costs, and show how long the firm has to wait for payment. Relevant measures for graphing include:

  • Billing rates, whether hourly, blended (an average), fixed fee or other measure
  • Utilization, the percentage of an average workweek that a lawyer bills
  • Realization rate, the percentage of collections and billed fees
  • Leverage, defined as the ratio of non-partners (associates, paralegals, staff) to partners
  • Expenses, related to both operations and compensation, as a percent of revenues.

When properly displayed in an easy to grasp format, the “digital dashboard” can take the mystery out of financial performance and make it clear whether the firm has a smooth trip ahead—or is about to run out of gas.

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Audience type: Small Law Firms