Technology as an Investment: Budgeting and Planning

Attorney Nerino Petro is the Practice Management Advisor for the State Bar of Wisconsin’s Practice 411™ Law Office Management Assistance Program which seeks to help attorneys operate their offices more efficiently. Using his 20 years of legal practice experience and more than 15 years owning and operating CenCom Technologies, Nerino helps lawyers and their staff deal with daily practice management and technology issues. He is the GP|Solo Magazine Technology Co-Editor and serves on the ABA TECHSHOW Planning Committee. He is a frequent presenter at ABA and state and local events and blogger at www.compujurist.com.

Budgeting and Planning: Two words that seem to be anathema to many lawyers and firms or, at a minimum, not part of their everyday vocabulary. Throw in “technology” and eyes will glaze over. Arguably, planning and budgeting for technology changes is now more important than ever. While every lawyer and firm should do technology budgeting and planning, too often it does not happen at all.

Has technology budgeting gotten better or worse over the past several years? Does firm size impact whether or not planning and budgeting takes place? When do lawyers and firms replace technology? Who makes that decision? When was the last time a firm bought a new computer, a laptop, tablet or smartphone? What is the timeframe for purchasing these devices in the near future? We’ll take a look at data compiled by the ABA Legal Technology Resource Center in the 2013 edition of its Legal Technology Survey Report and see how this new data compares to the results of past surveys.

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Budgeting Basics

Petro Chart 1

Budget. That’s a word that can strike fear in the heart of the most stalwart trial attorney. Lawyers and firms who routinely map out strategies for trial or long term business acquisitions often fail to budget. When they do budget, oftentimes technology is an afterthought or entirely neglected. One of the questions that is asked each year in the ABA’s Legal Technology Survey Report is simply: “Does your firm budget for technology?”

The good news is that 58.5% of the lawyers that responded to this question indicated that they do budget for technology as shown in Chart 1.

If we compare the firms that stated they budget for technology for the 2011 and 2012 Surveys we see that there has been a change over the last three years.

Petro Chart 2

Chart 2 shows us that in 2013 a greater number of solos and small firms (defined in the ABA survey as 2-9 lawyers) budgeted for technology over the two prior surveys. However, the number of firms with 10 or more lawyers that budgeted for technology decreased over the same time period. When we dive into the specific responses for 2013 we see that the numbers are even a bit more skewed. As shown in Table 3.

Petro Chart 3

These results indicate that less than 40% of solo attorneys and less than 47% of firms of 2-9 attorneys budget for technology. Contrast this with firms of 10 or more attorneys and the numbers suddenly change: more than 60% of respondents at those report that their firms budget annually for technology. While the survey doesn’t address the reason for this disparity, it is not hard to extrapolate a number of reasons for this lack of budgeting.

Solos and small firms often time have no or little support staff. In many instances, these firms are in “eat what you kill” arrangements where expenses for technology directly affect their bottom line. Since these types of arrangements generally put the individual lawyer first, not the firm, anything that affects the bottom line is avoided. This doesn’t mean that they only replace equipment when it breaks, but planning for technology changes is on more of an “as needed” basis.

For larger firms, budgeting is critical to containing expenses and determining cash flow and required billable hours. Larger firms generally do not follow an “eat what you kill” organizational structure, relying instead on formulas of billable hours, firm duties and other factors in determining the compensation paid to firm lawyers.

Larger firms don’t want to be surprised when technology breaks and also don’t want to replace functional technology just because something new and shiny has hit the market. But outside factors can also influence budgeting for technology. Are billabes up or are they down? What is the economy doing and how does the firm anticipate that will impact their bottom line?

Trending… Up?

When asked whether or not their technology budget has increased, decreased or stayed the same compared to 2012, the largest percentage (38.4%) answered that it had increased. 9.5% of respondents indicated that their technology budget had decreased over the prior year. But what about the other 52% of respondents, how did their budgets change? Chart 4 shows that the remainder was about evenly split between their technology budget staying the same and those that had no idea.

Petro Chart 4

Chart 4 shows us that the technology budgets for 63% of the responding lawyers’ firms stayed the same or increased, a fact that this author finds encouraging. The surprising detail about these numbers comes to light when we examine the response by firm size as shown in Table 5.

While Table 3 demonstrated that firms with 10 or more lawyers budgeted for technology at greater levels than smaller firms, Table 5 shows us that it was the respondents from firms of between 2 and 49 lawyers that most often reported increasing their technology budgets. In fact, respondents at firms of 50 or more lawyers were notably less likely to report that their firm’s technology budgets had increased. While some of that may be attributable to a knowledge gap (that is, lawyers at large firms are more removed from budgeting), it may also indicate that smaller firms are seeing more direct benefits from investing in their technology.

Petro Chart 5

Decision Makers

Having technology budgets that were higher or at least remained the same from the prior year is a good thing, but who makes the decision on what technology to purchase? Remember, a budget is ultimately a destination on a map, but as with most trips, firms can find different routes to get to their destination.

Table 6 provides a detailed look at how the purchasing decision varies based on firm size.

The fact that 98.3% of solo lawyers make the purchasing decision is no surprise; what is a surprise is that this number isn’t 100%. Firms of 2-9 lawyers are still of a size where every lawyer can participate in the decision making process without it becoming too unwieldy so the fact that firms of this size involve all of the partners in technology purchases is not surprising. This goes back to the operational structure of these firms.

Interestingly, a significant number of respondents report their firms allow the managing partner to make the decisions. For firms of 10-49, the majority of respondents’ firms rely on the managing partner to make the purchasing decisions while larger firms split between the managing partner and other bodies such as executive committees or a technology committee.

Petro Chart 6

Replacement Cycles

So if you are a solo or a managing partner, you are more than likely the person who will make the technology purchasing decision. Now that we now where the “buck stops,” what kind of technology are these firms purchasing and when?

The technology most prone to failure and replacements are generally servers, desktop and laptop computers, smartphones, and tablets. These pieces of technology are used daily and represent the likeliest failure points based on that usage, as well as the fact that many end users don’t treat their equipment particularly gently. Ideally, firms should follow an upgrade cycle that replaces equipment on a regular basis; this allows technology to be upgraded as improvements are released while preventing the firm from bearing the large financial burden of replacing all of its technology at once. Many firms plan a three- year cycle of replacement for desktop and laptop computers allowing them to keep up with changes in operating systems, updated software and user needs.

The average useable life span of current desktop and laptop computers is 3-5 years, with 5 years pushing the limits in terms of the ability to run the latest software. Beyond time, there is also the issue of wear and tear on the equipment. While there are few moving parts in a modern computer, the heat they generate remains an issue and over time breaks down electrical components.

The survey addresses this issue when it asks: “How often do you replace computer hardware?” Chart 7 tells the story – the majority of all firms, regardless of size, only replace technology when it is outdated or needs upgrades.

Just over 40% of all respondents answered that they replace computer equipment when it becomes outdated/needs upgrades. What this tends to mean in the real world is that a firm will continue to use the technology that they have until they’re forced to upgrade to run the newest version of their key software – perhaps a time and billing package or their litigation support software.

This author regularly assists firms that are running systems that are 7-10 years old running Windows XP. These firms now face the challenge of upgrading to new hardware and software without any direct upgrade path. This can mean that, rather than bringing forward current user or firm settings from their old software, they essentially have to do a clean install and start over from scratch.

While delaying an upgrade may be understandable in large firms based on the sheer number of systems that need to be updated, upgrading poses less of a challenge for smaller firms. And yet, in solo and small firms (2-9 lawyers), more than 22% of respondents report that they don’t replace technology until it breaks.

Petro Chart 7

Table 8 breaks this out for us once again showing the disconnect between smaller and larger firms when it comes to upgrading computer hardware.

While cost is a factor for smaller firms, the smaller number of systems needed should make these firms more nimble in adopting new technology. Unfortunately, that isn’t the norm as demonstrated by Table 8.

And when it comes to when firms last purchased a desktop, laptop smartphone or tablet, the disparity between the solo offices and larger firms continues. According to the 2013 survey 40.1% of solos last purchase a new desktop more than 25 months in the past and 50.3% have no plans to purchase a new desktop computer in the future. The outlook for a new laptop is slightly better for solos with only 33.5% reporting that it had been 35 or more months since purchasing a new laptop and only 38.5% having no plans to purchase a new one. Contrast these numbers to firms of 10-49 lawyers, 4.9% of whom reported that it had been 25 or more months since purchasing a desktop computer and 6.3% for purchasing a laptop computer. Only 13.0% of these 10-49 lawyers firms reported no plans to purchase new desktop computers and 16.4% when it comes to laptops.

Petro Chart 8

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