Taking the guesswork out of costs estimates

Imagine a senior executive telling his md that he has a great project that the company must take on, but he has no idea how much it will cost, how long it will take, and whether it will be profitable.

This is what most companies face when they embark on litigation or arbitration. Clients deserve better.

There will be unexpected twists in every case, but that should not stop lawyers planning for what they do expect.

Project management/planning software will help lawyers do this. Most of the packages can easily handle the required legal tasks. They combine a spreadsheet with a graphics package for displaying bar charts, flow charts and reports.

The starting point is to identify the tasks that must be carried out. The timetable will be set at the summons for directions, but it is possible to make an educated guess before that. The next step is to break these tasks down into specific activities that must be performed before they are complete.

How many times have we heard excuses like: “We can't serve our pleading by the deadline as our counsel is on holiday.” Proper planning (prom- pted by the software) would eradicate such problems.

This can be displayed on a bar chart that can be pinned on the wall as a constant reminder of what needs to be done when.

As for legal costs, the partner has to assess the following:

* Who is to be the team members for the project;

* What each member's rate of charge is to be, and how it is calculated;

* Who is going to perform which tasks, and how long each of them is going to take.

Once the partner has entered the data, the computer will produce cash flow charts.

The third task requires great skill and experience. Initially, the estimates are little more than guesses, but with practice, they become more accurate.

The plans should be reviewed regularly to compare actual progress against planned. The software can do this easily: the partner regularly inserts his estimate of the percentage completion of each activity.

Monitoring cost is not difficult. Many law firms now invoice their clients monthly, so the estimated cost for each month can be compared with the actual. The benefit to the client of having this best estimate of the likely costs are:

* He gets a good idea of what he is letting himself in for in advance and can budget for it;

* He can plan accordingly – recognition by both sides of the costs they face should encourage quick settlements or ADR;

* If he must go to litigation, he can plan the best time to mount a settlement push, before the costs spiral;

* He can force his solicitors to explain why last month's estimate was so inaccurate.

Jeremy Winter is a partner with Baker & McKenzie.