Measuring Productivity 201billed only 86% of those hours. As he noted, that suggests a serious problem,
especially when one compares her with the firm average.
“Their firm,” continued Dana, “does this for every one of their associates.
They can thereby track the actual revenues of their firm and compare it with
the budgeted revenues. They can see whether any shortfalls or overages are
due to charging out more or fewer billable hours than expected, or to charging
clients more or less than the standard rate, or to some combination of the two.
It gives them an excellent tool to see how their firm is doing. They can also an-
alyze productivity in the firm: in total, month by month, as well as by depart-
ments within the law firm, such as trust and estate, corporate, litigation, family
law, and so on, right down to individual lawyers in the firm. And knowing what
has happened in the past, they have an excellent tool for beginning to plan for
the future. I think we should be doing something similar!
“If we do, we’ll have an idea whether the production staff is working effi-
ciently. If we have those standards in hand, then we can check how much our
product should be costing us. And, we’ll be able to compare that figure with ac-
tual product cost. Checking the difference between actual and budget will tell
us where our big problems are. With that information in hand, we should be
able to get our costs much more under control and our productivity up.”
“Agreed,” responded Ahmad. “People will pay for a quality product if it is
competitively priced. We’ve just got to make sure that we’re working as effi-
ciently as our competition, and we’ll be fine. That means, when we draw up
a price quote, we need to be able to come in at or below the quotes of our
competitors.”
“That’s all very well for you to say,” said Tom, feeling a little aggrieved.
“ You’re not the one who has to draw up these productivity standards. I’ve tried
doing this before and it’s not easy, let me tell you. For starters everyone seems
to want perfection.”
“The other thing that I think we need to be aware of,” added Ahmad, “is
that variance analysis is just a start. We need a range of performance measures
that capture not only our productivity but also the value that we are adding to
our customers. For instance, we know from the newspapers that the firm saved
the Prescots tens of thousands of dollars. That was a very successful case for
them, and that needs noting. What we really need is a balanced scorecardthat
adds a customer perspective to our more internal focus.”^1
With that the meeting broke up. Tom went back to his office, realizing
that he was not quite sure where to begin. For one thing, he hadn’t shared the
fact that he had not succeeded in his last attempt to install a standard cost sys-
tem. What chance did he have this time? A call to a friend of his, Jane Halver-
son, who had just completed her MBA, seemed in order.
BUDGETARY CONTROL
“Jane, I need your help badly,” Tom pleaded. “My boss is after a set of produc-
tion standards and I don’t know what to do or where to begin!”