Web Strategies

How to Maximize Your Return on Investment

By Per Casey

AS TECHNOLOGY professionals, we are often asked to predict the future. We're charged with making recommendations for innovative information systems that will last long, perform well and pay for themselves over x number of years. We are forced to make choices that will affect business long after it's too late to reverse our decisions. Buy an application or build it? In-house or outsource? PCDocs or iManage? Early retirement starts to sound better and better.

How do we make I.T. decisions when there are so many options to choose from? The most practical starting point is the "return on investment" (ROI) statement. Whether formally documented or casually estimated, the ROI statement is the cornerstone for any new technology project. Spending money on technology without first considering ROI is tantamount to betting your I.T. budget on a single spin of the roulette wheel.

In theory, ROI is straightforward. It is the net benefits of an investment calculated over time, minus the initial cost. (Net benefits are gross benefits -- such as cost savings, time savings, additional revenue, etc. -- minus ongoing costs like licensing fees and support.) ROI statements are typically expressed in percentages. For instance, "The ROI for the new server is 125 percent over three years." In other words, buying the server will pay for itself, and then some, in three years.

Somewhat Complex

In practice, an ROI statement can become somewhat complex. Other variables such as the discount rate, internal rate of return and payback period may have a place in your calculations. (For some helpful information on the math of an ROI statement, take a look at Financial Primer: How to Calculate ROI, NPV, Payback and IRR.) In these economic times, firms do not spend money on technology projects unless there is a clearly defined payback.The good news? Effective use of the Web can generate that payback.

A firm's most valuable assets are its attorneys, what they know and what they've done. The Web is the perfect medium for effectively sharing and communicating these information assets. It is also a highly effective vehicle for securely exchanging confidential information between remote parties and locations. Consider, too, that the Web transmits information almost instantaneously and that legal work product is extremely time sensitive.

No Brainer?

Given the factors above, one would think that adopting Web applications is a no-brainer for law firms but this is not the case.

There are arguments against as well. First and foremost is cost. Whether off-the-shelf, custom-built or leased, Web applications can cost anywhere from tens to hundreds of thousands of dollars. In today's market, it's difficult to get partners to invest that kind of money.

Secondly, many managing partners have little appreciation for the Web, preferring to do business the old-fashioned way. They may not be sold on this "Internet thing." Many managing partners feel that a fair amount of inefficiency is acceptable for a firm. It creates billable hours and, therefore, more revenue. And, finally, risk-averse law firms fear the disruption inherent to rapid, systemic change. Launching Web applications can lead to such change.

A clear, concise and accurate ROI statement overcomes these concerns. Here are some things to keep in mind when preparing an ROI statement for your next Web project:

1. Lifespan

Assign a reasonable lifetime for the application. It's easy to envision a new technology as a cure-all that will be in use much longer than is realistic. On the other hand, it's equally easy to be wooed by the rapid evolution of technology (i.e. Moore's law) and to underestimate an application's useful life. Where possible, look to similar projects in your firm or other firms when calculating lifespan. The accuracy of your ROI statement hinges on the lifespan you assign the project.

2. Focus, focus, focus

Don't try to do everything at once. Web applications, like all technology, should be developed and rolled-out in phases. Why? Because there is simply too much you can do. Promising applications sprout new ideas like dandelions. If you're not using a phased approach, the project scope explodes. Focus the first phase of the project on the key needs served by the technology, where it will have the biggest impact and payback. Treat this first phase as a distinct project with its own lifespan and ROI statement. With this focused approach, your returns will be much higher and easier to quantify. You can then build off that success for future phases. Conversely, if the first phase fails, you've spent a lot less money.

3. Seek help

Advisors, consultants and sales people can be great sources of ROI data. A common question is whether to build a custom system in-house or buy third-party software. Calculating the costs and benefits of those options as they pertain to your firm can be difficult and time-consuming, so set your prospective vendors on that task. Explain your needs and what options you are considering. Your job is to interpret the vendor-produced information and apply it to you firm. Just remember that outside advice is likely biased toward a specific product or service.

4. Eyes on the prize

Whenever possible, set basic, quantifiable goals. There are measurable and immeasurable net benefits to any technology project. Define all your goals along one of these two categories and then focus on the measurable when building an ROI statement. It's good to have an idea what the abstract benefits or costs will be but don't try to fit them into your calculations; you'll quickly become frustrated.

Following are some of the quantifiable benefits that each type of Web application (Internet, Extranet, Intranet) can provide law firms.

Internet (Web sites)

* More clients. Professional, easy-to-use and informative sites can be a crucial first step in selling services to a new client. To quantify this benefit, survey a variety of new clients. Assess their opinions of your site and how it affected their selection of your firm.

* Better, more cost-effective recruiting. An impressive Web site draws worthy candidates and saves money. Interview new associates and lateral recruits the same way you would a new client. Hear how the Web site influenced their decision. Also, consider the potential cost savings you could realize by publishing campus interview schedules, forms and other materials through the site.

* Lower marketing costs. Can you market your firm via your Web site? Does it replace your newsletters or reduce direct mail efforts? How much do you save in printing and shipping costs?

* Greater efficiency. An effective site will reduce the number of information requests via phone. How much time does that free up for other work? Be sure to consider the costs of follow up calls or mailing.

Extranet (Communication between the firm and its clients)

* Higher revenues. Clients will pay for services delivered via an Extranet. You can share documents, calendars and other work product more efficiently and for less cost (to the client) via the Web than is possible through traditional means. You gain economies of scale -- there's little difference in the cost of hosting five, 10 or 50 client Extranets.

* Higher client satisfaction. Clients value the ability to access the documents they needs quickly, easily and without incurring additional billable hours. To quantify, survey clients before and after you've launched your Extranet.

* Increased client retention. Clients will become invested in the Extranet and what it provides them (access to their corporate documents, pertinent legal information in their industry, etc.) Leaving the firm will become an unattractive option.

* Shorter billing cycles. By dynamically publishing billing information to a client's extranet, you keep them informed of their liability to you. Calculate the time, effort and money spent each year on sending out copies of invoices to begin to quantify this benefit.

Intranet (For use by internal personnel)

* Timesavings. An effective Intranet application greatly reduces the time it takes for attorneys and staff to perform their jobs. Interview personnel to get an idea of what that timesavings will be.

* Better work product. An Intranet that shares prior work product effectively can improve the quality of new work product. Identify what problems attorneys or staff currently experience in this area and give it a dollar value.

* More effective internal communications. With different practice areas, job areas, industries and other defining characteristics, a firm can spend a great deal informing its employees. Start by interviewing the human resources department.

A well-prepared ROI statement will help to guide you to the right technology investments, overcome the objections of managing partners and focus your development efforts. A big step closer to seeing the future of your I.T. systems, you'll adopt technology with enough long-term benefits to enjoy many happy returns.

Per Casey is the president of Tenrec, Inc., a San Francisco-based Web development firm that focuses on the legal market.