Models to Help Make Decisions
MBA and Dan Otto
amount of data, available not only from your financial department but
from personnel, marketing and operations, facilitates monitoring and
tracking various law firm indicators. However, the quantity of data can
be overwhelming at times. This is especially true when trying to make a
decision with conflicting information.
One of the best ways
to make complicated decisions, where a lot of data is available, is to
use computer modeling techniques. A computer model, which is a specific
set of variables and their interrelationships designed to represent a
situation, helps assess data and simplify the decision-making process.
Computer modeling is fast becoming one of the preferred methods in
Computer modeling is
no longer relegated to the financial department. In fact, computer
modeling is an asset in every functional area: in human resources when
deciding to hire additional personnel and at what level, in payroll for
calculating bonuses, in marketing when deciding on which industries to
target, in operations for determining capacity and growth scenarios, in
strategic planning for identifying potential partners, and in finance
when deciding on which potential clients have a low risk of defaulting
on their fees. Using available data or estimates, computer modeling is
helping law firms make better decisions.
A variety of
computer modeling tools are available: spreadsheets like Excel, Lotus
and Quartro-Pro; databases such as Access, Fox-Pro and DBASE;
programming languages like Visual Basic, C++, SAS and UNIX; and
commercial tools such as Pro-Formas for Professionals, @Risk and iThink.
There are four basic
steps in building a computer model:
State the problem.
The first step in computer modeling is to determine the exact problem
and state it as a question. For example, Joe Smith is the managing
partner of a law firm. His firm is growing so fast that he has more
work coming in the door than the staff can handle. He needs to hire
additional people, but he doesn’t know at which level. Should he hire a
senior attorney, junior attorney, paralegal, secretary or clerk?
All of his employees
claim to be very busy and need more help. But Mr. Smith realizes that
fast growth may go hand-in-hand with bloated growth and inefficiency.
He doesn’t want to hire more people just because his current employees
are busy. He would like some way to demonstrate the appropriate level
of person who should be hired, so that he can grow efficiently and still
maintain his high profit margin.
The second step is
to define and collect the data. Critical to answering the question,
which has been posed, is to develop a list of relevant data that will
affect the decision. In this case, Mr. Smith needs to know from all the
employees who are doing work for the firm, what tasks they perform and
how much time they spend on each task every day. Although gathering
this information may be a daunting project, the results will be well
worth the effort.
Next, choose the
modeling tool. Select the tool based on your customization needs and
the amount of data that you will be processing. If the data is
voluminous, a database may be necessary; however, if you have a small
project, a spreadsheet may be the tool of choice. If an off-the-shelf
tool suits your needs, then by all means, use it. But if you require a
considerable amount of customization, then a commercial tool may not
suffice and you may have to create the model yourself or outsource the
In our example, Mr.
Smith selects the flexible Excel spreadsheet, because it’s easy to use
with good explanatory graphs that can be developed.
Build the model.
Now you are ready to start building your computer model, which will
answer the question that you posed. There are six components of a
1. Input sheet,
where the user enters and modifies the data.
Mr. Smith’s input
data are the various tasks, the level of employees completing the tasks,
the amount of time each task takes and the order that the tasks are
completed. Critical to the analysis is not only the level of employees
who do the work now, but who should do the work in the future. So Mr.
Smith designates levels for each task based on who should do the work
(support staff, secretary, paralegal, junior attorney and senior
attorney) not who actually performed the work. Employees track their
time on various tasks during the data gathering period. Another input is
the forecasted growth of work by practice area and the associated effort
by level of person required to complete the work.
2. Results sheet,
which indicates the numerical conclusions based on the inputted data.
Mr. Smith creates a
results sheet, which is automatically populated from the input sheet.
He uses color-coded cells for people who are performing tasks that are
above or below their level of competence.
From the model, Mr.
Smith sees that attorneys are performing paralegal work and secretaries
are doing clerical work. For example, attorneys are doing all of
the research work, some of which could and should be done by paralegals.
The results sheet also indicates that the secretaries are photocopying
and preparing messenger packages -- tasks that should be performed by
the clerical staff. The result is that the firm is paying salaries
to people who are performing simple tasks for which they are
overqualified. Furthermore, the firm’s profits are eroding with
people who are not aligned with the appropriate level of task.
3. Charts and graphs
are the visual representations of the results.
If a picture is
worth a thousand words, then a graph is worth at least as much. A graph
visually depicts the statistics on the results sheet. Using the graphs,
Mr. Smith easily sees that the number and level of employees that he
should hire based on his current workload and his forecast of future
work. The charts indicate the relationships or ratios between the
levels of personnel. For example, one graph reflects the number of
paralegals for each attorney based on the tasks’ levels of work that was
identified in the data gathering process.
variables and “What if?” scenarios.
The advantage of
using a computer model is that the data is not static. If you change
the data, then the results sheet and the graphs and charts can change
automatically. A computer model allows the user to change variables, to
alter scenarios and to calculate sensitivities that may affect
Mr. Smith can
calculate how an increase in work will affect his hiring decisions.
He can change the input data to reflect growth scenarios and the graphs
automatically are updated so that he can see how the alterations will
impact the firm. This tool gives him the flexibility to experiment
with various modifications to determine how the results will be
5. “Sanity check,”
which determines if the inputs and calculations make sense.
Every computer model
needs a sanity check to ensure that formulas and calculations are
realistic. The user can’t lose sight of the logic in developing the
computer model. One small error in a formula can throw a computer model
into the realm of improbability.
Mr. Smith reviews
the tasks and their time allocations for reasonableness. He does not
accept the computer model as the “end all,” but instead examines the
inputs and the formulas to ensure accuracy. He is satisfied that all
his conclusions are sensible.
6. Usability --
the menus, macros and other automation features that make using computer
model easy and simple. With Visual Basic programming, which runs in the
background and is not apparent to the user, a computer models can be an
uncomplicated tool for attorneys and managers to use.
Mr. Smith designs a
few simple interfaces that facilitate use of the computer model. He
designs a menu that will provide easy access to the various
spreadsheets, such as input sheet and results sheet. He explains the
computer model to his office manager, who is able to continually update
the model and provide reports on a quarterly basis.
A major advantage of
the computer model for the law firm is its ability to answer complicated
questions. If you are stymied by a question that appears unanswerable,
chances are that a computer model can assist your assessment and provide
a solution to your dilemma. As more unknowns become facts and as
assumptions change to reality, the computer model evolves and adapts,
which creates a dynamic and robust tool for decision-making.