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> Understanding the real cost of technology
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post Jun 17 2010, 01:12 PM
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Computers will not replace lawyers; they have, in fact, made our jobs much easier. The time savings and efficiency that result from using computers and software to perform routine tasks offers us the freedom to focus on the creative, problem-solving aspects of law.

But technology expenses can be daunting. Surveys indicate that while the majority of large law firms upgrade their computers and software every two to three years, many small firms and sole practitioners go six years or longer between upgrades. They worry about the cost and time to learn and implement the new technology, and doubt that it will increase efficiency and work quality.

Such thinking exposes a firm to allegations that outdated technology contributed to incompetent representation. Firms that are not using up-to-date hardware and software for trial support, case management and the like may be perceived as willfully less competent than their competitors, a definition of malpractice.
Equally dangerous is failing to use the latest tools to back up all electronic files and keep them secure. Lawyers have an ethical responsibility to keep client files safe, and failure to invest in the technology to do this for computer files is an ethical lapse.

Finally, there is the fact that lawyers who want to sell their practices will find that the price will be diminished if a new lawyer has to invest in bringing the IT up to current standards.

Return on investment

So technology expenditures must be made, but such investments must provide a return to the firm. A 10-percent return is usually considered too low to make a purchase unless there are other factors involved, such as new services the firm can offer or greater efficiency the firm receives from new technology. But there is no one right or correct rate of return. Because there are invariably a number of technology expenditures under consideration, try ranking them according to their likelihood of increasing productivity or profits. Then, depending on the budget and resources available, the most productive or profitable investment can be made first.

Don’t simply assume that a new computer or software will increase lawyer or staff productivity and profitability. Consider an attorney who decides to increase staff productivity by purchasing software specific to the firm’s practice. The cost of the new system and training is $15,000, but staff productivity will theoretically double, allowing for more work, fewer people and greater cash flow. The calculated net increase in savings and in profitability will amount to $30,000 in the first twelve months alone.

The decision seems easy and the purchase is made, but the expected gains are thwarted by human considerations: the staff is resistant to the change, afraid of the new system and has no emotional investment in its use. The software languishes until it becomes obsolete, with little of the expected savings or profits.

Lack of acceptance can also be a problem with trendy client relationship management (CRM) or knowledge management (KM) systems. With the former, lawyers may jealously guard their client and prospect contact information rather than share it, leaving big gaps that make a CRM system a wasted investment with little useful return. With the latter, no matter how sophisticated the database, the process only works when all knowledge is shared in a way that all lawyers can access it. Failing to invest the time needed to update and maintain CRM or KM databases weaken them, and holdouts diminish the value for colleagues and clients alike.

Poor results are particularly troubling if you have financed the technology purchase. Manufacturer financing can include software and implementation assistance that are usually not covered in equipment lease packages, and may be for as short a period of time as two years. But such programs still are a loan, and the financing is often not as flexible as what you might find with a bank.

If you do use bank financing for technology purchases, your options might include a line of credit, an equipment loan or a term loan.

The cost of such loans varies; factors include the firm’s bank balance, other services purchased, and credit rating. However, banks know that the minute computers or software are purchased their obsolescence is assured, so if they are willing to make the loan – no sure thing in today’s financial environment – they might be less generous than they would be for other purchases. The prospective borrower will likely have to provide as much safety to the bank as possible, by contributing both capital and collateral to the overall financing package.

Undoubtedly, electronic technology is essential in any firm today. But unless purchases are carefully planned and the necessary time is spent to learn and implement the new technology, it can end up as a cost drain and not a source of value.

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