Workforce Planning in a People Business

This article was writen by Andy Brett, who is responsible for financial reporting at Pinsent Masons LLP.

Business leaders will often point out that their workforce is their largest expense. But when you’re a law firm, you essentially sell your expertise—the expertise of your people. That means your workforce is also the sole source of your revenue.

And when you’re a fast-growing law firm like Pinsent Masons LLP, understanding the implications of how you plan your workforce can help you make informed, timely decisions.

I’ve experienced this firsthand at Pinsent Masons. We’re an international law firm based in the United Kingdom, with offices throughout Europe, the Middle East, Africa, Asia, and Australia. When I describe us as “fast-growing,” I mean it: We’ve effectively doubled the number of our locations in the past five years, and we’re expanding still.

Successfully managing growth is a balancing act. It requires you to weigh projected costs against expected revenues. It requires you to model the full business impact of opening a new location or adding a practice area. Each location presents different considerations. It’s a detailed, complex exercise that benefits from modern, collaborative planning processes. That, at least, has been our experience.

It’s a People Business

It’s safe to say that budgeting and planning in a law firm like ours is all about people. Our finance team starts the process alongside our HR team, which supplies us with critical information on our entire workforce—about 3,500 partners, employees and freelance legal professionals who work through our Vario network. We import this data into our Workday Adaptive Planning model, which includes assumptions for costs (salary, benefits, office, and support and service expenses) and the base hourly rate that revenue-generating employees charge our clients.

From this baseline, we can create more granular planning around important aspects of running the firm. One of these is modeling capacity—or the amount of revenue productivity we can expect from every billable fee earner over the course of the next quarter or year. This is a collaborative process involving business leaders in each practice area and geography and the finance managers embedded in their operation. It always involves negotiation. Finance arrives at a number based on the employee’s standard charge-out rate and what finance sees as a reasonable rate of billable time per week or month. Then we meet with the business leaders who usually argue for a lower revenue target. Finally, we present our capacity numbers to our executive board, which either signs off on our projections or comes back with changes. The process continues until we have a final budget.

We model our capacity for Vario, our freelance business, as part of our overall workforce model, but it inhabits its own unique place within the plan. Because we’re working with self-employed professionals, the cost structure is different—there are fewer office and support costs, for instance, and Vario engagements sometimes last just a few months. And because Vario revenues are engagement-driven, we have to make assumptions on where the demand will be for specific services in the various practice and geographic locations that we serve.

Another primary focus is employee turnover. Our business finance managers will sit down with their partners and look through the team to quantify joiners and leavers, so we can project how these will impact expenses and revenues. Based on our history, we can make some fairly solid projections about how many employees will leave a certain office during the year. But we also know that some will leave unexpectedly, so it’s important to work that into our model as well. Here we can get exceptionally granular, with some geographies more prone to turnover than others. Our final model reflects all these assumptions.

We also partner with our business operations team to keep track of the costs of support staff who are critical to our operation but don’t generate billings. All this has an impact on our overall workforce plan.

Managing Growth, One Location at a Time

Our expansion over the past five years has also helped us become adept at understanding what to expect when we open a new office or introduce a new practice area. Typically, we model higher expenses during start-up mode, with somewhat lower revenue capacity as the practice comes online. Our start-up model looks three years into the future and splits the ramp-up into phases we commonly see. The goal for every location or practice is to achieve full capacity and completely predictable costs.

This experience has also helped us identify and diagnose revenue gaps between locations. Using Workday Adaptive Planning, we can drill down to understand why one location’s costs are higher than the norm, or whether it may be overstaffed or understaffed. Because our workforce planning model is tied to our GL system, we have all the pertinent data available to explain the gaps. In short, we get a sense of what’s actually happening in the business.

Data In, Insights Out

Before we implemented Workday Adaptive Planning, all this was significantly more difficult. We used Excel to develop our budget and forecasts. This meant we spent 70% of our time entering and verifying data, and 30% viewing interpreting it.

Today, the reverse is true. We now can spend seven out of every 10 hours gleaning insight from our data and from the models we’ve built. One major improvement: We can model what-if scenarios to anticipate the impact that changes in charge-out rates will have on our recovery rate (or the percentage of total billed revenue we’re able to collect and retain). Changing the levers to compare various models and scenarios is easy. Before, it was nearly impossible.

It’s also infinitely easier to model cash flow forecasts. These can be particularly complicated for a law firm because employees must be paid on a consistent basis, but revenues are often delayed due to sometimes lengthy invoicing and remittance timelines. Reconciling cash in and cash out was a headache in our spreadsheet days; today, it’s largely automatic.

In fact, our P&L model is based on a departmental view, but we model cash flow on a geographic basis. And we can flexibly incorporate exchange rates across currencies, which is particularly important in the UK as we try to navigate currency exchange variations with the Euro and currencies based on the US dollar. A modern planning environment like Workday Adaptive Planning  makes these once laborious tasks much simpler and largely automatic.

All this leads to insights that help us identify the true drivers of our business—insights that help us make faster, more informed business decisions. Our workforce plan, integrated with our budget, revenue forecasts, and corporate financial plan, helps us determine where to expand next and when, how to staff new locations, what practice areas to grow, and more. And, key to our success, was the UK Workday Adaptive Planning partner Clear Plan, which acted as a trusted advisor to ensure a seamless implementation.

Moving forward, I see even greater possibilities for the future. We may even tie our workforce planning to specific skills—either those we’re strong in or some we lack. As we see our business scaling around the world, I see our workforce planning environment scaling along with it.

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