Best Practice: Law Firm Pipeline - A Key Financial Metric and Indicator

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am the managing partner for a 16 attorney firm in Miami. I am new in the job and am trying to learn all that I can about law firm financial management. I have recently read several law firm management articles that have referred to "Pipeline Management". What exactly does this mean and what is the implication for law firm management?

A. Pipeline management is a term used in the management consulting profession to refer to the process by which you continually evaluate your active opportunities (prospective clients to booked clients) for their balance of QUALITY and QUANTITY. The goal is to continually stay on top of the overall health which is a full pipeline. Pipeline management allows client relationship managers to more accurately forecast fee revenues, better staff and manage client engagements, and close more client business.

I often also refer to Pipeline management in law firms in the context of using financial dashboards by which the individual charged with financial management responsibilities is continuously aware of significant changes in the firm's Pipeline (from prospects to cash): 

• Number of new business inquiries for the month 
• Number of pending prospective clients 
• Number of open client matters 
• Dollar value of Unbilled Work in Process/Age 
• Dollar value of Accounts Receivable/Age 
• Dollar value of billings 
• Dollar value of unearned retainers 
• Dollar value of fee receipts/collections

By comparing these dashboard statistics to a prior month, quarter, or year - you are able to avoid financial surprises down the road.

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John W. Olmstead, MBA, Ph.D, CMC,(www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.