IT Budgets. Planning Predictable

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1 Planning Predictable IT Budgets BY HEINAN LANDA By looking at technology-related costs from a holistic and longer-term perspective, preparing your firm s annual IT budget will no longer be an anxiety-provoking event. The dreaded information technology budget line item: It just may be the one most feared by law firms operations and financial managers nationwide. Why? Because of the assumed unpredictability of technology hardware, software, maintenance, and support costs. TAKING A LONG VIEW IT budgeting can be a challenge for law firms, said Jill Hirsch, Chief Operating Officer at Slevin & Hart P.C., an employee benefits firm specializing in the representation of pension and welfare funds. IT budgeting requires a long perspective; sometimes it is hard to see the value in replacing network components when they are working fine day-to-day even though the replacements may be part of a better overall strategy. Although this is a common shortsightedness that law firms have when it comes to IT budgeting, Hirsch notes that it is not a responsible perspective. She s right. The truth is that with the appropriate proactive approach, it is possible for law firms to accurately predict IT costs on a yearly basis. Still, it s hard. How do you know when a server is going to crash, or when your law firm s employees are going to need more network support services? How can you predict emergencies? Unexpected costs are just part of having technology, right? Wrong. It only seems unpredictable, because many law firms budget for IT costs without strategically looking at the entire picture. According to Joseph Luber, Chief Financial Officer at the mid-sized, District of Columbia-based firm Buckley Kolar LLP, If law firms want to assume leadership positions and gain market share, a comprehensive technology perspective is essential. 52 LEGAL MANAGEMENT SEPTEMBER/OCTOBER 2008

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3 Jill Hirsch, Chief Operating Officer, SLEVIN & HART P.C. IT budgeting requires a long perspective; sometimes it is hard to see the value in replacing network components when they are working fine day-to-day even though the replacements may be part of a better overall strategy. Luber s right. Budgeting especially for IT projects is a strategic effort. It requires that you have your finger on the pulse of technology initiatives and lifecycles throughout your firm. Hirsch gathers this comprehensive information by reaching out. First, she meets with the firm s IT consultants to get a picture of best practices among law firms and what is on the horizon over three to five years. Hirsch also consults her ALA Capital Chapter colleagues for their lessons learned on particular projects or initiatives. She then takes the information gathered to the firm s management to discuss and prioritize projects. This front-end strategic planning is imperative, because whether you are aware of it or not most of your firm s initiatives require a supportive technology component. Capturing these seemingly hidden costs is essential to budget accuracy. CAPTURING ALL THE COSTS The goal of every law firm is to create a more predictable and accurate IT budget. This is made possible by looking at the following cost categories. Ongoing support costs. These costs can be determined by collaborating with your internal IT staff and, if you use one, your external IT consulting firm. If your firm uses an external IT provider and has switched to a managed services plan, it should be even easier to determine your support costs for the year ahead, because most offer support plans on a fixed-price basis for example, paying by the computer rather than by the hour. Within this model, the support expense becomes much more predictable, because, again, your costs are based on the number of workstations, not the number of hours worked. This also allows you to budget for additional support to match growth in firm staff (or the opposite) and helps to mitigate your financial exposure. According to Luber of Buckley Kolar, switching to a managed services model has helped our firm save money and predict our support costs more accurately each year. Our managing partner is pleased with our innovations to the budgeting process. Alternatively, if you are on an hourly support plan, you can also predict support costs, to some degree, by looking at your support expenditures for the previous year and making proportional allowances for an expected expansion or reduction in your firm s size. Ongoing expenditures. Certain ongoing expenditures are associated with proactively maintaining an information system, such as annual software-licensing costs and periodic hardwarereplacement costs. In order to capture all IT costs, it is imperative that these elements be incorporated into the budgeting process. Be aware that the licensing programs for nearly every manufacturer differ in cost and renewal frequency, but all provide licenses for continued updates and upgrades of their software. These are fees and dates you need to remember. Below is a list of items you should budget for when projecting your ongoing expenditures: 1. Line-of-business software maintenance, including subscriptions and vendor-support contracts for critical business software such as document management and financial/accounting software. 2. Server software maintenance, including biannual maintenance subscriptions for operating systems and server software. 3. Desktop software maintenance for desktop applications such as Microsoft Office, Adobe Photoshop, and others. A software inventory list helps; put one together if you haven t already. 4. Security and protection software maintenance, including license renewals and ongoing update fees for backup software; antivirus, antispyware, 54 LEGAL MANAGEMENT SEPTEMBER/OCTOBER 2008

4 and antispam software; services such as MailWise or Postini; and so forth. You should also budget in any support or maintenance that your firewall requires. 5. Backup services for example, if you are using an offsite tape-hosting service or an online service, build that service cost and the costs of the tapes or online storage space you need each year into your budget. 6. Predictable hardware replacements. Where is your law firm in the technology lifecycle? If you are on a predictable replacement schedule for computer hardware (such as desktop workstations, laptops, and servers), you should include the estimated product and labor costs for these upcoming projects. Hirsch has counseled her firm to implement a three-year workstation replacement lifecycle. Assigning life cycles to servers and workstations and replacing hardware at the same time on a regular basis is essential, she says. When our IT consulting firm told me this and I checked with my peers, I learned that almost 75 percent had already implemented this process and that it has made the budgeting process much easier. Generally speaking, replacement guidelines should be as follows: servers, workstations, and firewalls should be replaced every three to four years; laptops should be replaced every two to three years; and backup systems should be replaced every two years. Strategic initiatives and special projects. When it comes to IT budgeting, collaboration with other departments is critical, and it must be done in the context of the firm s strategic initiatives for the year. For example, if your firm s strategic goal this year is to increase productivity (billable hours), perhaps a new time/billing system or a document management system both proven to improve efficiency is in order. If so, don t forget to account for installation and training support. Of course, this should go right into the budget. You should also watch for ripple effects: System improvements might then influence server space and backup NEW ISN T ALWAYS BETTER We ve all witnessed it, whether from a spouse, friend, or coworker: the excitement over the latest (and supposedly greatest) technology. We ve also heard the complaints when said tech item didn t fulfill expectations. With the rapid influx of new technologies, how can you prevent this phenomenon in your law firm and make sure that you are making informed technological decisions? After all, strategic technology adoption should work to further your firm s mission. So, before your company invests in the newest innovation, ask the following questions: Has it been recommended by your peers? Does it work with your firm s culture/size? How will it make your working habits or environment more effective? How will it integrate with your existing technology systems? Has it been vetted by your internal IT staff or external IT consultants? Then, ask these same questions each year in the context of your firm s strategic goals when you are engaged in the budgeting process. According to Jill Hirsch of Slevin & Hart, this process is the only way to ensure you are making the right decisions for the right reasons. I ask these questions and I poll my peers at other boutique law firms to see which ones have implemented the technology that I am considering and to learn how it is working for them, and then compare their operational and organizational similarities to ours, she says. We don t strive to be the first ones to have the latest gadget, and that is a good thing. With the help of our IT consultants, I do my research and take an honest look at what our firm needs to increase productivity and operate effectively. By performing this new-technology litmus test, you ll neither be the firm that rushes to adopt a new technology nor the company that drags its feet on an innovation that could elevate your operations and support your mission. You ll be the careful, intentional implementer of innovation and your managing partners and clients will notice. SEPTEMBER/OCTOBER

5 Joseph Luber, Chief Financial Officer, BUCKLEY KOLAR LLP. If law firms want to assume leadership positions and gain market share, a comprehensive technology perspective is essential. systems that are already in place. Additionally, be sure to include the full cost of any project software, hardware, labor and services in the IT budget so there are no surprises. By thinking through strategic initiatives (and associated special projects) with an IT perspective and by consulting with IT staff and contractors you can ensure that you are capturing all associated costs and factoring industry standards and best practices into the budgeting equation. The unplanned. Plan for the unplanned in your IT budget and you can avoid the headaches IT surprises often cause. If your firm is using managed services, budget 5 to 10 percent of your total support costs for disaster recovery situations, unanticipated rush projects, and other emergencies as defined by your organization. If your firm is using an hourly support model, be sure to budget 20 percent of your total support costs for the unplanned. Technology expenses can still surprise you, but with a proactive approach to IT budgeting, the impact and frequency of these surprises will be dramatically reduced. NOW, RELAX An accurate budget means happy managing partners and firm finance committees. It is essential that our firm s managing partner is confident in the budget, says Luber. I m lucky in that our partners understand the importance of technology to overall firm productivity and operations. With our comprehensive and strategic budgeting process, we can be confident in our numbers and our technology priorities for the year ahead. By looking at IT costs from a holistic and longerterm perspective, preparing your firm s annual IT budget will no longer be an anxiety-provoking event. Increased IT budget accuracy and predictability will help your organization stay on track so you can report to your managing partners with confidence and turn your attention to the myriad other aspects of running your law firm. about the author Heinan Landa is President of Optimal Networks Inc., an IT outsourcing firm offering consulting and managed services to law firms throughout the Washington, D.C., area. Contact him at hlanda@optimalnetworks.com. LEARNMORE ALA Resources This title is available through the ALA Bookstore at The Profitable Law Office Handbook: Attorney s Guide to Successful Business Planning, by Edward Poll The following articles are available in the ALA Management Encyclopedia SM (ALAME), Law Firm Budgeting: From the Beginning Technology Decisions: What to Buy? What to Buy? CD-ROMs from the following ALA Webinars are available for purchase at Part I: Business Interruption/Disaster Recovery: Protect the Technology Technology Update: Where Are We Going? 56 LEGAL MANAGEMENT SEPTEMBER/OCTOBER 2008