A study by LexisNexis on the economic benefits of AI, focused on an anonymous large law firm operating in North America with $1.5 billion in annual revenue, found that using AI tools gives a lot of time back, especially unbillable time, or time that gets written off. And that can lead to increased profitability.
I.e. AI makes even Big Law firms more profitable (not just small law – see yesterday’s AL article), as time spent on matters is then focused on tasks that are billable, not low value work that AI can do – which clients would either not pay for, or would write off if it were billed. So, more focus on billable work, and low value work gets absorbed. Hence: AI = more profit.
For example by using AI tools:
‘Partners and senior attorneys saved up to 2.5 hours a week on drafting and research, freeing up capacity for higher-value work.’
‘Junior associates recovered up to 35% of hours annually on previously written-off, [or] non-billable hours.’
‘Research staff members saved 225 hours annually on research.’
Lexis did the study with Forrester Consulting. The latter then perhaps got a bit carried away and started to produce all kinds of extrapolated figures showing how amazing the profit increases were from using AI – which might perhaps be right, but the way they were arrived at made this site feel uncertain about using them. So, we’re sticking to what’s clear.
So, what does it all mean?
One can say it goes like this:
AI absorbs routine tasks that may not be billable, or if billed get written off by clients who see that work, as AL is calling it beneath their ‘value threshold’. Those tasks may be carried out by partners, associates, paralegals or others in the firm – which is in effect ‘a waste of their valuable time’.
If you remove – with AI – that ‘unbillable’, or one might call it ‘financial waste’ time from a firm’s daily operations then you get that time back, as human lawyers are not stuck doing it. That time can now be used for work that is billable and won’t be ignored or written off by the client.
Now, this is where Forrester went a bit over the top with its projections on how much extra money you’d make, but suffice it to say, AL would suggest that: if you work 10 hours a day, and you used to waste 1 hour on low value work, now you have one hour back to do high value work that will most likely be billed and paid without a write off by the client (….in theory). As your fixed costs are the same and can now bill more. QED your profits will go up. (At least in theory).
How much your profits will go up is hard to say, as that will vary on many things.
Also, if you get more time back will there actually be new work to do that can be billed out? And that is a key question.
E.g. a team of lawyers will do 100 hours of work on a matter. 10 of those hours have little to no value as the client won’t pay for them, but still have to be done. So, the firm is paid for 90 hours. But……now they have a 10-hour deficit as a team, which needs to be filled even if AI is able to absorb these 10 wasted hours. I.e. tech helps to absorb that wasted time, but the firm still needs to earn 10 hours’ worth of billables to become whole again.
Do those lawyers find new work on new matters to fill that time hole? Yes, if the firm has enough work. No, if they don’t have new work to do.
One cannot assume that if a 100-hour job gets done faster and removes the 10 ‘wasted hours’ with AI that there will be more high value work to be done on that matter that will fill in the loss, or new work will be found.
But, at least if the 100-hour matter is on a fixed fee, then the firm does not lose anything, no matter how quickly it is done, as the client has paid for the whole matter, come what may. If the lawyers at the firm can also fill those unbilled 10 hours that are ‘spare’ on a new matter, they’re making even more money. I.e. AI makes you more profit.
As always the problem is not just ‘unbillable’ work or how to handle AI, it’s that law firms are selling time and clients still see time as a proxy for value. So, AI makes a new problem, i.e. efficiency and time-based value are in opposition. More time in an AI world does not mean more value.
Any road, good to see more data on why law firms should use AI. Of course, we need the clients to then change their views on what ‘value’ is, otherwise we will get nowhere fast.
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Legal Innovators California Conference, San Francisco, June 11 + 12
If you’re interested in the cutting edge of legal AI and innovation – and where we are all heading – then come along to Legal Innovators California, in San Francisco, June 11 and 12, where speakers from the leading law firms, inhouse teams, and tech companies will be sharing their insights and experiences as to what is really happening and where we are all heading.
We already have an incredible roster of companies to hear from. This includes: Legora, Harvey, Filevine, StructureFlow, Ivo, Flatiron Law Group, PointOne, LexisNexis, Centari, eBrevia, Legatics, Knowable, Draftwise, newcode.AI, Riskaway, SimpleClosure, Aracor, and more.
And if you are a startup – for inhouse teams, or for law firms, or both, and would like to get involved, then please contact:
robins@cosmonauts.biz
See you all there!
More information and tickets here.
