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Managing Practice Group Profitability

BY Howard Mudrick
May 28, 2008

Economic conditions have forced law firms to focus on the need to address the profitability of their individual offices, practices, and client relationships. Few firms have paid enough attention to whether specific practice areas are profitable. Generally, management simply focused on performance of the firm as a whole, which has been generally improving from year to year. Managers might have worried about specific practice areas, but little analysis was done.

Anecdotal evidence sometimes suggests that a practice group is not profitable, yet little hard evidence is produced in many firms. While this might cause a practice area to come under significant criticism from partners in other practices, creating significant management and morale problems, little is done formally to assess the problems and potential solutions. Rather, partners in the particular practice area under a microscope are being told to 'shape up,' and might even see their compensation cut, but typically little help is provided.

Managers can no longer ignore the performance of individual practices, hoping problems will correct themselves. Firms everywhere are venturing into various types of reporting and 'profit center accounting,' typically based on the performance of individual practice groups and even specific clients. However, they take a variety of approaches to these analyses, and the differences can cause severely different analytic outcomes.

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