May 11, 2017
Any time there is talk about using data to drive decision-making, we hear words like Metrics, KPIs, and Analytics thrown around; in some cases, they are used almost interchangeably. Distinguishing between these terms is integral and a proper grasp of these concepts and their application aids in understanding and distinguishing the different factors and processes while making decisions.
Let’s define each term and discuss the intricate differences between them that appear so similar.
“A Metric is something we can measure: a value, or a quantity.”
This is a general definition of Metrics - there are plenty of numbers and statistics your company, department, and you personally generate that give your work context and help you monitor productivity. The most useful Metrics are precisely selected so that each of them has an actionable meaning for the organization. Having said that, there can be 100s of metrics to choose from and build off.
Here are some examples of relevant metrics in a corporate legal department:
# Total Cases
# Closed Cases
# Vendors
# in-house Attorneys
% Staff Turnover
$ Department outside spend
“A KPI (Key Performance Indicator) is a measurable expression for the achievement of a desired level of results in an area relevant to the entity’s activity.”
Once leadership sets the department’s objectives, you will need to measure your progress toward your goals. KPIs grow naturally from an organization’s objectives and they are being measured periodically to tell you whether or not you are on track.
Everything starts with Metrics, but when information reflects the achievement of a desired state, what was formerly known as a Metric will be called a KPI. In other words, all KPIs are Metrics, but not all Metrics are KPIs. Here is an example to clarify.
The ‘# Open Cases’ usually isn’t vital data for a legal department. It doesn’t give you information about the achievement of a desired state. But let’s look at it from another point of view – the average ‘# Open Cases‘ of each Practice Area might be significantly more meaningful and provide historical insight for predictive decision making. Sometimes, such as in this case, KPIs can be analyzed in tandem to give more powerful insight.
Here are some examples of generally relevant KPIs in a corporate legal department:
% Legal spending from company revenue
% Legal staff per employees ratio
# Cases handled by attorney
$ Cost to close case
# Transnational cases per attorney
# Hours spent per case by attorneys
# Time to close non-trial cases
“A KRI (Key Risk Indicator) is a metric that provides an early warning regarding an increased risk exposure in a certain area of operations”
KRIs are measures that enable managers to identify potential losses before they happen and take a proactive approach to mitigate the risk. Effective KRIs should be predictable (provide early warning signals) and comparable (track over a period of time – trends)
For example, a high level of average ‘% Case budget variance’ for a vendor or department can indicate problems in estimating the work, scope creep, and so on. If this KRI is not monitored and mitigated in a timely fashion, it may negatively impact the department’s budget.
Some examples of KRIs you could consider in your legal department are:
% Legal spending from company revenue
% Law department budget variance
% Cases successfully solved
% Budgeted cases handled within budget
“Analytics is the extensive and systematic use of data, statistical and quantitative analysis and explanatory and predictive models to drive fact-based actions for effective management”
Analytics is the process of turning Metrics, KPIs and KRIs into meaningful information that program staff and agency leaders can use to make decisions. It helps in monitoring an organization or program’s performance and directs leaders to where they need to focus greater attention. Analytics is a critical piece of performance management, which typically involves establishing goals, monitoring progress with specific measures and making adjustments along the way to improve performance and more effectively and efficiently achieve the set goals.
For example, Analytics information can answer these business questions for a legal department leader:
What is the estimated Legal Department budget for next year?
Which work should be done in-house and what kinds we should outsource?
Which vendor has the highest return on investment?
How can we demonstrate return on investment?
What are my alternative options for negotiating the cost of work?
Which cases are better to settle rather than go to trial?
KPI / KRI Workshop
One of the challenges for many organizations is around developing and managing the above indicators. To define a comprehensive list of KPIs and KRIs, it is fundamental to seek and receive inputs from internal as well as external entities and sources. A workshop would be a good starting point to discuss, identify and prioritize the indicators based on your organization’s goals.
Disclaimer: The views and opinions expressed in this article are the author’s own and do not necessarily reflect the view of any organizations.
References/Credits:
Key Performance Indicator Infographic – http://kpiinstitute.org
Earson, D. L., Ogden, J. and Schoff, D. L., How to measure the effectiveness/ value of Legal Departments, Association of Corporate Counsel