It piqued my interest when I learned Dan O’Day would be presenting at LTNY on Alternative Fee Arrangements (AFAs). AFAs are nothing new. In fact, as Dan pointed out during his presentation, AFAs used to be the standard billing practice for lawyers years ago. At the start of the 20th century, the legal profession was becoming more respected and prevalent within the business community. During the same time, the consulting firm McKinsey issued a study stating that law firm profitability would increase if lawyers charged by the hour – this was the birth of the billable hour and has been the universal billing method ever since.

So what makes Alternative Fee Arrangements a noteworthy issue now? Since 2007, we’ve collectively learned that law firms are not recession proof. Increased pressure from clients has forced the conversation of legal efficiency, something that is in direct conflict with the billable hour.

Earlier today, Dan O’Day elegantly described the history of AFAs and the billable hour. He discussed the brave new world of fee flexibility, offered a tutorial section aptly named AFA 101, and closed with how to make AFAs profitable – probably the most important point for a room full of legal professionals.

And, how do you make AFAs profitable? Dan described this as a harmonious balance and linkage between metrics, tracking, and accountability. The metrics and tracking come from the firm’s financial accounting system, like one of Elite’s platforms for example. The accountability piece comes from continuously evaluating internal process checkpoints. Forgive me; I’m purposely omitting a lot of detail that is truly important to effectively execute an AFA strategy but it’s this detail that made the presentation so interesting.

The session ended with a few questions from the audience. One person asked “How do you balance this with the incentive system for associates who are still pegged to the billable hour?” Another asked “How do you begin the analysis of appropriate billing models?” Dan answered these questions and concluded the session. On the way out, I asked a member of the audience if he felt that this session was valuable. He turned to me, smiled, and said “of course”. We chatted a little longer before dispersing into the busy second floor exhibitor hall at the Hilton Hotel in Midtown New York City.

Dan O’Day has worked at Elite for 16 years. He started out as a software programmer before moving into product management. He is currently the senior director of Product Management at Elite. Prior to working at Elite, Dan practiced law and received his JD/MBA from Pepperdine University. He has been studying AFAs for a couple of years and started speaking publicly on the topic in 2010.

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