Risk Evaluation

Risk Evaluation

What is involved in a Risk Review or Risk Audit?

As more law firms become involved with what is termed Law Firm Risk Management, it might be helpful to explain what it’s really all about.

To a large extent and perhaps contrary to what many people may think, risk evaluation in a law firm is more related to an analysis of systems and organization than it is an analysis or commentary on the individual attorneys’ lawyering ability or lawyer competence. The two subjects are really quite different in scope and substance.

An attempt to value lawyer competence in accomplishing various tasks in his or her practice plays a role in risk determination but a more realistic goal in a one or two day law firm risk review has more to do with evaluating the firm as an integral unit. Specifically, it is more directly related to the investigation as to whether or not the legal services delivery team, composed of the lawyer(s), paralegals and staff, has developed its own internal measuring devices by which to evaluate its own competence and quality of its practice management.

Given the limitations of time in most risk reviews, therefore, what a risk analysis should first do, and the basis upon which its real effectiveness should be judged, is how successfully it determines the levels of understanding among the firm’s principals and the corresponding development and implementation of appropriate practice management systems.

The difficulty with a self analysis done by lawyers for themselves is that it to be done right it requires an outsider’s perspective; almost by definition an impossibility. To be apocryphal, as the wicked witch said in Snow White and the Seven Dwarfs: “Mirror, mirror, on the wall, who’s the fairest of them all?” The answer, for most professionals, is rather a foregone conclusion: “me”. It is for this reason that although literature on the subject of risk management has been available for years, an objective perspective makes all the difference. We would put it simply by saying, the further away from home you are, the more expert you become. The converse is true as well.

Lawyers vary markedly in their level of understanding as to the basic elements which make for a successful organization, and even for those who have that understanding, there is naturally a wide variance in their abilities to translate that understanding into a workable scheme. An effective risk review, then, keys into the signature elements of good practice management: how the principal(s) in a law firm see themselves and their practice, how well they communicate and transfer that vision to others and how effectively they implement systems to make their ideas a reality.

That understanding, coupled with an insightful analysis of the organization’s ability to establish and maintain high standards for its practice as well the delivery vehicles with which to carry them out, is what constitutes the basis of effective risk determination.

For a Risk Review to go beyond mere window-dressing, there is an incumbency to suggest realistic changes for the firm to implement. To do this, as we already noted, the Reviewer must have background experience in systems and organization; of managing a law firm. Without that experience, the leap beyond theory into the “nuts and bolts” of practice management will be very difficult. To be really effective and go beyond theory, there is quite simply no substitute for experience.

Predicting the potential for Errors and Omissions difficulties in a law firm is problematic at best. However, by examining the factors discussed above, and with the inclusion of substantial experience in making the analysis, we think that it is possible to establish with some degree of certainty, the tendency or predisposition of a law firm toward a risk adverse practice. A rating system which measures these tendencies and considers the factors we’ve discussed, can provide an important service to a law firm.