2022 Budgeting & Planning TechReport

Introduction

Each year the American Bar Association’s Legal Technology Resource Center surveys ABA members to discover how lawyers are using technology in their practices nationwide. The 2022 ABA Legal Technology Survey Report is published in five volumes:  Online Research, Technology Basics & Security, Law Office Technology, Marketing & Communication Technology, Litigation Technology & E-Discovery. The published results represent one of the most comprehensive technology surveys of lawyers available. The demographics in this year’s Technology Basics & Security volume, which covers technology planning and budgeting, resulted in solo firms only making up 8% compared to 24% last year. Interestingly, the largest demographic is the small to medium sized law firms with 33% of firms with 2-9 attorneys and 27% of firms with 10-49 attorneys. This overview will focus on the technology budgeting and planning for small to medium sized firms.

Fixing Fees

When preparing a budget, firms should consider alternative billing methods. The imbalance of supply, demand, and affordability of legal services for individuals, presents a unique opportunity for smaller firms. According to this year’s Marketing & Communication Technology volume, 88% of firms with 2-9 attorneys, and 100% of firms with 10-49 attorneys have websites. Consumers are price sensitive nowadays and one way to attract clients that may believe they cannot afford legal services is to post some basic services as a flat rate on the firm’s website. The demographics in this year’s Technology Basics & Security volume indicate that 75% of all firms still bill at an hourly rate. Only 14% of small firms with 2-9 attorneys and 7% of firms with 10-49 attorneys have fixed fees. This leaves out a large consumer base of clients that turn to other online services rather than calling an attorney’s office.

Budgeting for The Future

Respondents to the survey were asked about their firms’ budget for technology. Overall, the number stayed the same as last year with 65% of firms responding, “yes my firm has a budget for technology”. Fifty-six percent of small firms with 2-9 attorneys increased their technology budget for 2022 as compared to 50% in 2021. Firms of 10-49 attorneys decreased their budget over the last few years with 65% (compared with 69% in 2021, 78% in 2020, and 71% in 2019). The 78% for medium sized firms in 2020 may be due to the impact of the pandemic and the need to work remotely.

Continuing innovation in legal technology provides better and easier ways to practice law. Small to medium law firms should take the time to plan and budget for products that increase productivity while giving the client a positive experience. Products such as document automation and client portals save time for the firm and can increase a client’s satisfaction. Lawyers have been reluctant to use these products, but this is the future for which they should plan.

In the Law Office Technology volume, overall, only 27% of small firms use web based secure portals for communications. Web based portal use does increase to 41% for the medium sized firms. Firms should plan and budget for easy-to-use communication methods with their clients. Many of the legal practice management solutions offer client portals, texting, and other methods to communicate that can save time for the firm. They should plan this yearly fixed cost into their budget as a line item to better evaluate their ROI (return on investment).

Overall, only 31% of respondents personally use document assembly products. Consumer expectations have changed over the years. When asked how frequently their clients request that their law firm write-off time spent drafting and revising briefs, pleadings and motions, or post-trial motions and submissions, overall, 15% respondents reported this. Document assembly/automation helps reduce the amount of time on these tasks so budgeting for their use and training could be important for a firm’s bottom line.

Purchasing Decisions

Respondents were asked to select their firm’s top technology spending priority over the next 12 months. The largest percentage of respondents selected hardware for the office as their top technology spending priority (28%), followed by security (20%), mobile technology (11%), and litigation technology (10%). Among small firms of 2-9 attorneys, 25% report spending $1,000-$2,999 annually on hardware and 20% report spending $3,000-$4900 on hardware. Fifty-seven percent of firms with 10-49 attorneys report they “don’t know” how much they spend on hardware followed by 17% that reported they spent between $10,000-$20,000 and 13% over $20,000 on hardware annually.

Spending on hardware has increased over the last few years. The average amount spent was $11,514 for 2022 compared to $10,433 in 2021, $9,043 in 2020 and $8432 in 2019. This trend is important when planning a future budget. Parts for technology such as chips are reportedly in short supply. Smaller firms should consider increasing next year’s hardware budget due to the possibility of prices continuing to rise on technology products.

Forty-three percent of small firms with 2-9 attorneys and 44% with firms with 10-49 attorneys report that staff feedback is the most important factor when making technology purchases.

One interesting trend is that the smaller firms depend less on consultants when making these decisions on technology purchases than in years past. Twenty-two percent from firms of 2-9 attorneys (compared with 36% in 2021, 34% in 2020, and 44% in 2019) report consultants as very influential upon their technology purchasing decisions and 24% from firms with 10-49 attorneys (compared with 30% in 2021, 29% in 2020, and 31% in 2019).

Plan to Train

As legal technology continues to transform the legal industry, it is vital that law firms spend the time to train their employees to use it. Respondents were asked how comfortable, in general, do they feel using their firm’s available technology. Overall, 56% report feeling very comfortable and 34% feel somewhat comfortable with their law firm’s technology. The smaller the firm, the more comfortable the attorneys were with their technology. Sixty-two percent of attorneys at firms with 2-9 attorneys and 55% of firms with 10-49 attorneys feel comfortable using their legal technology.

Training can be expensive, and it is part of a firm’s budget because 64% of firms with 2-9 attorneys and 79% from firms with 10-49 attorneys report having training available at their firms. Forty percent of the medium sized firms with 10-49 attorneys first turn to IT, but\ only 16% for small firms turn to IT for support. When asked “where do you turn first when you have a problem with your firm’s technology” 25% of respondents from firms with 2-9 attorneys first turn to Google or another non-legal online resource.

Twenty-three percent of respondents turn first to consultants when they have a problem with their firm’s technology. Respondents from solo firms (41%), 2-9 attorneys (38%), and 10-49 attorneys (22%) are more likely to report that they first turn to consultants, compared to 0% from firms of 100 or more attorneys. Consultants can be an expensive item within a budget so alternative sources may be a good plan for smaller firms.

Many software companies offer training videos online for their users. This may be why the smaller firms investigate other online resources. Local bar associations and the ABA TECHSHOW: http://www.techshow.com are also useful resources. Firms should plan and budget for training to make the most out of the technology they use.

Security and Cyber Insurance

Something interesting in the Technology Basics & Security volume is that respondents from firms of 10-49 attorneys are most likely to have cyber liability insurance (56%), followed by 42% from firms of 2-9 attorneys. Cyber liability insurance is great to have but firms should be aware of what is covered and what is not covered. Most of the plans in the legal market will cover security breaches, the expenses of notifying customers, extortion by ransomware attacks and recovering data. What they do not cover is especially important to understand.

Firms should read the fine print of any policy that they consider when planning their budget. Cyber insurance plans do not cover poorly configured systems, failure to make timely upgrades and employee error. This includes phishing attacks that an employee may become a victim of. Employee error could also include a click on an attachment in an email that infects computers and causes other damages through malware. Unfortunately, small firms most often report having been infected with a virus/spyware/malware (38%), followed by firms of 10-49 attorneys (36%).

So, firms buying cyber insurance need to also invest in security training for all employees on a regular basis. When asked who in the firm has primary responsibility for the firm’s data security, 43% of small firms use outside consultants. Part of their budget with these consultants should include employee training.

Conclusion

According to the budgeting and planning results from the Technology Basics and Security volume of the 2022 ABA Legal Technology Survey Report, firms budgeting for large one-time purchases of hardware need to consider future price increases. Smaller firms should look over their cyber insurance policies to understand what is covered under the policy before purchasing it. Small firms should consider client portals and other forms of communications in their budgeting process. Smaller firms need to budget for technology training as an investment in the firm but more importantly, for a better client experience.