Software solutions - so what are the real benefits of technology?

When it comes to IT projects, partners must ensure that all decisions are based on sound business reasons rather than just enthusiasm for technology.

But how should a firm try to evaluate the potential benefits of technology?

For most firms, technology is one of the single largest items of expenditure in their annual budgets, with practices spending, on average, 5% of their gross fee income each year on IT-related products, services and resources, including, in larger firms, IT staff.

Smaller firms tend to spend less than this - between 2% and 4% - although often their calculations do not take into full account the amount of partners' time taken up by IT matters.

Furthermore, once expenditure is averaged out over a five-year period, taking into account periodic major hardware and software upgrades, I suspect even the most parsimonious firm would be surprised at just how much of their money is consumed by technology.

But despite the fact the potential expenditure is so great, the method of most firms use to measure the return on this investment is, to put it charitably, naive and unscientific.

I have lost count of the number of times I have heard a firm justify some huge expenditure solely on the grounds that 'it will help us to provide a better service to our clients'.

Well, of course you hope it is going to help provide a better service otherwise you would not be buying these systems.

But warm sentiments like that will not pay your bills - nor generate the profits and fee income to keep the partnership happy.

However, there is another way of looking at the return issue - which is currently most prevalent in those firms employing finance directors and practice managers who have previously worked in commerce and industry, although some of the leasing companies which help firms finance IT projects are also advocating this approach.

According to this school of thought, what really counts is that instead of fretting about how much the new system is going to cost - which in many practices is still the only real financial consideration - firms should be asking: 'How much money is this new system going to save us?' and 'How much in extra fees is this system going to help us earn?'

In other words, will the technology allow you to increase productivity while at the same time helping cut overheads, so you can not only handle more work with the same or fewer resources but also increase your profit margins?

Next time I will be looking at the way seemingly minor productivity improvements can have a big impact.

Charles Christian is an independent adviser to the Law Society's software solutions guide.