The Financial Case for Cloud for Law Firms

Private Cloud vs. On-Premise vs. Web Applications – An Analysis for Law Firms

Over the past several years I’ve talked to hundreds of law firms (and IT companies that serve law firms). An undeniable trend across most of these conversations is that, as law firm on-premise servers become end-of-life, fewer and fewer law firms are replacing onsite servers with new servers.

That is to say, for most firms, their current on-premise servers will be their last.

It’s probably no surprise that most law firms, large and small are moving to web-based software and private clouds to host and manage their applications and data. Increasingly, when a law firm’s servers approach the end of their useful life, replacing them with new servers is becoming ‘Plan Z.’

Why? Because the cloud, in all of it’s form, is wholesale better than managing in-house, on-premise IT. Comparatively, cloud-based solutions are:

• More reliable than on-premise servers/IT.
• More secure than on-premise servers/IT.
• More mobile and accessible than on-premise servers/IT.
• Comes with less headaches than on-premise servers/IT.
• Is more cost-effective than on-premise servers/IT.

I’ve written and spoken at length about the functional, operational and security benefits of cloud computing for law firms. In this article, I’ll unpack and walk you through the economic benefits of cloud computing. Within the broad umbrella of “cloud solutions for law firms,” I’ll also drill down and compare the economics of web-based software against private cloud solutions.

In our analysis, both written and in video, we’ll compare the On-Premise vs. Web Applications vs. Private Cloud, and for each we’ll analyze the up-front and ongoing (monthly) costs.

After that, I’ll share our Cloud Cost Calculator, a tool for law firms like yours to do your own side-by-side financial comparison.

Let’s get started.

The costs for implementing and maintaining an on-premises server and the related IT are sporadic, and often hidden. They vary depending on how often you replace your servers, how heavily you utilize outside IT support, and whether or not you take a proactive approach to IT management.

Let’s start by defining the useful life of your servers. Traditional IT wisdom says you should replace your servers every 3 to 5 years. (You’re not just waiting for your servers to die, are you?) We’ll use this replacement cycle as our analysis period when we calculate the total cost of on-premises (and will do the same for a cloud solutions, to compare apples to apples).

With that window, we can now identify each cost associated with the server(s) and your firm’s greater IT infrastructure. Below is a list of individual costs you are likely to incur over the analysis period–the estimated life of your server.

On-Premise Costs: Up-Front

First, we’ll analyze all costs incurred each new server cycle (once per analysis period). That is: buying and implementing server infrastructure.

I recommend that, for each of these items above, you get pricing and record it in a spreadsheet. Add up the total costs (and make sure you’re not missing anything), and you’ll have a sense of the total up-front cost of another cycle of on-premise IT.

It’s important to note that much of these costs are ultimately driven by the software your law firm uses. How many, and how powerful of servers do you need? Do you need multiple, dedicated servers? Will you need VMWare virtualization? This is ultimately determined by the software you use (namely: Practice Management and Document Management software), and the server requirements of those applications.

For instance, applications like iManage, ProLaw and Worldox are heavy-hitting apps, and require a lot of computing power. On the other hand, software like PCLaw and Tabs3 require a lot less in the way of server horsepower.

Use our Cloud Cost Calculator to tally up all relevant up-front costs for your firm.

On-Premise Costs: Ongoing

Next, we’ll analyze costs incurred on an ongoing basis. We’ll identify monthly recurring costs (and will extrapolate those over our full analysis period).

Tally up what you do, or will spend on an ongoing basis. This should include fixed monthly costs (such as a Managed IT Provider contract) as well as sporadic, less predictable costs (such as hourly IT support). For the latter, if you’re unsure of a reasonable budget for this amount, I recommend finding the average over the past two three years.

Add all of these up and determine your average monthly IT spend.

Sidebar: Plug-And-Pray Doesn’t Count

Key to this financial analysis is the assumption that when it comes to managing your law firm IT, that you’re doing it right. That is to say, that you are being reasonably proactive and responsible when it comes to managing IT, performing proactive maintenance, and reducing the likelihood and impact of IT problems and keeping your client data secure.

When it comes to managing law firm IT, possibly the first, most important rule is to be proactive rather than reactive. This may be advice you’ve heard again and again—but in today’s day and age, there are still so many law firms that don’t practice this.

Avoid reactive, break-fix law firm IT management (something we call: “plug-and-pray.”)

• Do you only call your IT consultant when something is wrong?
• Does your IT consultant/company remotely monitor your systems, but rarely sets foot into your office?
• Do you spend as little as possible on IT and technology?

If so: Stop it. You’re doing your employees, your clients and yourself a huge disservice. You don’t need to take a Cadillac approach to law firm IT management, but you do need to be proactive about it.

Related:

On-Premise Costs: Unplanned

Finally, we need to identify and budget for some level of unplanned IT expenses. Proactive IT does significantly reduce the chances and impact of unforeseen IT problems, but over enough time they’re likely to occur nonetheless.

These unplanned costs may take the form of:

As you can see–some costs are fixed and predicable, others are wildly unpredictable (but should be budgeted or accounted for in some way.) Next, add all of these costs together, based on your historical or projected costs–over the analysis period.

On-Premise Costs: Total

For our bottom line, simply do the math:

(Total Up-Front Costs) + (Total Unplanned Costs) + (Monthly Ongoing Costs x Analysis Period)

Supposing that you expect your servers’ anticipated useful life is 3 years; you’d define a 36-month analysis period, multiply your monthly cost by 36, then add the up-front and unplanned costs.

Watch the Video:

Next we’ll analyze the total cost of using web-based software. As you might imagine, going the route of Software-as-a-Service (SaaS) typically means less up-front cost (but certainly not zero), and more monthly recurring costs.

Web Application Costs: Up-Front

The up-front investment of web applications varies based on the software you use (or intend to use), it’s complexity and the level of support your firm needs. For instance, if you’re starting a new firm (and have no historical data to import), and implementing a lightweight, web-based law practice management application, your up-front costs may be minimal.

On the other hand, if you’re implementing more robust or sophisticated practice management software (or document management software), there’s likely a greater need for data conversion, setting up of accounting preferences, and training for your team.

Sometimes the software company provide the necessary onboarding (including data conversion, setup and training), but often they will refer you to an authorized consultant. In any case, capture the entire amount to implement your web applications, including training for your entire staff.

Related:

Web Application Costs: Ongoing

The ongoing costs of a pure web-based law firm are pretty straight-forward. Most web-based applications charge a fixed fee per-user, per month. To determine your monthly costs, add up the total of each web-based application that your firm will use.

A common pitfall here is to under-budget your total monthly costs, forgetting all of the different cloud-based services your firm is likely to need. Consider the monthly costs for all services your firm needs, including:

Your firm will almost certainly need some combination of the software above, each having their own fee per-user, per month.

Web Applications: Total Cost

Finally, we can discern our total cost over our analysis period by simply adding up our annual and up-front costs.

(Total Up-Front Costs) + (Monthly Ongoing Costs x Analysis Period)

Finally, we’ll explore the economics of a Private Cloud.

Generally speaking, the costs for Private Cloud should be fixed and predictable. A reputable Private Cloud provider will deliver all the necessary IT components your firm needs for a fixed fee per user, per month.

A Private Cloud includes the IT platform, applications, and services your law firm needs–nearly everything you would have to purchase and maintain yourself in an on-premises implementation.

Related:

The real benefit of a private cloud is that it gives your firm a secure cloud workspace to run your non-cloud-based legal software (which is traditionally more robust and feature-rich than it’s web-based counterparts), without the need for in-house servers and onsite IT staff.

Suppose your law firm relies on premise-based law practice management software such as PCLaw, Time Matters, ProLaw, Tabs3 or Needles. A Private Cloud effectively cloud-ify’s your non-cloud software, giving you the power of your existing software, with all of the advantages of the cloud.

Private Cloud Costs: Up-Front

The up-front costs associated with a Private Cloud relate to migrating your applications, documents, data and email from their current home (often, a law firm’s in-house server) to the new private cloud platform. This often includes:

Your firm’s up-front costs will vary depending on whether you’re moving only a single application to the cloud, or all of your firm’s technology. The up-front cost of moving to a private cloud will also vary on what applications your firm will be moving, as some applications are more complex than others.

Your prospective private cloud provider should be able to provide an in-stone quote as to the cost to move your firm, your users and your applications to their hosted environment. Knowing how to move most legal software applications (and the complexity therein) is a good marker for a capable law firm-centric private cloud provider.

Private Cloud Costs: Ongoing

Similarly, the ongoing costs of a law firm private cloud should be transparent and fixed. Your chosen private cloud solution should include all of the IT elements that you would otherwise need to procure in an on-premise environment, including:

With your IT and infrastructure provided for a fixed fee, per user, per month: your costs may be less each year and significantly more predictable.

To calculate the total cost of a Private Cloud model for your firm, simply multiply the fixed monthly cost of a Private Cloud solution by the number of months in the analysis period, then add any setup or onboarding fees quoted by the provider.

(Total Up-Front Costs) + (Monthly Ongoing Costs x Analysis Period)

Controlling Costs and Managing Risk

The devil’s in the details when it comes to not only selecting the right law firm private cloud provider, but making sure your fixed costs are just that. I recommend you spend time learning more about how private cloud solutions work and what to look for in a cloud provider.

Related:

We’ve walked through the economics of On-Premise IT vs. Web Applications vs. Private Cloud. But, of course, there’s more to this analysis than just economics. Each of these three routes come with limitations, risks, caveats and advantages that are difficult to quantify.

These intangibles are described and ranked relative to one another in our Cloud Cost Calculator.

Now that we’ve walked you through how to do a side-by-side comparison of On-Premise vs. Web Applications vs. Private Cloud, we encourage you to run your own numbers using our Cloud Cost Calculator.

Next is a link to download the calculator, a nifty Excel spreadsheet that allows you to punch in your own numbers (given the unique needs of your firm), and quickly calculate your Total Cost of Ownership across all three paths.

Watch the How-To Video:

Onward & Upward.