Lawyers: when is it good enough

Most business disciplines recognise the concept of something being good enough to be put into operational use. The good-enough point usually arrives a long way short of perfect. In economic terms, the good-enough point is reached when the incremental cost of the next step exceeds the expected benefit of the next step.

For lawyers charging by the hour, it doesn’t work that way. There are two reasons for this.

The incremental cost of the next step is, for the lawyer, not a cost but a revenue. However high-minded you are, it’s hard to resist doing some additional polishing when the system is set up so that you get paid for it.

And every transaction carries a level of risk. Lawyers are, as we know, very risk averse so it’s hard to not to polish further when that polishing reduces risk.

But there are some additional angles here too.

Firstly, the lawyer and his client will generally perceive levels of risk differently: the client will generally be much more comfortable with risk and will attribute a much lower value to the reduction of risk.

Secondly, exactly whose risk is being mitigated? When the polishing is going on, there is likely to be some confusion (at best) as to whether it’s the client’s transaction risk that is being mitigated, or it’s the lawyer’s risk of making a mistake and getting sued by the client.

If it’s the latter, then the client is paying for more work to be done, but is not the person that benefits from this additional work. There is an incremental cost and an incremental benefit, but incremental benefit is borne by one person (the lawyer) and the additional cost is borne by the other person (the client).

In fact it’s worse than that because the lawyer gets to double dip. He gets his risk reduced, and the corresponding cost as revenue.

30 April 2024