Which contingency matters actually lose you money?
Put in the claim, the odds of recovery and the cost for each matter and get back the range of what the book returns. A contingency book is nine bets funded from one balance sheet. Each matter either recovers or it does not, the settlement discount hits all of them at once, and the two biggest claims turn out to be the two that lose money.
Legal Advanced Monte Carlo Pro engine
After you install, this is the model to open.
Will the Recovery Cover the Costs?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
- Chance the book loses money
- 45% of 20,000 simulated years
- Median net recovery
- $45,159 fees minus the $545,000 already committed
- The swing
- -$408K to +$728K P5 to P95, mostly the shared settlement discount
- Matters that recover
- 4.3 of 9 on average; every matter is its own coin
Nine matters on contingency, $8,630,000 of pleaded claims, and $545,000 of the firm's own money already committed in disbursements and unbilled time. Each matter either recovers or it does not, at its own odds. On top of that sits one number that applies to all nine at once: the share of the pleaded claim that actually gets paid, which the firm records at 60% over five years and which moves for everybody together, because the same courts and the same insurers are involved.
Click Run. Fees on the book average $630,055 with a median of $588,979, so net recovery averages $85,055 against a median of $43,979, and the loses-money flag comes back at 45.1%. Nearly half of all years this book costs more to run than it earns, on a set of matters whose expected value is positive. The P5 is minus $407,625, which is the number the partners should have in mind when they decide how much of the balance sheet the book is allowed to use.
Now the finding that changes what gets signed up. The warehouse fire at $2,400,000 and the shareholder dispute at $1,900,000 together carry about 38% of the expected fee on the book, and they are the two matters everybody points at. Take them off. Delete both, which drops the cost of running the book to $282,000, and rerun: mean net recovery rises from $85,055 to $110,510, the median rises from $43,979 to $92,000, the chance of a losing year falls from 45.1% to 33.1%, and the P5 improves from minus $407,625 to minus $184,609.
The two biggest claims are worth about $238,000 of expected fee and cost $263,000 to run. They lose money, on the firm's own numbers, and they do it while making the pipeline look healthy. Every single measure got better when they left. What this model cannot tell you is timing and cash. It settles the whole book at once, and in real life the costs are spent this year and the recoveries arrive over three, which is a working capital problem this sheet does not have.
It also has no partial settlements: a matter here recovers or it does not, where most matters settle somewhere in between and the shared discount is doing that work bluntly. To make it yours, put your own open matters in with your honest odds in the Risk Analysis panel, take the cost to run from your own disbursement and time ledger rather than from a percentage of the claim, and set the settlement share from what your matters actually settle for.
The model
It arrives on a tab called Template: The Contingency Book, carrying these columns:
- Claim value ($)
- Chance of recovery
- Recovered (1 = yes)
- Cost to run ($)
- Fee to the firm ($)
with the model computed beside the data:
| Fees earned on the book ($) | 1,708,740 |
| Cost of running the book ($) | 545,000 |
| Net recovery to the firm ($) | 1,163,740 |
| The book loses money (1 = yes) | 0 |
| Matters that recovered (matters) | 9 |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- What reserve holds nineteen years out of twenty?How Much Should We Reserve Per Matter?
- Is a bell curve the wrong shape for your claims?What Distribution Do Claim Sizes Follow?
- Two experts, one schedule. Where is the settlement zone?Delay Claim: Who Owns the Days?
- Neither side wants to blink. What happens?Deadline Standoff: Hold Firm or Concede?
- Should you take the settlement or go to trial?Settle or Go to Trial?
- How much should we reserve for this lawsuit?What Could the Lawsuit Cost Us?
Every model like this one, and the method behind them: Monte Carlo simulation.