Thinking about fixed fees the other day with a law firm’s Executive Director, I thought of a funnel for fee estimates. The funnel starts early in a matter with the law firm giving a broad but reasonable range for what it thinks its fees might be. Thereafter, at intervals determined by time passing or events happening, the funnel narrows and the firm tightens the range of its fee estimate because it knows more about its incurred costs and its future costs. What is at work is a variant of Bayesian statistics.
The range amount might increase, but the difference between the low estimate and the high estimate should shrink down the funnel. In other words, the estimate might rise from $400,000 plus or minus $50,000 to $500,000 plus or minus $30,000 (See my post of May 21, 2007: matter budgets with 9 references.).