Cost estimates and standard deviations

Our legal cost estimates are, where practical, calculated from our historical billing data (adjusted for inflation). By categorising completed work final tax invoices into service types with various ratings for risk and complexity, we can calculate the following.

  • Average price (for a particular service type and complexity)
  • Standard deviation (a measure of variation within the set of prices)
  • Normal or probability distribution (which can be used to plot a bell curve)

These mathematical concepts help us derive an estimate together with a variability factor which might be expressed in dollar terms or as a percentage of the estimated price. The variability of our estimates is intended to be one standard deviation. So for example, if our estimated legal cost for a service is $1,100 with a variability factor of 10%  or $110 that is because we think the strong likelihood (68%) is that the final tax invoice will fall within that range.

By using data and statistical concepts our estimates endeavour to exclude a well known human tendency of underestimating the final all-inclusive cost of future work.

Under section 308 of the Legal Profession Act a law practice must give an estimate of total legal costs or if necessary an estimated range of costs (with an explanation of the major variables affecting cost). A law practice must also give notice of any substantial change to the costs estimate or estimated range.

Notwithstanding the work the goes into our cost estimates, revisions may occur because future events or facts emerge and that were not expected and factored in when the initial cost estimate was calculated.