Eight Ways to Improve Legal Spend Management

Legal spend management in the law department is the number one challenge facing the senior leadership team in a corporation. This pressure is not only confined to the legal department; it reaches finance and the C-suite, as well.

While factors throughout the enterprise and with external parties influence legal department finances, the largest aspect of budget control is attributed to outside counsel spend. Demand for legal services, rising law firm fees, and stagnant budgets all contribute to corporate law department pressure. Compliance and regulatory issues also result in the need for greater transparency into legal spend, liability exposure and aligning results with value.

How can you improve legal spend management and find the right balance between the law department budget and the company’s legal needs? These tips below offer some initial steps to help improve legal spend management:

1. First and foremost, understand the strategic objectives behind legal spend management. The initial important step in managing law department spending is to inwardly understand the department’s goals, budget, previous spending, and whether each of these is synchronized.

Companies have different reasons for wanting to improve legal spend management and the legal costs they endure. Some are motivated by Six Sigma principles, budgeting or cost reduction initiatives. Others look for greater insight into expenditures to achieve optimal law department staffing and expertise. Understanding legal department objectives helps identify the best ways to meet those goals. Knowing the goals of the enterprise also provides a strategic course of action.

2. Review the process for assigning and managing work. This step is straightforward. Evaluate how your department currently assigns work to both internal and outside resources. Determine what criteria you use for making those assignments and assess whether they are valid for your current practice environment. For those law departments looking to reduce costs, one solution is to “right-size” the work by bringing more work in-house or sending more to outside counsel.

For example, a legal department with an established vendor management program can assess whether in-house lawyers have internal expertise or product knowledge that allows them to complete certain work more quickly and efficiently than outside counsel.

3. Assess the type of work conducted in-house and assess the qualifications of the existing legal team to manage more of the work in-house. A critical assessment factor is whether in-house lawyers are doing work that paralegals can perform. If this assessment makes you realize that boosting the ratio of paralegals to attorneys can be more cost-effective in the long run, then put in for talent acquisition. Free up the senior lawyers from routine and repetitive work. This allows them to work more collaboratively with outside counsel on more complex legal issues.

4. Eagle eye the budget. When hiring outside counsel, do you review a matter budget and approve it? This is another critical component of legal spend management. Review and approval of a matter budget presented by law firm partners provides a more realistic forecast of your spending. Every law firm should provide this basic element before launching work on a matter. Because law firms are consistently raising partner fees, it is important to demand and require a matter budget, especially for more complex matters.
Some practice areas command higher budgets, for example, mergers and acquisitions and litigation. Companies that only require budgets for less complex matters or within a dollar threshold should rethink that practice. Budgets establish accountability for the entire law firm and put legal spend management on a straight trajectory.

Along the way, a robust matter management solution provides assessments of legal spend, expected expenses, and a projection of whether the law firm will complete a matter under or at budget. Legal spend management helps track progress against a matter. There are matter milestones each team reaches, and the legal operations professional can assess whether the budget is synchronizing with matter performance and outcomes.

Others in a company monitor matters and budgets, too. The finance department and management team want to know the status of matter budgets, actual spend versus projection, and completion.

5. Evaluate outside counsel. We mentioned above that law firms continue to raise partner hourly rates. An annual trends report indicates this pattern, and legal operations teams must compare outside counsel fees against performance, matter outcomes by practice area, and trust in the law firm hired. One of the best ways to evaluate outside counsel is with a vendor management program, as mentioned before in this article. Another way is with an enterprise legal management solution that integrates matter management, financial management, vendor management, and contract lifecycle management.

Using a vendor management application is an efficient method of putting each outside counsel firm on the same page. A review can include many of the following metrics: cost, performance, outcome and results, services, responsiveness, and expertise.

6. Implement Alternative Budgeting. Some practice areas can command alternative fee arrangements, including flat fees, and phase-based or blended hourly rates. An understanding of current legal spend with outside counsel is an effective way to determine which alternative fees to consider.

7. Assess Partner Ratio on Matters. For each matter, especially more complex ones, explore law firm invoicing using smart billing tools to determine the frequency of partner billing. While some partners may be adding value with their business intelligence and acumen, others may be billing loosely for work more appropriate for a paralegal. Be aware of that possibility and discuss with law firm leadership how to appropriate matter representation.

8. Implement Enterprise Legal Management Software. Technology improves efficiency and streamlines legal spend management. E-billing systems capture and analyze legal spending. Smart financial tools enable the setup of billing guidelines and invoice rule sets that put outside counsel on the same page. The smart review tools enable the flagging of billing errors, duplicate entries and automatic correction.

Good e-billing systems also help with compliance reporting. The technology application provides consistent and auditable reviews for invoices received while capturing and storing results. Enterprise legal management solutions deliver budgeting functionality to track actual spending against a budget.

In addition, matter management integrates with the e-billing applications so everyone on the legal team and legal operations teams can track information and activities applicable to a particular legal matter. Sophisticated reporting features help legal operations collect and report appropriate data for leadership teams. The resulting snapshot shows where money is being spent with cost comparisons across firms, business units, practice areas, and more. 

To learn more about how to improve legal spend management with a robust enterprise legal management solution, reach us here.