Budgets, budgets everywhere but no certainty on legal cost predictions for the in-house counsel to shine here!

Don’t we just love to have those budget conversations where we can be so precise! We sit in those senior management/board meetings waiting with bated breath for our turn! Everyone else is so sure and confident about the figures; and then we start with the ers and ums. ‘Well you see it’s like this, there’s just too many variables for us to even begin to guess – for example how can we predict who is going to sue us? Or what new product lines the company wants to launch’- and so it goes on and on as we shrug our shoulders!!!

Lets rewind and see if we can have a different conversation using the following three step approach, which consists of:

1) Reporting the historical data on which to base forecasts;

1) Examining the data for trends to provide metric information which adds value to budget discussions and informs decision making;

1) And lastly using this data to show how and where legal activities spend can be reduced or eliminated?

Step One.

First lets tell our business colleagues what we do know but before and at the budget meetings by providing summaries of historical data for legal spend; and more importantly how that can impact this year’s budget by extracting any relevant information that would affect budget setting for the current year.

Lets face it – the basic requirement of any legal manager or team leader (and this is no longer negotiable) is to be able to deliver this type of information about legal spend (and internal resource usage). In fact it is part of your value to the business to do so. A recent survey showed 60% of US General Counsel said this was a real pressure point; and I suspect this figure would also be representative over in the UK too.

You need to state this as simply as possible. For example last year external legal spend on property transactions of X type cost an average of £Y therefore based on the number scheduled/estimated for the current year the budget will be £Z. Where appropriate, this can be expanded in a spreadsheet showing what would happen if the numbers go up or down.

You should be able compile this information easily and readily using software, either existing or specific software tools to mine and organise the information in one secure place such as SMARTPORTAL (an information knowledge platform that collects and manages “unstructured” information easily) and SMARTPANEL (an information and process platform for panel reviews and management collects and manages this type of information quickly).

If you are new and do not have this data – ask your external law firms to provide it in spread sheets as well as arranging for collating internal data – do not underestimate how much time this takes. So an imperative when taking over is to set up ‘systems’ to allow to collate and interpret the spending and matter data under your responsibility using a software tool of choice. For example the SMARTPANEL as mentioned above.

My co-author Richard Tapp Legal Director and Company Secretary at Carillion plc not only arranged for electronic gathering of data but also panel benchmarking on a number of key issues for them. Our book Managing External Legal Resources* contains his a full set of precedents as well as best practice tips and techniques. We also document Richard’s journey on taking over and reviewing the internal and external legal provision; suffice to say that the legal spend for large plc’s can prompt more resources (both technical and people) to drive this forward. tailored coaching

Small and medium departments can use SMARTPANEL to produce this appropriate to their matters in conjunction with their external provider; and or tailored review consultation, themed training and/or coaching on this from Beyond the Brief. Full details on request.

Step Two

This next step is to show that you are up to speed on being able to break down matter/cost information so again leading to trend prediction below and better forecasting for the life cycle of matters under your jurisdiction.

For example the average time it takes to do a particular type of property transaction is X which results in an external legal spend of £Y for each transaction. Those that come under that spend is because A happens and those that go over that spend is because B happens. It may be the latter are transaction, which involves a certain landlord – you know that they take twice as long and charge three times what the norm is.

By being able to compare milestones of legal matters this way shows that you can recognise and convey that you are aware of those signals that show a matter is going to go over/under budget.

Again you can mine your information (e-billing – matter management software) or you can use *SMARTPANEL or SMARTPORTAL to organise the data to index matters with similar characteristics through their lifecycle and provide this information to you on a monthly/quarterly cycle so that you can track it; and be forewarned when matters are not proceeding to planned milestones of each transaction.

Staying with the property example – your data may show 3 similar property matters started at the same time have been active for 3 and 4 months. When comparing this to other similar property matters in previous years you can see that these transactions take 6 months to complete on average. So already there maybe one which is struggling to meet the average lifecycle and costs, so putting you in the driving seat of being able to raise this with the law firm responsible.

This will allow you to manage the facts and the variables. One of the fastest ways to lose the respect of the business is not to be able to ‘talk their language’ or indicate that you are entitled to different treatment because your ‘work’ is different and contains too many variables to make predictions. So those who are able to mine and aggregate those facts at their fingertips, then they can demonstrate a grasp of business discipline along with adding value to this process.

In a recent white paper titled “In Search of Predictable Legal Budgets: GCs Seeking Useful Analytics to Make Best Possible Decisions,”** Jeffrey Schuett points out “how data should be mined to create powerful analytic tools and relevant metrics, how analytic output can be used to improve decision making and departmental results, and how analytics can strengthen the relationships between inside counsel and outside counsel and GCs and his/her peers.”

Although this is not new, some larger departments have been driven to do this in the last twelve years; and have in fact been trend setters. In 2001 Barclays Bank took this approach to litigation and re-engineered their whole process which was cost effective given their legal spend in this area. They split the litigation process into two parts – ‘Initial Assessment’ and ‘Standing Retainer’ Matter Management and the tasks within these areas down into 17 components. It was also important to them to ‘slice and price’. This detailed data really informs your resource usage of both internal and external lawyers.

Step Three

This is where it really begins to be exciting and where you can impress your colleagues is to show how you are going to reduce the spend and keep the quality either by eliminating the work, taking it inside (client and legal) or working with external firms jointly to reduce costs.

Whilst Head of Legal at The Co-operative Bank, we tracked and mapped costs and milestones for inside and outside transactions; and regularly used this data to show improvements in the process or find cheaper different ways to do this. A simple example is that we set up precedents on confidentiality agreements; letters of employment and other routine documentation and taught the business to do this and when to come to legal with matters which required further input.

A more recent example: Cisco initiated discussions with one US law firm together on how the two of them could cut costs by working better together found a way to reduce cost. The review showed that the firm was billing for time that required no legal expertise such as proofreading documents or chasing for information. They agreed that Cisco would do that so hence a 10% reduction of the fees. Cisco put in place an SLA that if they did not do the work they would compensate the firm.

The message is clear – its no longer sufficient to be a great lawyer (in our example running the property transaction files) you have to be an effective business manager who can also communicate the value of his/her legal dept to the company by producing high quality financial data and how improvements can reduce costs. Further the business loves the value of their internal experts melding the business metrics with their expert knowledge to reduce the legal spend. The survey referred to earlier showed 78% of US counsel were under pressure to do just this; and this pressure is unlikely to go away which ever side of the pond you are on.

If you are project management trained then it should be relatively easy to map the milestone to the type of transactions which would tell you the trigger points for hitting the budget or not.

So to recap:

Step 1 – Establish what you have spent externally by collating all relevant information or setting up a system to do this for you such as SMARTPORTAL so that you can report historical spend factually; and make a forecast for the coming year based on this information.

Step 2 -Examine the data to make trend forecasts based on transactional information so that you can demonstrate metrics and add value to the business with this information to inform budget discussions.

Step 3 – Using the above to show how and where external activities/spend can be reduced.

Other ways to reduce legal expenditure and/or more effectively manage legal costs will be discussed in subsequent blogs – any questions/comments on this one to

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1. http://www.analytics-magazine.org/special-articles/490-in-search-of-predictable-legal-budgets