Budget cuts for in-house legal departments are nothing new. Now, though, in-house teams are getting proactive and predictive about how they manage and assess their spend — before a specific cost challenge hits. In doing so, they can increase the impact of their work and protect their budgets.
Spend management is a discipline that enables businesses to gain full and complete control over their external expenditure. For corporate legal departments, spend management concentrates on managing spend with external law firms and other legal costs.
A legal spend management strategy considers the goals of an organisation and sets the direction for the operations, partnerships, and outcomes of the entire legal department. It helps GCs put their budget in the context of the impact the team delivers to the business.
Legal spend management strategies take many forms, depending on the needs and resources of the business. Here are five key steps for developing your spend management strategy:
1. Know the business for improved legal spend management
When you know the strategies, priorities, and opportunities of your business, you can develop a sharp sense of where to focus your team and resources to deliver the most impact. If your team can develop relationships with colleagues in operations, sales, and finance, they can make better decisions together.
This improves outcomes across the business, whether you’re deciding how to approach litigation or working through legal department budget challenges.
2. Manage legal spend through greater resource efficiency
Matter management and e-billing software help you manage legal work, making your team and your external law firms more efficient and effective. What’s more, they are designed to support the complexity of legal matters. They can handle the evolving nature of typical legal matters and pricing, unlike general accounts payable and other finance systems. Ideally, your e-billing and matter management technology will integrate with your business’ finance system to provide clean reporting for everyone.
Managing spend isn’t just about the accounting, though. Legal practice tools can help in-house legal departments understand and manage spend, too. For instance, legal know-how solutions help your generalists understand niche areas of law that affect corporations. They can use that understanding to decide which matters to manage in-house and which are better handled by outside law firms or another potential outsourcing option.
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A tool like Legal Tracker allows you to be more efficient with spend and matter management, giving you support on complex legal matters and the evolving nature of typical legal matters and pricing.
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3. Maximise value of external law firms while managing legal spend
Look at the law firms on your panel and see if you can identify the specific value they bring to your portfolio of matters. Match low-value work to firms with lower fees. Make sure that more expensive firms are worth the extra cost and assign them work that they are uniquely suited to do.
Of course, there may be reasons other than cost as to why you want to use a certain firm or lawyer. Be sure you can explain your reasoning to your business colleagues and to your team. That way you’ll be able to answer questions about your spend and you’ll start to train the next generation of department leaders.
4. Implement spend-based legal performance indicators
Recent research suggests that the top most important metrics used by law departments are based on spend. These include total spend by law firm, by practice groups, by matter type, forecasted spend versus actual spend, and spend by business unit.
These spend metrics tell one part of the story, but they don’t communicate the value the legal department brings. Nor do they help GCs connect the business’ needs to their department’s operations. A growing number of legal departments — those interested in being proactive and predictive — are also tracking metrics that demonstrate the volume and quality of work they do. This includes number of legal matters opened and closed, litigation exposure, and quality of legal outcomes.
5. Establish predictive budget setting for effective spend management
You have your department priorities aligned to the business. You’ve assembled the right tools, external law firms, and metrics to deliver on those priorities efficiently and effectively. Now it’s time to forecast activities and impacts.
Legal teams can use their sophisticated metrics and deep-dive analyses to be more predictive in budget-setting, relying less on past performance as the sole input for future budget needs. You can be proactive about planning expenses and litigation impacts.
When your team can communicate expenses and potential litigation liabilities in advance, you can spend less time in clean-up mode and more time in proactive planning. This ultimately frees you up to contribute your legal insight to the business as it builds forward-looking strategies.
There’s no getting around cost control. GCs and their teams are focusing tightly on metrics that benchmark legal spend relative to corporate revenue. Even at a time when there has been a major increase in the proportion of UK legal buyers that anticipate their overall legal spend will grow looking ahead, according to the Thomson Reuters State of the Legal Market 2022 report. Legal teams feel the pinch of corporate cost pressure, but the answer isn’t to cut people or say “no” to the business. A spend management strategy can help the legal department better protect the business and ultimately safeguard its own budget during expense challenges.
To learn more about spend management tools to effectively and efficiently help your business click here.
