Smart metrics and data analytics help legal departments control costs effectively
Highlights
- Controlling costs and improving operational efficiency are top strategic priorities for in-house legal departments, with growing expectations to leverage AI for budget management.
- Spend management sophistication is evolving, progressing from chaotic or reactive stages to proactive, optimised, and predictive levels through the adoption of billing guidelines, competitive RFPs, and advanced reporting.
- Achieving optimised and predictive operations requires data-driven software like Legal Tracker to enable deep-dive analytics, automated invoice auditing, accurate budget forecasting, and tracking non-financial metrics like diversity and inclusion.
Jump to ↓
Moving to optimised and predictive spend
Advancing diversity and inclusion
Charting a course
Cost control is a critical issue for in-house legal teams. In the most recent Thomson Reuters State of the Corporate Law Department report, it stands as a top strategic priority for general counsels (GCs) globally. One-third of corporate C-Suite leaders say improving operational efficiency is a key strategy, while 20% highlight the need for cost reduction.
Corporations are likely to maintain budgetary pressure on in-house legal teams, expecting them to realise the benefits of artificial intelligence (AI). The report identifies AI as the most likely area for transformational change in the legal profession, with 74% of respondents anticipating a significant impact. With this transformation, budgets could shift accordingly.
Spend management sophistication can be seen as a ladder, from least organised to most:
- Chaotic: Legal invoices are maintained outside the department’s e-billing system, and the legal team lacks the ability to report on spending in a consistent manner.
- Reactive: E-billing is used effectively and able to generate basic spending reports.
- Proactive: The legal operations team has established billing guidelines, invoice audits, and processes for managing timekeepers and matters.
- Optimised: This stage is characterised by centralised management of rates, use of request for proposals (RFPs) and competitive bids to set rates, internal processes focused on driving down costs, and advanced reporting on law department performance.
- Predictive: Operations actively manages collaboration between lawyers and external law firms. Also, sophisticated financial data management and metrics deliver detailed matter budgets, performance benchmarks, and budget predictability.
For many legal departments, improving spend management is an evolving process. Rather than overhauling their approach, they may decide to implement progressively more sophisticated strategies. They might start by using RFPs and competitive bids to select law firms and set rates. Subsequently, they may seek discounts and leverage advanced tools to forecast spending and report on law firm performance.
Data-driven decisions
None of these shifts are possible without dependable underlying data from a software solution like Legal Tracker. Legal Tracker manages e-billing, matter management, and performance analytics — while also empowering legal ops teams to create and report on essential metrics.
Getting value for money remains a top priority for GCs, according to the latest Thomson Reuters Report on the State of the UK Legal Market, but that requires visibility over spend.
Metrics such as total spend by law firm, matter type, practice group, or business unit, along with forecasted versus actual spend, are a great starting point for conversations with outside law firms. These insights can inform decisions on reallocating work among firms, consolidating work with fewer firms, or shift work to in-house lawyers.
 |
|
Moving to optimised and predictive spend
However, these metrics are not enough for a legal department to become an optimised or predictive operation. To achieve this, departments must dig deeper into matter-specific and internal spending analysis to gauge the success of their cost control measures.
For example, one legal department asked its law firms to provide discounts ranging from 10% to 20%, concentrate on essential tasks, and agree to delayed invoice payments to enhance the company’s cashflow.
By reporting on litigation spend by firm and monitoring trends, the department was able to see the impact of discounts on overall expense. The analysis enabled clear communication with finance and company leadership about the firms’ cooperative efforts.
Evaluating high-spend matters allows departments to identify cases where spending is accelerating or surpassing established budgets. Some departments have used this data to compare costs with similar firms, making informed decisions to switch providers when justified by savings.
Predictive departments can automate the invoice reviews to find errors, flag deviations from billing guidelines, and highlight unapproved timekeeper rates. The system can automatically hold invoices that violate these guidelines.
Advancing diversity and inclusion
Many legal departments analyse external law firm staffing data and metrics to ensure alignment with their company’s commitment to diversity and inclusion.
Some legal teams incorporate language to their billing guidelines that expresses their commitment to diversity and inclusion, and their expectation of the same from the law firms they engage. Companies like this can detail the requirements in their RFPs and capture law firm staffing data in Legal Tracker to confirm and enforce those expectations.
Looking forward
The ability to track sophisticated metrics and conduct deep-dive analyses enables legal departments to predictively set budgets, reducing reliance on past performance as a baseline for future planning.
Optimised and predictive legal departments hold regular check-ins with finance to reconcile spending, address emerging financial challenges, and identify opportunities to contain costs and improve performance. These capabilities are made possible by sophisticated, automated financial data management and metrics.
In the future, legal departments will put even more emphasis on strict enforcement of billing guidelines, more automated and streamlined workflow processes, expanded use of automated invoice auditing and reduce-or-reject functionality, and the collection of law firm staffing demographics.
Sophisticated metrics provide a clear picture of law firm spending, guiding legal departments towards exemplary cost management and service delivery across all spending and decision-making activities.
For further insights into the metrics offered by Legal Tracker, click here.
