Highlights
- Legal departments use proactive spend management to align budgets with organisational goals and impact.
- Matter management and e-billing software improve efficiency and provide better financial reporting capabilities.
- Predictive budget setting reduces reactive measures and enables forward-looking strategic planning for legal teams.
Legal department budget cuts are nothing new. However, legal departments are adopting proactive and predictive strategies to manage and assess their spend, anticipating challenges before they arise. In doing so, they can increase the impact of their work and protect their budgets from cost challenges.
Spend management is a discipline that enables businesses to gain full and complete control over their external spend. For corporate legal departments, spend management concentrates on external counsel and other legal expenses.
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 enables legal department leaders to align their budget with the team’s business impact.
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.
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Know the business for improved legal spend management
Manage legal spend through greater resource efficiency
Maximise value of external counsel whilst managing legal spend
Implement spend-based legal performance indicators
Establish predictive budget setting for effective spend management
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. This enables them to deliver the most impact. They can develop relationships with operational, sales, and finance counterparts enabling them to make better decisions together.
This improves outcomes across the business, whether you’re deciding how to approach a litigation matter or working through legal department budget challenges.
Manage legal spend through greater resource efficiency
Matter management and e-billing software help you manage legal work, making your team and external counsel more efficient and effective. What’s more, these systems are designed to support the complexity of legal matters. Unlike general accounts payable and other finance systems, they can manage the evolving nature of typical legal matters and pricing. Ideally, your e-billing and matter management technology will integrate with your business’ finance system to provide clean reporting for everyone.
Managing spend goes beyond accounting alone. Legal practice tools can also help legal departments understand spend and make better choices. For instance, legal know-how solutions help 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 managed by external counsel or a legal process outsourcing company.
Maximise value of external counsel whilst managing legal spend
Look at your network of external counsel and see if you can identify the specific value they bring to your work. Match lower-value work to lower rate firms. Make sure you assign the higher fee firms to work that they are uniquely suited to do.
Whilst cost is a factor, there may be other reasons to choose a specific firm or solicitor. Ensure you can explain your reasoning to your business colleagues and team. This transparency not only addresses questions about your spending but also guides the next generation of department leaders.
Implement spend-based legal performance indicators
According to the Legal Department Operations Index from Thomson Reuters, the top five key performance indicators (KPIs) used by legal departments are based on spend. These include total spend by law firm, by matter type, by practice group, by business unit, and forecasted spend versus actual spend.
These spend metrics tell one part of the story, but they don’t communicate the legal department’s value. Nor do they help leaders connect business needs to department operations. An increasing number of legal departments aiming to be proactive and predictive are also tracking metrics that demonstrate their work’s volume and quality. This includes the number of legal matters opened and closed, litigation exposure, and quality of legal outcomes.
Establish predictive budget setting for effective spend management
With your department’s priorities aligned to the business, and equipped with the right tools, external counsel, and metrics, you’re positioned to deliver efficiently and effectively. Now, focus on forecasting activities, metrics, and impacts.
Legal teams can leverage sophisticated metrics and in-depth analyses to enhance predictability in budget setting. This reduces reliance on past performance as the sole determinant for future budget needs allowing you to be proactive about planning expenses and litigation impacts.
When your team communicates expenses and potential litigation liabilities in advance, you can minimise time spent in reactive measures and focus more on proactive planning. This allows you to apply your legal expertise to support the business in building forward-looking strategies.
Cost control is unavoidable. For in-house leaders, it’s the top strategic priority in the US, Canada, and the United Kingdom. Legal teams experience corporate cost pressure, but the answer isn’t to reduce staff or deny business needs. A spend management strategy can help the legal department better protect the business and its budget during expense challenges.
Metrics are a key element of a spend management strategy. Find out how you can use metrics to unlock value in your legal department. Read the white paper.
