REPUBLISHED FROM ASSOCIATION OF CORPORATE COUNSEL
Written by Fred Paulmann
Excellent Legal Operations Managers are using data in powerful ways to help their teams achieve savings (often 15-20%), increase cost predictability, and show how Legal is aligned with the rest of the business in terms of continuous improvement. Your team can achieve these benefits, too, if you lay out a sound approach according to the five key steps below. And now is the perfect time to focus on this. Whether it be matters trending over budget halfway through the year, or law firms fresh in mind from closing out last year with questionable efficiency practices – you have a great chance to show real improvement in areas that matter.
So what are the steps?
1) Understand context. You know your Department and its Legal Operations needs better than anyone. So the first key step is to determine, in context, what type of success here will make the greatest impact. Is the goal savings? Cost predictability? Improved processes to relieve administrative burdens? Better use of technology and data to increase productivity? Better score-carding of law firm performance to assign future work more effectively?
Ideally, the goals and benefits you select will address not just high-profile Law Department goals, but also broader company-wide initiatives as well. From there, think about the best audience and practice groups for your initial efforts. Who “gets it” and would be a willing partner for a pilot project? Or who has significant pain points with certain law firms or matters, and would benefit greatly? These are important real-world considerations that drive momentum.
2) Select the right data. Nothing tells a story as powerfully as your own invoice data. While portfolio-wide views of staffing and discounts can be interesting, far more often the greatest success comes from matter-specific and law firm-specific comparisons. Ask your colleagues who are closest to these matters: Which ones would enable good “apples to apples” comparisons? Characteristics include: overall matter type, complexity, law firms assigned, efficiency, cost structure, and outcomes.
Beyond historical data, you’ll want to look at the current year budget projections to see if similar phases and components of work are priced similarly. (This should be pretty straight forward if you have uniform, component-based budget templates to enable these comparisons. If you don’t, then implementing these would be another quick win going forward.)
3) Analyze skillfully. The goal here is to identify the right cost structure from the client’s perspective, based on value. Not hourly rates or discounts, per se, but rather, which law firms produce the right quality work at the optimal “all in” cost structure, factoring in staffing, efficiency, costs, etc? What should we expect to pay by phase or by key component, recognizing that more specialized work should cost more, and vice-versa? Dive in to answer the following questions:
a) How accurately do our law firms code entries within invoices? How do we adjust for this?
b) Generally, what is our cost per phase? What is our cost per key deliverable? Examples include: cost per summary judgment motion (in Litigation), cost per witness interview (in Compliance) and cost per license agreement (in Transactions).
c) How wide are the disparities in our cost per phase and cost per key deliverable? What drives those? How do we account for unforeseen, material changes going forward?
d) To what extent is there slack in the invoices? That is, inefficiencies that we would seek to trim because they don’t add value? Examples include: inefficient staffing, paying for administrative work, and untrimmed violations of billing guidelines.
e) What is the slack factor by law firm? Which law firms are producing quality work at a lower all-in cost? (Slack factor by firm is an extremely powerful metric.)
4) Present findings cogently. In your report, you are seeking to tell a persuasive story to solve a specific problem. It is important to pick the right level of detail. Too much information loses the audience, and too little might be dismissed as a “coincidence” or non-issue because “this is a unique matter.” You are looking for the patterns that will compel action. So leverage the power of the unexpected (“Look at how this firm with higher rates produces the work at a 15% lower all-in cost because it is more efficient,”) and the practical (“If we use this data to price out our Summary Judgment and Motion to Dismiss work, we can reduce fees by 17% while increasing cost predictability.”).
5) Follow-up and expand effectively. Share your findings and team successes with your various stakeholders. This includes the practice groups who own the matters in the pilot, Law Department Leadership, and related groups like Finance and/or Procurement who may also work with Legal and benefit from this work. There is also a data slice, often blinded or aggregated, to share back with the law firms involved to help them see where they stand and how they can improve. This is often a powerful incentive to improve going forward.
Following these five steps not only aligns the law department with the rest of your business in the ongoing quest for efficiency and cost-savings, but also demonstrates the power of careful evaluation of data and harnessing it as the engine of continuous improvement at all levels.