By Liam Brown (Elevate Services Inc.) and Fred Paulmann (CMG)
As the year draws to a close, we’re reminded of how nice some surprises are to receive and how unwelcome others can be. For many of us who are working to close the books on 2015, some of the most difficult surprises come from law firms who, without enough notice or explanation, have gone significantly over budget on their matters. This makes for difficult conversations internally, and often brings promises from outside counsel to improve in the future. Sometimes that works, but often the pattern repeats again next year. And the stakes, of course, are high — Legal Department credibility, performance reviews and bonuses are often on the line. If any of this sounds familiar, here are five helpful lessons to avoid law firm budget pitfalls in 2016.
1) Improve your budgeting process. It’s not enough to simply ask the firms what they anticipate spending next year. More and more, companies are focusing on more effective, data-informed approaches to scoping legal matters and building budgets based on the value of the work from the client’s perspective (as opposed to just the number of hours the law firm suggests). Doing this correctly leads to greater cost predictability because it is based on actual historical experience, not just some law firm “guesstimate.”
2) Verify efficiency to ensure the price is right for the matter. Yes, rates are important. But at the end of the day the data analytics increasingly show that outside counsel’s efficiency factor is the prime determinant driving cost. This efficiency factor comes from: inherent attorney efficiency (experienced outside counsel simply doing the work to the right level of quality, faster); strategic work planning (avoiding unnecessary work); staffing (having fewer people involved where it makes sense to); seniority (assigning the right work to the right people, especially work to lower levels as warranted); and automation (using technology and processes more effectively to streamline work). A data-informed approach to budgeting will highlight these things up front, and identify opportunities to save.
3) Master your data to track budget performance. Clients are increasingly analyzing their data and developing early warning systems to better identify why a matter is going off-track from a budgeting perspective before it’s too late. (Often it’s because the initial budget was not a reliable, sufficiently detailed budget to begin with.) These early warning systems can help identify issues earlier on and — more importantly — help get spending back on track to be within or close to the original parameters. Clients are also evaluating law firm performance year-over-year to see which firms habitually go over budget, why, and whether they are actually improving – or just talking a good game.
4) Enforce your billing guidelines. When you truly enforce your guidelines, you send a message about how closely you manage your matters and spending. When you don’t, you also send a message. In our experience, you are better off having fewer guidelines, but truly enforcing them, versus having more guidelines that exist on paper but not in practice. Law firms take note of these things.
5) Integrate Project Managers. An increasing number of law departments and law firms are integrating legal project managers into the matter management process to facilitate adequate planning, monitoring, communication and issue resolution between matter teams. The consistent practice and execution of practical “just enough” project management on legal matters can yield significantly better accuracy on budgets and outcomes.
6) Scorecard law firm performance and give your firms feedback. There is truth to the old adage — you can only manage that which you measure. Increasingly, clients are devising useful, balanced law firm scorecards to: track performance (quantitative and qualitative), share feedback at the end of the year, and agree on what they would like to see improved in the coming year.
Avoiding budget pitfalls starts with applying one or a few of the above methods in a consistent fashion, in collaboration with your trusted counsel, and refining them together to fit your style and needs. If your organization is struggling with budget management, we hope that your teams decide to explore a few of these methods. If you need assistance or guidance, please feel free to contact us.
Meanwhile, we hope you have many of the nice kinds of surprises waiting for you this holiday season, and in 2016.
Liam Brown can be reached at firstname.lastname@example.org
Fred Paulmann can be reached at email@example.com