Using Analytics to Tame the Law Department Budget

Reducing law department spending and forecasting yearly legal costs are big jobs for general counsel, who traditionally have been tasked with managing company risk, not modeling department finances. Yet as many CorpCounsel.com readers know, lately the pressure has been on to account for legal’s bottom line.

This isn’t just a matter of trimming the budget. More and more, GCs are being asked to be predictive when making their budgets, says Jeffrey Schuett, vice president and managing director for Corporate Counsel Solutions at LexisNexis (which, full disclosure, is a business partner of CorpCounsel’s parent company, ALM).

“CFOs are saying: I can’t be surprised by this anymore,” Schuett says.

With a new digital spending analysis product due from the company in 2012, Schuett has also penned a recent whitepaper, “In Search of Predictable Legal Budgets: GCs Seeking Useful Analytics to Make Best Possible Decisions.”

The paper follows up on the findings of a 2010 LexisNexis/ALM Legal Intelligence survey, which found that 94 percent of in-house law departments in the U.S. “feel pressure to demonstrate their value within their organization.” Schuett contends that the way to do that is through analytics. To wit, he writes:

The message to today’s GC is clear: it’s no longer sufficient to be a great corporate lawyer, it’s now a job requirement to be an effective business manager who can also communicate the value of his/her legal department to the company. Unfortunately, many GCs feel ill-equipped for this challenge. They know they should manage by facts—rather than gut instincts—but they don’t know if they have the right facts, nor the ability to mine and aggregate those facts, at their fingertips.

In the days of yore, it may have sufficed for GCs to argue that each case is unique and the budget, therefore, is too unpredictable to forecast. “The data wasn’t there to either support or deny that particular position,” says Schuett.

However, the down economy and advances in technology have caught up to the law department, Schuett says. Companies are more sensitive to how they’re spending across all departments. And with electronically stored data more readily available, CFOs want to see more accountability.

From Schuett’s perspective, adopting an analytics-based approach to legal budgeting can help GCs in a few ways. Aside from being able to tell CFOs what they want to know, using analytics also equips GCs with information on larger corporate legal trends and outliers, so that they can answer questions such as:

• How long should this kind of matter (e.g., lawsuit, joint venture, etc.) take to resolve?
• How much should this kind of matter cost us to resolve?
• What are the signals that a specific matter is going beyond the predictable norms of time and expense?