I have given you a quick overview of how to rein in legal spend in two previous blog posts in my mini-series called ” The end of Free Rein.” I discussed narrowing down which legal spend goals you want to achieve in part 1 and what type of information top management needs in part 2. Consider it a primer on “reining in” spend and halting “freedom of movement.” Here is the third round of my thoughts on the topic:
More and more organizations perform gap analyses, comparing post-matter scoring of in-house counsel versus outside counsel. Do both your in-house counsel and outside counsel believe the matter was managed well overall?
You may also want to include AFA metrics in your analyses such as: trend data, data by matter type, business unit/division, practice area or geography. Metrics on AFA value could also be a useful part of the information sheet. If available, comparison with your organization’s historic costs by matter type might be useful.
Since the majority of legal spend is still on hourly rates, top management in your organization might want information on average hourly rates by years of service, firm type, matter risk/complexity and geography. Also, trend information on average hourly rate increases would be of interest. More and more organizations rely on benchmarking information (what is the market rate?) and conduct rate arbitrage analyses: How much would relocating work to less expensive firms/geographies save us? Some visualize their negotiated hourly rates of different firms by region/ geography as well as by matter risk/complexity to make comparisons easier. The things you really want to watch are rate creep, misbillings, block billings, and other rogue practices.
In addition to your organization’s leadership, you will probably work with managing attorneys, business unit managers, or others who can benefit from actionable information on cost drivers. These metrics let them know –preferably also in a brief format, no longer than one to two pages– what is going on, what area(s) need their (immediate) attention, etc. The view can focus on top matters or on matters that reached 50, 80 or 90 percent of their budget, as well as those matters that exceeded their budget. The focus could also be on the top billing firms or the top billing timekeepers.
Once cost drivers are identified, it makes sense to identify why this is happening. An in-depth report helps stakeholders understand what is driving the changes. This in-depth report would look into matter duration and matter age (by practice area, business unit, type of matter, firms), and aging matters (older than xx days) by practice area, business unit, law firms and geography. It could also look at closed matters by matter manager, number of invoices reviewed within or beyond xx days of receipt. The report could also focus on the number of hours top firms (or billers) billed during a time period. What are their average hours per billing day? Their average hours per weekend/holiday? The frequency of 10-plus-hour days? Billing in large “blocks” of time or marginal input billing? Watch for the first year associate with a proverbial lead foot of billings.
Legal spend is a “fresh and ready” candidate for cost reduction. It has had a long term exemption from inquiry. Now the data is available to get best practices, best outcomes, and lower cost. The trick is to be clear about the goal of and path for your spend reduction exercise and establishing robust metrics that help drive decision-making. But beware, metrics are not static, they need to be monitored in an ongoing fashion. Some need to be looked at more often than others, in particular when the metrics were different from what was expected. Begin this journey knowing that “freedom of movement” does not translate into better spending. Rein in the spend with compassion, zeal, and a sense of urgency.
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