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What is legal spend management?
Legal spend management is the strategic discipline of planning and controlling the costs incurred by in-house legal teams. It is primarily associated with the category of outside counsel expenses. Key elements include budgeting, forecasting, resource selection, fee negotiation, invoice review, financial reporting, and value assessment.
Why legal spend management matters
In-house legal teams have historically struggled to provide clear answers to the question of what has been spent where. This lack of accountability is no longer being tolerated. Modern enterprises now expect all business departments to maintain comprehensive financial reports and adopt data-driven strategies.
Legal services cannot be avoided or delayed as easily as many other corporate expenses. That means, in order to maintain an efficient spend-to-revenue ratio, in-house legal teams must work even harder to ensure maximum business value is gained from the money invested in matters they must pursue.
No department tasked with managing complex business risks could honestly promise complete financial predictability. What in-house legal teams can commit to, however, is strategically limiting the potential for spend surprises and proactively alerting colleagues to likely overruns while there’s still time to act.
Common legal spend management challenges
The story of corporate legal spend is often written across multiple regions, dozens of law firms, hundreds of matters, and thousands of invoice pages. Tracking all this activity is no easy task — particularly for teams relying on manual processes and outmoded tools.
Demand for corporate legal services is difficult to predict and often driven by factors beyond the legal department’s control. Limited transparency in law firm pricing and the persistence of time-based billing models also contribute to making cost certainty an elusive goal.
Ensuring the right people are doing the right work at the best possible rate is already a delicate assignment for legal department leaders. Attempting to do so without the benefit of detailed data, however, turns strategy development into an expensive game of trial-and-error.
Crafting clear billing guidelines, setting precise budgets, and negotiating favorable rates are pillars of proactive legal spend management. Every invoice line item must be verified against those initial expectations, though, if they are to achieve their full effect.
Law is by nature a highly nuanced and subjective service, making it difficult to rate and compare quality or cost-efficiency across vendors. The limitations (or absence) of reporting tools within most corporate legal departments only complicates objective measurement.
Without effective systems, processes, and technologies in place to overcome the other five challenges listed here, the work of legal spend management can steal significant time and attention away from strategic projects and priorities within the department.
How to master legal spend management
Centralize spend tracking
No progress will be possible until you can consistently maintain a complete account of what is being spent where. The strength of all future decisions stems from the reliability of this foundational data.
The only efficient way to accurately record every line item, from every invoice, from every vendor, for every matter, across every region is to implement dedicated legal e-billing software.
Specify billing guidelines
The first step toward reducing the receipt of non-compliant invoices and the approval of unauthorized expenses is to define, document, and communicate your expectations.
Effective legal billing guidelines clarify your perspective on exactly what is and is not a valid billable service while confirming all invoice submission requirements.
Set granular budgets
Every budget you set brings added accountability to the present work and becomes a valuable source of feedback for future decisions. In addition to consistency, though, most teams still struggle with specificity.
Leading legal budgeting tools now address both issues by making it easy to forecast the fiscal year, divide spend between departments, confirm accrued expenses, and even track matters by phase.
Innovate invoice review
AI-assisted legal invoice review uses machine learning to rapidly interpret the services billed by your outside counsel and automatically verify their compliance with your financial controls. This approach can reduce legal spend by up to 20% and administrative work by up to 80%.
The most powerful advantage of this technology, however, is perspective. In addition to recording the hours and rates of each timekeeper, legal spend management software also reads line item descriptions and translates that context into structured data.
Analyze data insights
Every invoice line item holds clues as to how your external legal services were priced and performed. Even after AI-assisted invoice review pulls those details up to the surface, effective reporting tools are still required to turn information into insights.
The latest legal spend analytics solutions can offer real-time feedback on billing behavior and budget progress as well as long-term benchmarks to guide your law firm relationships.
Refine resourcing strategy
Legal spend management is a process of continuous improvement. That means the “last” step is to leverage all your accumulated insights to better administrate your next matter.
Questions of which law firm, which timekeepers, which fee model, and which budget to employ can all be answered with increasing confidence through creative legal spend reporting.
More legal spend management resources
The Complete Legal Cost Control Checklist
Legal Spend Reporting: The Practical Guide
Sample Outside Counsel Billing Guidelines
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