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 solutions. 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.