Legal Spend Analytics: 3 Simple Reports With Serious Impact
Although one method might take hours longer than another, what’s ultimately most important is publishing reports that you can trust and your team can act on.
So to make sure you’re focusing your energy in the right places when analyzing legal spend, we’ve flagged a few of our favorite recipes for generating high impact with limited investment.
1. Actual Spend vs. Annual Budget
Add together the expenses paid across all matters for the year to date and compare that sum against your planned budget. (Note: Depending on your organization’s preferred accounting methods, you might also build a version of this report that factors in accruals or work-in-progress as well.)
You get clear confirmation of whether your legal spend is tracking at, above, or below forecasted budget levels.
Long-term demand for corporate legal services is notoriously tough to predict. But that’s not actually what frustrates finance teams the most. The far greater annoyance is when legal departments fail to spot a trail of small surprises until it leads everyone into a big problem.
Reliable spend-vs.-budget reporting immediately puts these relationships on better terms. Finance will see that Legal has a handle on its budget progress and stop worrying about what bad news might be hiding in the books. As long as the report is run frequently enough, you can almost always identify budgeting miscues while there’s still time to act.
The value of this report also grows over time. Once you have months and years of reliable spending data to reference, you can start forecasting with greater confidence. For example, maybe you decide it’s time to finally factor in what seems to be an unavoidable end-of-quarter uptick. (Or, better yet, you vow to save money this time around by negotiating alternative fee arrangements.)
2. Spend by law firm
Calculate the total costs paid out to each of your partner law firms over a given period.
You gain a comparative perspective of spending between firms, which underscores high-priority relationships and inspires reflection on the value returned from money spent.
This report helps move the conversation from numbers to names. The first group you’ll want to identify is the top-few firms receiving the highest proportions of your legal spend. Once you know the people in play, the best question to consider is simply this: How do you feel about your working relationships with those firms?
Ideally, you feel fully satisfied with the quality of their work product and the efficiency of their operations. If not, then don’t let your dissatisfaction linger. Bring your concerns and suggested improvements to your outside counsel’s attention sooner rather than later. A small dose of candid feedback can sometimes inspire rapid progress.
If the situation does not improve, though, you may have to consider more serious actions like proposing a different pricing structure or reallocating work to another resource entirely. In any case, the delicate process of assessing outside counsel work best when you begin with clear, comparative legal spend analytics.
3. Spend by department
Sort legal expenses by which business department initiated the associated matters.
You tie legal spend to business activity, broadening risk management and cost control conversations to include the wider organization.
Corporate legal departments ultimately incur expenses as a means to better serve their business colleagues. So any complete conversation on managing legal spend needs to account for the business behaviors driving the final number.
Similar to the prior report, the first place to focus is on the groups contributing to a comparatively high proportion of expenses. If the legal spend associated with your HR department is 80% higher than the next-most expensive unit, for example, that might signal several things.
For one, it would indicate that HR is probably the first place to look when investigating potential cost-saving opportunities. Volume discounts, alternative fee arrangements, or even insourcing the related work to a newly hired specialist could all be valid strategies if the demand for legal services is expected to remain high.
Perhaps the more valuable consideration, though, would be whether there are any systemic adjustments the organization can make to reduce HR’s legal requirements over time.
Might more proactive employee training programs decrease the volume of workplace harassment claims? Would hiring a labor relations specialist specifically for the California office be more cost-effective? What can the department do now to assure compliance with an emerging data protection framework?
These are the more sophisticated conversations most corporate legal departments would like to have. And with a few more degrees of clarity in their data, most could start having them more frequently than they think.