That headline is the ultimate question we want to help you answer, but it’s the wrong place to start for a few reasons.
For one, it’s kind of an intimidating question to ask someone we’ve only just met. But even if we put our manners aside for a moment, it would still be an impossible question to answer without a full understanding of how managing legal spend differs from merely paying bills.
So let’s solve both problems by breaking the conversation down into a series of smaller questions. That way we can clearly define the two contrasting approaches and gradually reveal where your team stands.
Do you have documented legal billing guidelines?
Every legal department has a unique perspective on what acceptable outside counsel billing practices look like. Only a limited portion, however, convert their personal opinions into explicit guidelines that can be objectively enforced.
Expert legal spend managers will provide their law firms with written confirmation of:
- Which tasks and activities are valid billable services
- Which services require additional authorization
- Which timekeeper(s) should perform certain services
- How invoices should be prepared and submitted
The less clarity you create surrounding these topics, the more likely you are to find yourself merely paying bills. Because as you leave your legal billing guidelines open to a wider range of possible interpretations, it becomes harder to identify, challenge, and resolve every invalid expense.
Do you have defined budgets?
Every management strategy needs an objective, a plan, and a method for measuring progress. The primary objective of legal spend management is to prevent costs from exceeding predetermined thresholds, otherwise known as budgets.
Any in-house legal team operating without these financial targets is merely paying bills. Whether or not their organization is satisfied with the sum of those bills is a separate matter.
For example, executives may be delighted to learn at year’s end that expenses decreased 10% annually. But the absence of any specific objective at the start would still make legal spend management a misnomer.
It’s also important to separate budget planning from budget compliance. Corporate legal services are a notoriously unpredictable cost category and overspending initial estimates sometimes becomes a strategic imperative. But the occasional overrun doesn’t diminish the value of financial forecasting as a practice.
Managing legal spend means you’ve analyzed the data and initiated the conversations required to set the most credible target possible. (And this simple act of naming a number remains one of the most powerful accountability measures available.)
Do you proactively discuss resourcing plans?
Engaging outside counsel always involves a certain degree of deference. You’re acknowledging their superior subject matter expertise and implicitly trusting their legal opinions. But that humility shouldn’t necessarily extend to the topic of service delivery.
Letting your law firms unilaterally decide who works on what tasks, at what rate, and for how long can only be defined as merely paying bills. The first step toward adopting a more managerial stance is easy though: Make it a conversation.
Request a preliminary resourcing plan from outside counsel and speak up if something doesn’t sound quite right.
- “What are the main issues you need to research first?”
- “Why is the discovery phase expected to last that long?”
- “Is this something an associate can handle on their own?”
These kinds of questions won’t reveal cost-saving opportunities every time, but they will at least add a valuable layer of accountability as you work to refine your own perspective of what legal services should cost.
Because that’s the long-term goal of legal spend management — to be the one leading the conversation and setting the expectation. And as we’ll discuss later, it’s where developing your own pool of benchmark data becomes a dramatic strategic advantage.
Can you accurately predict impending costs?
If suspense is a feeling you closely associate with opening legal invoices, then it’s safe to say you’re merely paying bills. Because one telltale sign of true legal spend management is the confidence that you know what’s coming.
Consistently setting budgets and proactively discussing resourcing plans will go a long way toward fostering that predictability. An even more concrete factor to consider, however, is your accruals reporting process.
Requesting formal updates on work that’s already planned or in-progress creates one more opportunity to preview — and potentially reshape — your financial future before it becomes reality. The main challenge of managing legal accruals, though, is trust. If you can’t depend on the numbers to arrive in an accurate format and timely fashion, then there’s little value in the exercise.
That’s why more in-house legal teams are favoring e-billing software that standardizes reports and automates steps in a way that simplifies the accruals process for both sides.
Can you promptly identify overspending?
Anyone working in corporate law will inevitably encounter a scenario where expenses exceed expectations. But, as previously mentioned, higher-than-estimated spending is not categorically bad. The more relevant concern is if and when you can identify these discrepancies.
If there are no quantitative criteria to compare spending against, then merely paying bills becomes your policy by default. Assuming you have set a budget, however, the next step is tying it into your spend tracking system.
Standard e-billing software can help address overspending by automatically identifying budget breaches and sending immediate alerts to your team. But this is still a fundamentally reactive approach.
The ideal legal spend management solution takes action earlier. Instead of incurring and resolving overages, in-house legal teams can now leverage A.I.-powered forecasting tools to predict such incidents before they ever occur.
Do you review every invoice line item?
Invoices ultimately tell the story of your legal spend. The trouble is, that story might be strewn across thousands of pages co-authored by hundreds of collaborators who submit their contributions in multiple formats.
Legal invoice review is by no means a passive reading process either. You’ll need to verify that the billing guidelines, budgets, and resourcing plans you previously discussed with outside counsel are actually being honored in their financial statements.
Given all those complexities, and all the other priorities competing for your team’s attention, the impulse to skim or skip pages is understandable. But anything less than an exhaustive review of your financial records would fall short of managing legal spend.
So how do you overcome all these obstacles and move beyond merely paying bills? Simple. Employ software so smart that you can trust it to do the reading for you.
A.I.-assisted invoice review now gives legal departments a way to maintain complete financial awareness without sacrificing team productivity or analytical accuracy in the process.
Does data determine your strategy?
Which law firms have the best record of complying with your billing guidelines? What is an appropriate budget for a matter of this type? How should work be divided among law firm employees?
You need quantitative evidence to answer these kinds of questions with confidence. Otherwise, you’ll be relying on gut instincts and personal anecdotes. And if you’ve made it this far into the article, you know that neither of those two is an ingredient for expert legal spend management.
The good news is you already have all the data you need. The bad news is much of it is locked in an unusable format: Line item narratives. And that’s a problem only software can solve.
The most powerful advantage of A.I.-assisted invoice review is the ability to transform legal service descriptions into structured data. That means, in addition to rates and subtotals, the tasks and activities within legal invoices can now be quantified and analyzed as well.
This technical innovation has dramatically increased the sophistication of legal spend reporting. Departments can now draw on a wealth of data that enables them to benchmark law firm performance, negotiate fee models, and set exacting budgets.
One Final Question
Hopefully the preceding seven questions have helped illuminate your answer to the article’s headline. Each “yes” would offer progressively stronger evidence that you’re expertly managing legal spend.
But if you’re not yet meeting that standard, there’s one more thought to consider:
Are your current tools and processes actually designed for anything more than merely paying bills?