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Understanding Legal Spend Management: A Comprehensive Guide

The Association of Corporate Counsel found that the average in-house team legal spend increased by 29% in 2023 when compared with 2022. To tame that wild spike in costs, companies must adopt a robust legal spend management strategy.

This guide will give you a deeper understanding of legal spend management. You’ll also learn strategies for achieving cost savings, improving relationships with legal service providers, and making data-driven decisions that lead to better outcomes. By the end, you’ll be equipped with the knowledge and tools to transform your legal department into a strategic asset for your organization.

What Is Legal Spend Management?

Legal spend management is the practices, strategies, and tools used by organizations to control and efficiently manage their legal expenses. This typically includes overseeing costs related to outside counsel, alternative legal service providers, and other associated legal fees and expenses.

The main objectives of legal spend management are:

  • Transparency: Organizations need to be able to track and monitor legal costs to understand how funds are allocated and used. Transparency allows for better decision-making and ensures no hidden or unexpected costs.
  • Cost control: Controlling costs effectively ensures that legal expenditures are in line with budgets and expectations.
  • Value optimization: Every engagement with outside counsel must deliver business value. Legal spend management gives you the data to make sure firms pair high-quality advice with cost-effective staffing.
  • Efficiency: Legal spend management helps legal departments streamline operations, automate repetitive tasks like invoice review and spend reporting, and make optimal use of both in-house and outside counsel resources. Efficiency gains enable in-house teams to get more high-impact work done every day, ultimately leading to cost savings by reducing time spend on administrative work.

By focusing on these core objectives, organizations will develop a comprehensive legal spend management strategy that controls costs and prioritizes business value. This approach allows for better alignment with broader organizational goals, leading to more effective and accountable legal operations. Establishing clear communication and expectations also helps build better relationships with legal service providers.

Key Features of a Successful Legal Spend Management Program

Legal spend management software should be more than just somewhere you go to approve invoices It should have a robust suite of features that help you optimize your legal spending.

Centralized Spend Tracking

Centralized spend tracking creates a unified repository where all legal spend data is stored. It keeps all of your invoices, matters, budgets, and accruals in one place, making it easier to see where your money is going. Your legal service providers can submit invoices and other spend information through the tool’s vendor portal. Using this spend data, this repository should provide real-time updates on spend and allow users to track all legal expenditures. Secure cloud-based storage solutions offer both accessibility and a backup option for this critical data, so you can access it anytime and always know it’s safe.

The repository should also feature role-based access controls to maintain data integrity, ensuring that only authorized personnel can modify or delete legal spend data.

Additionally, the system should be able to segment and categorize data for more detailed analysis. This is invaluable for spotting trends or anomalies impacting your legal spending.

Automated Application of Outside Counsel Guidelines

A top-tier legal spend management system should come equipped with functionalities that enforce clear billing guidelines. If any non-compliant charges appear, the tool should flag them for immediate review, eliminating the need for manual oversight.

Zillow's Mark Allen explains how Brightflag's automated invoice review process ensured outside counsel guidelines compliance, and resulted in significant savings for Zillow's legal team.

Because the legal landscape and your company’s needs are always changing, the tool should allow for easy updates to billing guidelines. This ensures that the system remains aligned with any changes in legal services, rate adjustments, or regulatory shifts.

Last, the tool should offer training resources or materials to vendors, ensuring that everyone involved in the billing process understands and complies with the guidelines. This simplifies the invoicing process and enhances the relationship with legal service providers by fostering transparency and collaboration.

Budgeting At Every Level Of Legal Spend

The best practice for legal operations teams is to track budgets at the matter level, the practice area level, and the overall department.

In practice, most legal teams don’t do this. It’s simply too hard to track when your information is locked up in a mishmash of emails and spreadsheets. Or, if your legacy software is too clunky and unsophisticated to track each level.

A good legal spend management tool lets you set and track budgets at each of the three levels. That way, you always have the information you need to see if you’re trending over or under budget. When you’re on top of your budget, it’s also easier to spot spending anomalies and unexpected charges and take corrective action.

Finally, your LSM software should empower you to build the reports you need to be well-equipped for regular and annual budgeting meetings with your finance team.

Legal Spend Reporting

Legal spend reporting helps you transform data into actionable insights. A well-designed legal spend management tool should offer robust tracking and analytics capabilities to facilitate better decision-making.

Your software should have customizable dashboards that provide at-a-glance insights into your legal spending. These dashboards can be tailored to show the most relevant metrics, whether you’re interested in spend by vendor, case type, or geographical region. This enables you to quickly grasp the state of your legal expenditures without having to sift through endless spreadsheets.

The tool should also offer detailed reporting options that break down legal spend in various ways. Want to know how much you’ve spent on a particular vendor or what matters are driving high spend? The reporting feature should be able to answer those questions and more.

The tool should also offer comparison metrics that allow you to assess your performance against your own historical data and industry benchmarks. This comparative analysis provides a clearer picture of how well your legal spend management efforts are faring.

See how Brightflag's A.I.-backed reporting functionality increases insights into legal spend in this one-minute overview video.

Of course, all the powerful analysis and fancy reports in the world are useless if you don’t have time to dig into them. That’s why all good LSM tools should include a customer success manager to support you. CSM’s operate like an extension of your team, tracking down the trends and offering advice so you can focus on the rest of your work.

Practical Steps for Implementing Effective Legal Spend Management

Implementing an effective legal spend management system requires a combination of strategic planning, collaboration, and regular evaluation to ensure cost efficiency and value. Here are some practical steps to guide you through the process:

Establish Clear Objectives and Benchmarks

The first step in any successful legal spend management strategy is to clearly define what you aim to achieve. Whether it’s achieving 100% visibility into legal spend, or reducing costs by a certain percentage having measurable goals is crucial. These objectives serve as a roadmap, guiding all subsequent actions and decisions.

Success in legal spend management also requires the buy-in and collaboration of all stakeholders. That includes everyone from the general counsel and in-house counsel to external vendors and even IT and finance. Regular meetings, updates, and open channels of communication are essential to ensure that everyone is on the same page.

Your legal spend management objectives should also be flexible enough to adapt to changes in the legal landscape. Periodically revisiting your goals and benchmarks allows you to make data-driven adjustments, ensuring that your strategy remains relevant and effective even as conditions evolve.

Collaborate with Legal Service Providers

Building a successful legal spend management system isn’t a solo endeavor. It requires a collaborative relationship with your outside counsel and other legal service providers. Working closely with them creates a mutual understanding of your process, ensuring everything is transparent and running smoothly once the software is implemented.

Open lines of communication are essential for this collaboration, whether it’s through regular meetings, email updates, or a dedicated communication platform. This is particularly important when it comes to billing, reporting, and other forms of communication. Clearly defined expectations help prevent misunderstandings and disputes down the line.

To further streamline the process, it’s crucial to provide clear and comprehensive outside counsel guidelines. These should be communicated to all legal service providers and agreed upon prior to instructing these providers. This ensures that everyone is on the same page on what constitutes acceptable and non-acceptable charges, and what the communication protocols are.

However, collaboration isn’t a one-way street. Encouraging regular feedback from your legal service providers provides valuable insights into how the relationship is working and where there might be room for improvement. This feedback loop creates a more collaborative and mutually beneficial relationship.

No relationship is without its bumps. When discrepancies or issues arise, addressing them promptly is key to maintaining a healthy partnership. A quick and transparent resolution prevents minor issues from escalating into major problems.

Review and Adjust Regularly

Legal spend management is not a set-it-and-forget-it project. It’s a continuous process that requires regular monitoring and adjustments. The first step in this ongoing effort is to consistently measure outcomes against the objectives and benchmarks you’ve set. Doing this will help you understand how well your strategies are working and where adjustments may be needed.

Periodic reviews should extend beyond financial metrics. It’s equally important to examine billing data, vendor performance metrics, and input from both in-house teams and outside legal partners. This comprehensive review offers a more well-rounded view of your legal spend management’s effectiveness.

Adjustments may also be needed to align with the changing needs of your organization or the legal landscape. This ensures that your legal spend management remains as effective as possible.

A culture of continuous improvement ingrains this process within your legal team. Encourage team members to always look for ways to improve processes, reduce costs, and add value. This mindset will lead to proactive solutions and innovations that can significantly impact your legal spend efficiency.

Last, the tools and software you use for legal spend management should not be static. As your needs evolve, ensure that your technological solutions are updated and aligned with your current requirements. Keeping your technology current is crucial for an effective legal spend management system.

Optimize Your Legal Spend Management with Brightflag

Brightflag’s AI-powered legal spend management software enables you to take control of your legal expenses in multiple ways. This includes centralizing spend tracking, automated application of your outside counsel guidelines, and effectivebudget enforcement. With the power of Brightflag’s data analytics, you can gain valuable insights into your spending patterns, helping you make data-driven decisions to control or reduce spend.

To learn more about how you can optimize your legal spending and make your legal department more efficient, book a demo with us today. Experience firsthand how our platform can revolutionize your legal operations.

Sarah Scales

Head of Product Marketing at Brightflag

Sarah Scales is the Head of Product Marketing at Brightflag, previously serving as a Product Manager and Change Manager. Sarah holds a Bachelor’s Degree in Law and Political Science from Trinity College Dublin, as well as a post-graduate diploma in Software Product Management from Technological University Dublin.