Using Data to Fix Outside Counsel Budget Forecasts
Since the 2008 economic crisis hit, U.S. corporations have been ratcheting up pressure on their general counsel to limit legal spending, and on law firms to provide detailed budgets for their work. For firms used to providing clients with ballpark estimates for outside counsel work, the new focus on precision can be a difficult transition.
“The old approach to budgeting [for legal services] was to say every case is different and can’t be budgeted,” said Craig Raeburn, vice president of legal analytics at TyMetrix, a legal software and analytics firm. “And that’s no longer a reality. Law firms understand that, and fewer and fewer are saying, ‘I can’t do that.’ ”
The question for firms is how to forecast their prices with the precision required for clients’ budgets TyMetrix recently hosted a LegalVIEW Forum event in Washington, D.C., where corporate counsel and law firms discussed billing challenges. According to a TyMetrix report on the forum, “both law firms and corporations need more information, more communication, and more insight” for successful budgeting and forecasting.
Raeburn suggests law firms use data on billing and matter from TyMetrix’s LegalVIEW, a database of performance data derived from invoices companies submit anonymously. And corporate legal departments can use data on billing to create reasonable expectations for law firms.
Raeburn says both sides need to get smarter about “the business of law.” Just having the data might not be enough, he notes. Law firms and clients should have people on hand who have business backgrounds and understand law firm operations.
Raeburn thinks that pricing directors can serve that role for law firms. On the corporate side, he points to companies like Motorola Solutions, where counsel can draw on the MBA-smarts of director of legal operations Karen Dunning.
“The general counsel needs to really, more than they ever have before, become a businessperson,” he said. “Number one, a businessperson, number two, a business lawyer.”
“Clients today have more insight and a better understanding about the fair market price of legal services,” TyMetrix says in in the conclusion of the forum report. “And so budgeting and forecasting is not only desirable, but absolutely achievable.