The Elements of Legal Spend Management Programs
The data requirements and efforts needed for fully automated systems may have return windows that far exceed their value. Through varied partnerships with numerous organizations, the often-overlooked elements and considerations discussed in this article are of critical importance to successful legal spend management programs.
October 07, 2019 at 03:13 PM
6 minute read
As legal costs continue to rise, organizations are constantly faced with developing and implementing legal spend management programs to control, budget and forecast future legal costs. As a result, legal operations units are often tasked with managing these highly critical initiatives. Although many new technical options offer solutions that appear automated and utilize artificial intelligence or machine learning, it's important to note that at very basic levels AI will be incorporated to assist in program execution and create modest efficiency gains within the program. As many articles and data scientists have suggested, the data requirements and efforts needed for fully automated systems may have return windows that far exceed their value. Through varied partnerships with numerous organizations, the following key elements and secondary considerations, often overlooked, are of critical importance to successful legal spend management programs.
Enterprise Legal Management Software (Matter Management System/ELM) requires selection, development and implementation. Upon implementation of this critical software a number of additional personnel and process considerations are necessary for its successful execution. As a component of the intent of an ELM is efficiency, early process discussions of the following items will ensure the need for support will decrease in the long term.
- The creation and maintenance of matters. Do organizations rely on the firm for entry and maintenance of matters? If so, they must be prepared to train the firm on the style and coding appropriate to each organization. Even with precise instructions in the billing guidelines (discussed in the next section), errors occur and must be identified and corrected in order to create robust reporting and data analytics.
- Document filing. If the ELM is intended to be used as a repository and communication platform for all matters, then requisite time must be spent to create a document filing system aimed at loading and managing matter-specific documents. This is time well spent prior to an ELM rollout.
- The creation of a process to manage fee structures, alternate fee arrangements and rates, including obtaining approvals. The process includes the creation and maintenance of law firm timekeeper profiles. This is critical for identifying the use of first- and second-year associates.
- Who will manage the law firm onboarding process and resolve any questions from law firms regarding its use?
The legal billing guidelines or legal service level agreements are a secondary critical element of good legal spend management programs. Most guidelines may include but are not limited to instructions that support operational efficiencies and map the paid amounts back to the correct business units. They may even provide instructions on matter-specific budgeting, details on document submissions and appropriate legal experience requirements as well as scenarios for alternate fee arrangements. Although the guidelines detail expectations and firms try very hard to meet those expectations, it's important to measure the success and compliance as the guidelines were created with details specific to the needs of every business. The following list defines some common pinch points or oversights regarding guideline initiation and compliance.
- The responsibility of populating, maintaining and approving of budgets, accruals and invoice submissions with required follow-up. Within this broad category is also the historical tracking of budgets to monitor budget exhaustion.
- As legal expenses continue to grow, there is more governance and fiscal responsibility surrounding legal invoices. With this in the forefront of many minds, does the staff possess the commensurate expertise to audit invoices (paper or electronic) against the billing guidelines? This process includes adjustments, appeals and working with the firm to manage the invoice updates and track the reductions and type.
- Once the invoice audit is completed, is the final invoice approval workflow manageable and efficient?
- Does the organization have the knowledge and expertise to manage alternate fee arrangements or reverse auctions? In many instances the procurement department may handle this activity.
Metrics, reports and data analytics create a legal spend management program geared to mitigate costs, develop efficiencies within legal departments and utilize the vast sums of data to generate descriptive, predictive and ultimately prescriptive information for AI and machine learning and increased insight into legal spend. This step is one which requires data transfer and mining as well as technical data analytics knowledge. As has been seen in numerous submitted invoices, the UTBMS coding utilized is often less than 50% accurate, which creates decreased analytical reliability. Is the organization trained and fluent in the following areas necessary for a robust program and/or is there even the capacity to address them?
- Scrubbing and validating data, which is a critical function necessary for any AI efforts
- Creating dashboards and recurring reports to support managing general counsel
- Evaluating key metrics on legal department personnel, including headcount, attrition, diversity and technology adoption
- Creating key performance indicators within and across projects, including cycle times, spend analysis and cost per task, including opportunities for efficiency improvements and to advise on how to direct legal spend to achieve the more effective results
- Benchmarking of law firm spend patterns
- Performing volume discount analysis
- Determining firm billing behavior (Better Billing Behavior Scoring)
- Budget exhaustion trending and budget to actual analysis
- Billing rate and staffing comparisons
- Descriptive, predictive and prescriptive analytics with AI and machine learning applications
This list is not exhaustive but provides a solid basis for any reasonable legal spend management program. The discussed elements are only a subset of a great program. The true value of the program in which these sustained and programmatic initiatives occur allows for ongoing savings and more importantly aligns everyone involved—legal vendors, law firms and clients—in working toward the same ultimate organization goals.
Steven Rudnick, Director, Legal Spend Management, QuisLex, has more than 22 years of corporate operations and analytics experience developing efficient and innovative solutions including legal invoice review and compliance, legal spend analytics such as program benefit ROIs, benchmarking, and predictive modeling. Before joining QuisLex as Director, Legal Spend Management, Steve lead Legal Invoice Review at one of the world's largest insurers where he advanced the use of analytics in billing review and compliance of a $600M+ per annum legal spend. He is also currently a highly regarded MBA professor with more than 20 years' experience teaching Business Analytics and Operations Management in an executive MBA program.
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