Know your spend and use budgets

The most basic question a stakeholder can ask any business unit, especially one that is considered a cost center, is “What is your spend?” Whether it’s the last fiscal year, this fiscal year to date or this quarter, every business unit in a company knows its spend. As a consultant who’s advised over 200 legal departments, I am surprised at the lack of ability of most legal departments to respond to this question; the most common answer I hear is simply “I have no idea.” The legal department used to be somewhat immune from having its finances scrutinized, but since the recession, more and more General Counsels have found themselves scrambling to answer this question when the CEO or CFO comes looking for numbers, which are provided by all other departments in a company.

The next basic question is “How does this spend compare to expectations?” To determine this, a legal department has to have a budget or way to measure expected spending. There are many ways to budget for legal matters: on a per matter basis, per business unit generating the work, per practice group or even on a department-wide level. Regardless of which type of budget is used, a legal business unit cannot determine whether it’s received good value for the money spent if there is no expectation of what should be spent in a given time frame. And again, budget questions are being asked more and more by the C-suite and boards of directors, so it’s important to have a systematic way to estimate and track budgets and get budgets from your law firms on particular matters so they can easily be rolled up into a budget report.

Having budgets also helps legal departments manage their law firms and matters. Going over budget is obviously a red flag, but so too is being well under budget. This may signify that the law firm is not giving the matter the attention that it needs. Red flagging matters that are over or under budget will help in-house counsel have meaningful conversations with their law firms about their matters and help keep from being surprised by large invoices out of the blue, one of the biggest pet peeves of in-house counsel everywhere.

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The following is the first in a series of posts on the top ways you and your legal department can integrate with your company and function more like a business unit.

Item #1: The first steps in acting that a business unit is to find an effective way to manage your department’s workload. As with any business unit in a company, an initial determination of how to allocate resources, evaluate performance and establish success can’t be made unless the totality of the work in your department is captured and understood. This may seem like a no-brainer, but without a very systematic way to track internal projects and what outside counsel is working on, a legal department—big or small—can lose track of all the legal work being done until they receive the invoice well after the fact.

Often times certain in-house attorneys are in charge of working with certain internal clients, and the knowledge of what they’re working on may reside only in their head or in their inbox. This can work for the short term, but again when the General Counsel is asked about the current exposure in the legal portfolio, or how many contracts are being negotiated this year compared to last, there isn’t an easy way to get this information without a system to track the legal matters.

Ideally the General Counsel can run a report at the touch of button, and see by matter type (litigation, transactional, etc.) how many matters each in-house attorney is working on, what the status of those matters are, which firms are working on those matters. Having transparency into the work going on in the legal department is key to being able to manage that work both internally and with outside counsel (hence the old adage, you can’t manage what you can’t measure). For example, if Bill in litigation is working on four minor matters for Business Unit C while Sally has fifteen matters for Unit B, it may be time to either redistribute that work or hire a new in-house counsel. Business managers prioritize projects and allocate resources accordingly to be as efficient with their workforce as possible. For a legal department to do this, you must first understand all the work being done, whether internally or by outside counsel, and then allocate that work appropriately. Visit Serengeti Law and get more info here.