The Situation
To effectively manage today's Law Department you must succeed in doing something with which many of your non-legal corporate colleagues have struggled for years. You must somehow transform the raw data in the files and minds of your department into actionable intelligence. Although this daunting task can be manually performed, there are cost effective systems designed to affect this transformation and put you in a position to easily deal with the regulatory and operational challenges of today and tomorrow. This article is designed to be a short primer on how to get started putting the data management and reporting disciplines you need in place.
The Goals Of The Unified Law Department Financial Platform
Most commonly, the broad objectives of a unified law department management platform are the following:
Reduce costs
Improve outcomes as a result of improved collaboration
Make better decisions
In order to achieve all three of these goals a majority of the Fortune 100 corporate law departments have embraced a financial management platform containing a matter management platform, an e-billing application and data aggregator reporting solution. What have been the results and the drivers of success?
Reduce Costs. The implementation of e-billing technology leads to cost reduction and significant ROI by streamlining the invoicing and invoice review processes and by enabling more consistent capture of violations of corporate billing policies. E-billing empowers companies to reject or adjust erroneously billed charges from outside counsel. In our experience, automated and online checking can reduce legal expenses by 3-10% (through the consistent application of existing billing guidelines and powerful invoice review tools).
Historically, reducing legal costs meant only the reduction of hourly rate or invoice reductions. Using data captured through e-billing, cost containment can now mean something quite different. Using objective performance data, leading edge law departments are able to cost effectively establish, and maintain, best practice cost reduction methods such as budgeting, law firm counseling regarding specific billing practices, consolidating their work with the highest performers, and establishing value-based pricing models. E-billing is the most efficient, accurate, reliable and repeatable method of capturing and presenting all of the required data.
Improved Results. It has been repeatedly demonstrated that corporations sharing collaborative partnerships with their outside counsel reduce the cost of service, and even more importantly, achieve better outcomes. This partnership comes in many different forms. They can include:
Vendor management portals which track law firm metrics for sourcing
Collaborative case assessment and planning
Matter budgeting and financial status
Real time status updates
Document sharing and knowledge warehousing.
Of these examples, perhaps the most useful planning tools are matter assessment and budgeting. Traditionally, matter budgets were created ad hoc. The result, unfortunately, was that counsel was unable to draw the past experience of others handling similar matters. Moreover it was daunting to manually track the actual results against the plan and budget. This is no longer true. By combining the knowledge gained from prior similar matters with the online input of outside counsel, corporate counsel are able to create objectively based plans and budgets and to automatically track progress as the matter proceeds.
Better Decision Making. The apex of a unified e-billing solution is the unfettered access to information that enables your business partners to make better decisions. With this information, law department leaders are able to:
Assess trends
Spot anomalies
Create strategies based on empirical data
Identify and measure key performance indicators, and
Present results to internal clients.
Practice area heads are better able to budget, assess the risk and financials of their portfolios and identify performance problems. Responsible professionals are able to collaborate with outside counsel in the strategy and execution of specific matters.
With all of the department's data at one's fingertips, corporate counsel are able to add value by identifying best practices of the in-house team and outside counsel. Responsible professionals can compare case cycle times, team concentrations, budgets, risk management profiles, outcome information, and more. Litigation managers compare firms' staffing practices and how those practices impact case results. They can compare the average fees and expenses by firm, by type and severity of matter. They can identify staffing practices, determine which firms proactively focus on value-added activity and, of course, identify which firms adhere to established billing and engagement guidelines and which do not. This allows you to allocate resources more effectively and to identify and leverage those outside firms that bring the most value to your company.
Reporting Best Practices: How To Leverage E-billing Data To Improve Performance
Once the matter, risk and financial data is captured and resides in a unified platform, the opportunity to leverage this information depends on the tools and in-house expertise of users. This section is dedicated to sharing best practices in management reporting. In addition, this section will set out definitions and disciplines that increase the value of management reporting. Although this methodology is applicable to matters of any type, it is particularly helpful in managing litigation. All of litigation's myriad variables, such as the selection and use of appropriate counsel, the development of an effective action plan, efficiently budgeting for expenses and navigating unique legal climates are able to be analyzed using these tools.
In short, law department managers must have ready access to high quality and accurate information. As discussed above, many law department managers are using e-billing data to guide management decision-making and cost control. In order to effectively leverage that type of data, however, they need sophisticated and effective reporting tools that will allow data segmentation and organization to match their company. Only then will they be able to generate reports needed to improve and accelerate the measurement of results and identify the success of specific strategies.
Management Reports. The best management reporting systems generate information in four core areas. These four core areas report on matter activity, finances, matter management processes, and e-billing performance. The best reporting systems also support the segmentation of the information in those four critical areas. Segmentation is the ability to look at one or more groups of matters individually, or in relation to one another or other groups of matters.
Matter Activity. Matter activity reports identify the number of matters opened and closed within a selected period of time and show the number of matters pending. Trending receipts, closures and pending matters measured over time can provide both management and strategic information related to performance, resource allocation and future loss. Additional insight can be gained by creating receipt to closing ratios and by tracking case age for pending as well as closed cases. Capturing and reporting on type(s) of dispositions, e.g., by settlement, by trial, etc., provide additional performance measurement and strategy formulation opportunities.
Financial Reports. Financial reports track reserve, expense, loss and recovery. Trending financial information over time can provide both management and strategic information, especially when the information is reported for similar matter and severity segments. In addition to dollars expended or recovered, variances from budgets and reserves can be reported. Likewise, projected loss, both gross and present value, can be generated if good quality historical information has been captured in conjunction with good budgeting and high quality matter evaluations. In many instances it may be useful, for both strategic and accounting purposes, to track out-of-pocket versus insured losses.
Process Reports. Properly segmented financial and matter activity reports can provide qualitative information on at least a presumptive level regarding the relative performance of law firms, lawyers and business partners. Process reports permit managers to understand why and how law firms, lawyers and professionals generate their results. Process reports identify what sorts of activities were undertaken, by which resource or level of resources and when that activity occurred during the life of a matter or on average over the lives of many matters.
To date, the best source of such information is secured by capturing and reporting on UTBMS Phase, Task, Activity and Expense information. Better e-billing vendors capture the UTBMS information as well as the name, rate, cost, level (partner, associate, etc.) time and dates of all activity. The ability to associate activity with particular resources and levels of resources provides highly useful insights regarding best and worst practices.
E-billing Performance Reports. Unlike process reporting which identifies how reported results occurred, e-billing performance reports measure the savings generated through use of the e-billing system and the effectiveness with which the tool is being used. Typical types of e-billing reports include bill adjustments per case, lawyer, law firm, type of activity and so on. They also identify the extent to which claim managers are conscientiously reviewing and processing invoices, as well as the number, size, timing and dollar amounts of bills. A very significant feature of e-billing reporting systems is the ability to identify the billed but not paid status of invoices.
Reporting on the above four areas effectively covers the areas of portfolio management that should be addressed. Often, different parts of those reporting areas are combined to generate even more powerful information. Obvious examples include the combining of financial results and case activity result, e.g., the cost of matters closed, or the combination of e-billing information with financial information to project compliance to budget through year end.
Conclusion
Because of business and regulatory imperatives, the definition of successful corporate counsel has changed. Thought-leading law departments are looking for opportunities to keep up, even capitalize, on this paradigmatic shift. One foundational component of any plan to meet these increasing demands is the capture and analysis of the core matter, risk, financial and performance data. Quantum leaps in web technology make the acquisition and analysis of these data easier than ever before for law departments and the firms that serve them.
Published January 1, 2006.