Is cost an effective metric of value delivered to an organization? Kris Satkunas, who approaches corporate legal department metrics with a numerical focus, made a compelling case. In her recent post, Legal Department Metrics: Cost vs. Value, she notes that cost while widely used isn’t the only logical measure of value.
She’s written fairly extensively on the topic including a contributed piece on Inside Counsel: How to use analytics for greater credibility at the business table, which is in essence a primer on how corporate counsel can use analytics:
…When properly analyzed, data about past legal matters and data from across the legal industry as a whole can arm GCs with the information they need to more accurately predict their legal spend and build trust and respect with their CFOs.
Legal analytics answer a few basic questions, including:
- How long should this kind of matter (lawsuit, joint venture, etc.) take to resolve?
- How much will this kind of matter cost us to resolve?
- What are the signals that a specific matter has strayed outside the bounds of predictable norms in terms of time and expense?
The key is not only estimating the cost of a matter but assessing the potential range of costs along with the drivers of that variability. This information brings real value to the company.
And later she places this in context with this illustrative example:
For instance, imagine a matter that has been active for 16 months, such as a complex employment litigation case. The employment in-house counsel looks at the information from other employment litigation cases and sees that they typically last 27 months. The next step is to compare this matter to 75 other employment litigation cases over the last four years. The comparison may show that in month six, costs spiked well above the average for this type of work, and then continued to be above average. By looking into the activities in month six, the in-house attorney can figure out what drove up those costs.
Practical Advice for Getting Started
In an interview with the Legal Talk Network that breaks down some of the overarching findings of the CounselLink Enterprise Legal Management Trends Report, Mike Haysley offers pragmatic advice from a GC perspective for getting started.
1.Benchmark internal data. Whether it’s the trends report, law department benchmarking studies like those ALM produces, or data from consulting groups like BTI Consulting surveys, it’s important to establish a baseline to see how a given department matches up against peers in the industry. This is the first step to discovering opportunities for areas of improvement.
2. Start small and grow. Mike recommends picking one or two practice areas where the corporate legal department already has some “hunches” for areas of improvement. This mirrors the notions Kris also recommends when striving for specific tactics such as negotiating AFAs.
3. Use data to make a case. Mike notes in his time in corporate law, often the hardest part about experiments for process improvement was obtaining senior management buy-in. If the language of business is finance, data may well be a distinct dialect. It’s often valuable to be able to demonstrate how “other people are doing this and having success.”
4. Make analytical assessments repeatable. Whatever analytical reporting you choose, the process ought to be reputable. Often the best insights are conveyed overtime as data is aggregated.
Your turn – do you believe cost is an effective measure of value? What metrics can corporate legal departments measure?
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