Legal Department Metrics: Cost vs. Value

by | Feb 12, 2014

legal department value metrics

When asked if metrics provide a useful and accurate measure of the legal department’s value to the business, 66% of GCs say “no” in a recent survey.

 Is this at all surprising?  The legal department metrics, used in most organizations, are not aimed at measuring value – they measure the legal department’s cost to the organization.  Do I think my cost to my organization is a measure of my value?  Of course not.

These are common metrics in legal departments.  Note that they are all about cost:

  1. Legal department expense as a percent of corporate revenue
  2. Outside counsel spending; internal legal department cost
  3. Cost per matter
  4. Average matter billing rate

It’s no wonder GCs don’t find metrics useful in the context of measuring value.

I’m not suggesting that organizations don’t manage the costs of their legal departments, but cost metrics have to be balanced against metrics that show the amount that the legal department prevents the organization from spending.   

For example, even focusing just on litigation and calculating the exposure of cases would balance the equation (and note that between tools we have like Counsel Benchmarking and Verdicts & Settlement Analyzer enable companies to do just that).  Once those numbers are in hand, there’s evidence of how much the legal department saved the organization – a completely different picture!

Another way to demonstrate value is to measure things like matter success rates. It’s relatively easy to define the percentage of litigation cases the department wins, but establishing success criteria for other matter types actually doesn’t take that much effort, and often should include metrics related to time-to-disposition, which could be easily captured.

Metrics can also be used for legal departments to proactively add value. As Today’s General Counsel wrote in an article, stemming in part, from our case study on Kennametal:

Another way to reduce spending is to use matter management systems in order to zero in on which departments within a company generate disproportional amounts of legal work so they can be educated on alternative ways of dealing with those issues.

The heart of the article is still about costs, but the emphasis is about leveraging technology to increase productivity and add business value.

There are still other ways cost metrics can help demonstrate value.  For example, how much does a GC save by moving to a fixed-fee model for routine employment matters instead of hourly?  Or how much was saved by negotiating better rates?  Metrics of this nature are essential to balance against the pure P&L sort of metrics that have been the focus for far too long.   

There-in lies the power of metrics – to tell a complete and balanced story.  I’m convinced that GCs who say metrics don’t help them analyze their value aren’t harnessing the data they have to provide information that tells the story of how they are a business partner to all the leaders of their organization.

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Kris Satkunas
Kris Satkunas

As Director of Strategic Consulting at LexisNexis, Kris leads the team’s efforts to advise corporate legal department managers on improving operations with data driven decisions. Kris has over 15 years of consulting experience in the legal industry. Areas of expertise include benchmarking, practice area metrics and scorecards, dashboard design, matter pricing and staffing, and cost management.

Prior to joining the CounselLink team, Kris honed her legal industry knowledge by advising and consulting with leaders in large law firms. As Director of the Redwood Analytics Think Tank, she partnered with a group of industry thought leaders to develop advances in analytics and best practices that improve law firm performance. She has authored numerous articles and speaks regularly at legal industry conferences and events.

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