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Calculating ROI to drive change
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Calculating ROI to drive change

The “points of return” from law department technology could generally be found in three buckets

I had the pleasure of sitting down recently with InsideCounsel Publisher Lloyd Johnson and columnist Connie Brenton, whose day job is chief of staff and director of legal operations at NetApp. We talked a lot about how much of her job is devoted to “change management,” and how much time and energy any lawyer or legal operations professional has to spend getting buy-in and budget in order to drive innovation in the law department.

In fact, according to last year's Annual Law Department Operations Survey, published by InsideCounsel and Blickstein Group in cooperation with Huron Legal, “driving/implementing change” was chosen as the single biggest challenge in managing law department functions. (You can get this data and more by taking this year's survey. Please go to http://bit.ly/TB2ru1 and fill out the questionnaire.)

Connie and I agreed that a great way to get buy-in is by showing a positive return on investment, and this reminded me that one of my very first projects as an independent consultant was helping an electronic billing company build a return-on-investment (ROI) calculator. Here's the approach we took:

First, understand that there is a major difference between quantifiable and non-quantifiable returns. Focus on the quantifiable, but keep a list of the intangibles. Most technology tools should survive analysis on a cash basis alone. Also, consider upfront what timeframe to analyze; three years seems to make sense, as that is a typical amortization period for software purchases.

The “points of return” from law department technology could generally be found in three buckets:

1. Process improvement. In a law department time is money, so work that can be done more efficiently saves money. While technology that adds efficiency may provide a potential for headcount reduction, often the biggest savings can come from simply freeing up time for in-house lawyers to do more legal work. Consider the amount of overflow legal work that gets sent to law firms simply because in-house counsel do not have the time. Time spent on administrative tasks, for example, can be replaced with time spent on legal work, directly reducing the number of hours billed by outside law firms.

2. Cost reduction. Look for ways that technology can provide direct savings. For example, predictive coding can fractionalize a document review bill. On the e-billing ROI project I did, the biggest opportunity for cost savings was by enforcing outside counsel guidelines. Many law departments had guidelines in place, but paper bills were too unwieldy to effectively test compliance with them.

3. Leveraging of data. State-of-the-art technology works by collecting and applying data. Consider ways to analyze that data to reduce legal costs. For example, a detailed analysis of litigation trends may allow the company to take steps to avoid many disputes altogether.

Once you’ve estimated the return, compare it to the total cost over the same period. Remember to account for implementation costs, consulting fees and annual maintenance payments. Divide that investment into your return, and there's your ROI.

Do not forget to include the list of non-quantifiable returns. In the legal realm, some of these benefits have enormous value from reducing risk. For example, consider a compliance system that identifies potential Foreign Corrupt Practices Act violations. Its value may be hard to quantify without a statistician and a lot of assumptions, but it is substantial and should be considered in some fashion.

Finally, it should not be lost on you that it was a technology company that engaged me to assist on this project. Providers have a lot of data and experience from implementing their own tools, and also have a vested interest in developing your ROI. Lean on them to help you put your analysis together.

Brad Blickstein

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