Increasingly, law departments are looking to better understand which tools they should leverage to assess their legal department’s performance. Finding those metrics, which can range from across-the-board spend reduction to optimizing data collection and utilization, are essential to evaluating a company’s overall efficiency.
But where should one start? While it may seem simplistic, organizations should begin by understanding and agreeing upon the company’s desired result. Once this critical step is determined, it then makes sense for the company to assess a program and/or system that will meet the desired objective.
By taking the time to develop key performance indicators (KPIs), legal teams can demonstrate the overall health of the business and, in turn, demonstrate to management how collecting specific data from their systems will help optimize both their business processes and their technology investment. Collecting data based on the following six KPI categories can help the company run smoothly in the short term, and help its staff to make better long term decisions. These include:
KPI #1: Financial - Understanding and optimizing each department’s spend
Implementing a system that tracks finances and optimizes spend efficiency is usually a starting point for newer legal departments. After-all, financial data helps clients look at exactly where the money is going. When implementing a system, it is important to analyze all costs one piece at a time in order to gather all the quantitative information from the billing system and pinpoint average costs. The longer the systems have been in use, the more data that is collected, which enhances your over-all decision-making abilities over time.
For example, it’s vital to figure out the total resolution cost for litigation. Teams should break it down into product line or matter type so that the smaller matter costs are tracked in addition to the total department matter costs. This information can be gathered from invoices and other sources, such as the organization’s AP system. However, it goes without saying that in order to create those metrics, you have to have the numbers in the system.
It’s also essential to determine outside vendor costs. Tracking data can help a legal department to determine whether it’s more cost effective to perform work in-house or use outside counsel. Typically, a balance of both approaches work best, but it’s important to ask these types of questions, because the answers will provide the data that is at the core of this key performance indicator.
Start by asking some questions such as: What’s been successful and what hasn’t? When an effective financial tracking system is in place and trends can be evaluated over a period of years, the department can make the best decisions to optimize its financial efficiency and remain in control of its spend.
KPI #2: Risk - Finding ways to stay out of court
It’s every legal department’s top priority to protect the company by mitigating risk against any lawsuits. There are very effective ways to track risk and measure how well they’re accomplishing that goal, yet most departments still wonder whether they are managing their resources correctly. Although it’s difficult to form metrics around risk, there are some solid steps that a legal department can take to answer that question.
First, it’s critical to develop an early matter assessment. This type of assessment must be completed in the first 30 days of receiving the new matter and needs to provide the answers to very specific questions:
- Does this matter need to go to court?
- How can we prevent this from becoming a case? Where possible, try to find out the percentage of similar cases that were pleaded and resolved versus those that went to court.
- Has the selected firm handled a dispute like this before?
- Was it won or lost?
- What were its weak or strong points?
- Track the number of cases where you’re the plaintiff and you’re the defendant. How many were resolved before trial?
- How long did it take to resolve?
- Are there any trends?
Tracking all of this information through to resolution, and finding out what’s working or not working, are the actual data points that will ultimately form the basis for these metrics.
The steps a legal department must take to try to prevent a matter from coming in the first place are difficult so these metrics must be continually re-evaluated. In fact, that’s why the early matter assessment is so important, as some metrics might be useful for the short term but not from a long term perspective. The process will change over the life of the KPI program so it’s important to keep re-evaluating the metrics against the results.
KPI #3: Workload - Optimizing the legal department’s time, money, and human resources
Typically, departments struggle with this metric. For example, one of the main concerns of every legal department is whether to use in-house attorneys or to use outside counsel for a particular matter. Using outside counsel is a huge expenditure and legal departments swing back and forth like a pendulum over this issue.
Applying this KPI will help legal departments decide whether to use in-house or outside counsel in any given matter. Data can be used from a quantitative standpoint; however, the critical question is, where are the cost breakdowns for these resources? From a qualitative standpoint the question should be, have we gotten the results we were looking for?
Tools can help address this and aid in better decision-making, but the technology will also help departments find the answers. As such, the right path often lies in asking even more questions such as:
- If you hire high-dollar counsel in New York versus less expensive counsel in Minnesota, are you getting what you’ve paid for?
- Can we leverage second-tier employees such as legal assistants, paralegals or secretaries and still get the same results?
- What tasks can be given to lower-cost external resources?
- How many staff members were needed for this matter?
- Are there any noticeable trends?
- Does this case set a precedent? Is there a higher level of public exposure to this case which would necessitate the best resources available? Or is it just a regional issue with enough day-to-day tasks involved that it can be resolved using mostly in-house or less expensive mid-tier firm resources?
The last factor is dependent upon the complexity of the case itself. If it’s a high-dollar case, it might be best to use the higher-quality resources. For smaller, less competitive matters, paralegals or other staff might suffice. These metrics can be tracked on a resource level, and produce valuable information.
The downside of this KPI is that it can provide all the data needed, but managers need to know how to interpret the data and make the right decisions. Once you learn how to do that, this KPI has one of the greatest impacts on the departments spend.
KPI #4: Efficiency - Collecting the data and analyzing the numbers
While a legal department’s efficiency is determined by its best use of time, money, and human resources, they need to have the necessary data captured in an accessible location in order for it to be of value. Figuring that out is about quantitative data collection and is achieved by posing more questions like:
- How many outside law firms is the legal department using?
- What is the average cycle time used by outside counsel?
- How many active cases are there, and how many cases are open over 120 days?
- How many cases remain open in the system?
- What is the average time to reach a decision from the inception of the case to final decision?
It’s also important to find out where the data is being housed. Data can be stored in any one of numerous systems, and often departments aren’t even aware that they have so much intelligence captured in so many different places. These are just some systems in which key information could be hiding:
- Matter management
- Accounts payable
- Document management
- Records management
- Databases that are internal to the legal department
- Links to other systems
- Homegrown systems that departments have come up with on their own
- Network drives
- Local laptops
By collecting this data and depositing it in a more central and accessible system, legal teams can begin to address questions, such as what are the number and type of cases we manage and what are their true costs by dollars, by attorney, and by firm? Your legal department will see real benefits when they have the basis to make the best decisions to even out the workload and balance your resources more efficiently.
Stay tuned for in two weeks, [CM1] when we will explore how to put these KPI’s into practice for even greater results.