Best Practices Guide to Legal Analytics

Transcription

1 Best Practices Guide to Legal Analytics

2 Table of Contents INTRODUCTION 3 SETTING THE FOUNDATION 4 Track Key Performance Indicators 5 Monitor Department Trends 6 Continually Improve Your Data 7 MANAGING OUTSIDE COUNSEL 8 Monitor Law Firm Relationships 9 Capture Qualitative Feedback 10 Establish Preferred Provider Panels 11 Find the Right Counsel for the Job 12 Drive Diversity 13 MANAGING MATTERS 14 Track Key Performance Indicators 15 Monitor Matter Staffing Mix 16 Forecast Matter Costs 17 IDENTIFYING SAVINGS OPPORTUNITIES 18 Negotiate Rates 19 Better Manage Rate Increase Requests 20 Reduce Junior Associate Billing 21 Manage Excessive Billed Hours 22 Reduce Discovery Spend 23 SUMMARY 24

3 Best Practices Guide to Legal Analytics 3 Introduction Law departments have an abundance of available data. They have historic bills from their outside counsel, which contain a wealth of valuable information, if it could only be mined. They also may have access to external benchmarks. Without structure, however, the information is virtually useless because of its sheer volume. Fortunately, legal analytics platforms such as Huron Legal s legal spend analytics and benchmarking tool, Sky Analytics, can aggregate, organize, and compare that data in meaningful ways to make it truly actionable. When law departments can easily access their data and related external benchmarks and can review them in a clearly understood format, they can make better informed decisions about a variety of issues, beginning with external legal spend management. This transparency can also guide conversations with outside counsel leading to better collaboration and agreement regarding not only billing rates, but also expectations and strategies for the underlying representation. Using examples from Sky Analytics, this Best Practices Guide to Legal Analytics outlines strategies used by leading law departments to help control their external spending, select outside counsel, drive diversity, and answer a variety of other questions to better manage their departments and their outside counsel.

4 BEST PRACTICES GUIDE TO LEGAL ANALYTICS Setting the Foundation

5 Setting the Foundation Best Practices Guide to Legal Analytics 5 Track Key Performance Indicators The adage what gets measured gets managed, commonly attributed to Peter Drucker, is widely accepted. The first step toward improvement is identifying a few meaningful metrics to monitor on a regular basis. Key Performance Indicators (KPIs) such as those below are some easy-tounderstand, high-level metrics for measuring the performance of your law department and practice areas. How much did your department spend in the past 12 months? Is that amount increasing or decreasing? What is your department s average blended rate (ABR)? (ABR is the average rate across all timekeepers, weighted by hours billed.) What is your average cost per matter for a given matter type? How long do these matters take to close?

6 Setting the Foundation Best Practices Guide to Legal Analytics 6 Monitor Department Trends A key to successfully employing legal analytics is not just taking a one-time snapshot of key metrics, but also monitoring how these metrics evolve over time. In other words, it is helpful to understand your average blended rate (ABR the average rate across timekeepers weighted by hours billed), but it is even more helpful to understand whether your ABR is rising or falling. Knowing whether the department s caseload is increasing or decreasing is more useful than simply knowing the volume of open matters. Timekeeper rate trending analytics can help show whether your rate negotiation strategies are working. Monitoring department caseload can help balance internal and external staffing needs.

7 Setting the Foundation Best Practices Guide to Legal Analytics 7 Continually Improve Your Data In order to obtain high-quality, trustworthy analytics, you must feed your analytics platform good data. There are several factors that determine quality data: categorized matters, Uniform Task Based Management System (UTBMS) task-coded line items, robust line item descriptions, and line items that are not block-billed. The good news is that you can still get started even if you do not have all of these practices in place yet. In fact, a robust analytics platform will help you identify data deficiencies. Leading law departments use this insight to work with their outside counsel to improve their invoice data quality over time. Block billing (time entries that have multiple descriptions) inhibits transparency into tasks performed. Identify firms and attorneys with high levels of block billing and share this data with your counsel in an effort to improve data quality.

8 BEST PRACTICES GUIDE TO LEGAL ANALYTICS Managing Outside Counsel

9 Managing Outside Counsel Best Practices Guide to Legal Analytics 9 Monitor Law Firm Relationships There are many factors that go into measuring law firm performance and efficiency. The complexity and significance of a firm s caseload will determine which metrics are most valuable. For instance, for bet the company litigation, case outcome is critical and average blended rate may be of secondary importance. For more routine, repetitive work, staffing efficiency and average cost per matter may be more useful measurements. Here are a few examples of metrics that can be tracked at the law firm level: Does the law firm staff efficiently? How does the attorneys experience level compare to other similar firms you employ? Is the firm closing matters at a competitive cost?

10 Managing Outside Counsel Best Practices Guide to Legal Analytics 10 Capture Qualitative Feedback Law departments increasingly want value from their outside counsel. While everyone has a different interpretation of value, one definition is simply results delivered divided by cost. Quantitative billing metrics related to cost are easy to obtain, but qualitative metrics that capture results are more difficult to come by. As a start, many companies capture satisfaction scores as an indication of results delivered. Keeping satisfaction surveys short and concise is a best practice that drives internal participation. In-house counsel can rate outside counsel on several key factors. Analytics platform aggregates individual satisfaction scores to the law firm level.

11 Managing Outside Counsel Best Practices Guide to Legal Analytics 11 Establish Preferred Provider Panels Consolidating the number of firms doing similar work and developing preferred provider panels is often an effective legal spend management strategy for companies with high volumes of outside counsel billing. Both qualitative and quantitative assessments should play key roles in identifying which firms to award ongoing business, and analytics can help with these assessments. It is important to compare firm performance across similar matters for the most accurate comparison. Then metrics such as average cost per matter, average matter duration, and ABR become useful in selecting the firms that outperform their peers. Utilize data filters to first identify firms performing similar work. Stack-ranking the resulting firms by average cost per matter (for similar types of matters) can reveal stark differences in metrics such as matter costs and ABRs.

12 Managing Outside Counsel Best Practices Guide to Legal Analytics 12 Find the Right Counsel for the Job With thousands of attorneys to choose from and many different factors to consider, finding the right counsel for an upcoming matter can be a daunting challenge. A combination of qualitative research and quantitative analytics can simplify this task. Research companies such as The Legal 500 rank firms and attorneys by practice specialty based on peer and client reviews. Layering this type of qualitative ranking assessment with quantitative billing metrics, such as average matter cost or ABR, can be a powerful tool to locate the right counsel for the job. Select practice area expertise, region, and firm size to identify matching firms and then stack-rank firms by qualitative metrics like The Legal 500 rankings or quantitative metrics like ABR.

13 Managing Outside Counsel Best Practices Guide to Legal Analytics 13 Drive Diversity Corporations recognize the many benefits of diversity. Most have internal diversity initiatives and many try to drive diversity in their outside counsel through their spending leverage. Modern analytical tools can make it easy to monitor a variety of law firm diversity metrics. To get a true picture of law firm diversity, look not only at headcount, but also at the actual hours billed by diverse timekeepers. To truly measure diversity in outside counsel, measure diversity by hours billed not by headcount.

14 BEST PRACTICES GUIDE TO LEGAL ANALYTICS Managing Matters

15 Managing Matters Best Practices Guide to Legal Analytics 15 Track Key Performance Indicators There are many useful metrics available when analyzing a matter. The type, complexity, and significance of a matter will largely determine which of these metrics is most meaningful. For example, average hourly rate may be a key performance indicator for routine, repetitive cases, while adherence to budget may be more important for more complex cases. How well is your counsel adhering to the matter budget? How long has this matter lasted compared to similar matters? How does this matter s average hourly rate compare to similar matters? How many timekeepers comprise the majority of the billed amount for this matter? Are the remaining timekeepers excessive?

16 Managing Matters Best Practices Guide to Legal Analytics 16 Monitor Matter Staffing Mix While some may choose not to question a chef s mix of ingredients, legal matter costs can take on a life of their own and warrant the monitoring of a law firm s mix of ingredients. Leading law departments monitor top matters not only for staffing mix (e.g., percent of hours billed by associates), but also staffing concentration. In other words, is the matter staffed by a broad number of legal professionals or by a core team? The former can lead to excessive billing as timekeepers unnecessarily come in and out of matters and must get up to speed. Is 60% partner time appropriate for this matter? If 20 timekeepers are billing 80% of the total spend, are the other timekeepers necessary and efficient?

17 Managing Matters Best Practices Guide to Legal Analytics 17 Forecast Matter Costs While it is true that every matter is unique and there are many factors that can determine how much a matter will ultimately cost, it is also true that the legal industry is not immune to the law of averages. If one analyzes a large swath of similar matters, a majority of them will likely fall within certain cost and duration parameters and there will be a smaller number of outliers. You can improve the budget process when you plan for best- and worst-case scenarios based on a big-picture analysis of your own historical data or an industry-wide database. When analyzing historical matter costs to help budget for an upcoming matter, it is helpful to ask, Do we expect this matter to be relatively routine or do we foresee potential complications?

18 BEST PRACTICES GUIDE TO LEGAL ANALYTICS Identifying Savings Opportunities

19 Identifying Savings Opportunities Best Practices Guide to Legal Analytics 19 Negotiate Rates Leading law departments leverage real-time rate benchmarking to compare proposed rates against thousands of similar attorneys. Factors such as bar admission date, area of expertise, firm size, and the timekeeper s location allow a user to quickly pinpoint comparable fair market rates. What do comparable attorneys charge? What does your historical data say about your rates for comparable attorneys? Rate distribution allows you to see where a proposed rate lies on the spectrum of market data.

20 Identifying Savings Opportunities Best Practices Guide to Legal Analytics 20 Better Manage Rate Increase Requests Most companies do not have a defined process to manage incoming rate increase requests. Rate decisions are typically left to practice managers who may be influenced by other factors. Implementing a formal rate review process that incorporates market intelligence balanced with practice manager input often offers the quickest and easiest means of realizing cost savings for most law departments. How does the timekeeper s requested rate compare to the market? What effect should other factors, such as satisfaction scores and billing practices, have on the request?

21 Identifying Savings Opportunities Best Practices Guide to Legal Analytics 21 Reduce Junior Associate Billing While there is certainly a role for first year associates in some matters, many law departments seek to limit excessive billing by these junior associates. Some departments prefer not to pay to train and prohibit first year associate billing. Leading law departments are setting matter-level limits on the percentage of the total hours billed by junior associates based on whether a matter warrants the inclusion of less experienced associates in the mix in order to reduce fees or for other reasons. Search for hours billed by associates with less than a certain level of experience. In this case, 17.9% of hours billed were by junior associates billing nearly $800 per hour.

22 Identifying Savings Opportunities Best Practices Guide to Legal Analytics 22 Manage Excessive Billed Hours The legal industry is well known for long hours, and working seven days per week is not uncommon. Attorneys productivity decreases when they work excessive hours. With this in mind, leading law departments use billing guidelines to guard against excessive hourly billing, capping the amount of hours that an individual timekeeper can bill on a daily, weekly, and/or annual basis. Analytics can help monitor adherence to these guidelines. Identify hours billed over the designated threshold, such as 10 or 12 hours per day or 2,080 hours per year. Twenty-three percent of this attorney s hours billed were over the threshold of 12 hours per day. Is this reasonable?

23 Identifying Savings Opportunities Best Practices Guide to Legal Analytics 23 Reduce Discovery Spend Discovery traditionally has been a major cost driver in litigation and was one of the first processes to undergo a digital transformation in the legal industry. Many law departments now outsource much of their discovery work to companies that offer technology and processes specifically designed to make what was once manually intensive labor much more efficient. To determine whether your company should shift discovery work from law firms to other service providers, the first step is to identify discovery work done by outside counsel and quantify potential savings. Once you have assessed the opportunity you will be better prepared to engage an e-discovery provider or legal process outsourcer and capture future savings. Select a targeted alternative hourly rate for outsourced discovery work. Quantify potential savings by comparing the average rate for each firm timekeeper billing discovery time to the previously selected targeted rate.

24 Best Practices Guide to Legal Analytics 24 Summary Legal analytics offer improved transparency into billing dynamics and the overall legal market, driving a significant change in the legal industry. While software will not replace an attorney s legal expertise or judgment, it is surely poised to revolutionize the legal industry. Using analytics, law departments are identifying opportunities to better manage their departments and their outside counsel. In some instances, departments are making simple changes like implementing billing guidelines; in others, the changes are more significant, such as developing alternative fee arrangements or even shifting business to different firms. While all of this change may seem daunting, especially if numbers and analytics are not your forte, do not become overwhelmed or give up use this guide as a primer to get started and learn as you go. As you master the use of legal analytics, you can uncover hidden opportunities for efficiencies and find more ways to make information actionable huronconsultinggroup.com/legal 2015 Huron Consulting Group Inc. All Rights Reserved. Huron is a management consulting firm and not a CPA firm, and does not provide attest services, audits, or other engagements in accordance with standards established by the AICPA or auditing standards promulgated by the Public Company Accounting Oversight Board ( PCAOB ). Huron is not a law firm; it does not offer, and is not authorized to provide, legal advice or counseling in any jurisdiction. About Huron Legal and Sky Analytics Huron Legal is the premier provider of comprehensive solutions for electronic discovery and litigation management, information governance and compliance, law department management, and legal analytics. Our consultants and technology-enabled services assist law departments of major global corporations and their associated law firms to reduce legal spend, minimize risks, and create efficiencies. Learn more at Huron Legal s Sky Analytics tool provides in-house law departments with a web-based platform to access on-demand legal spend information and analytics. The platform provides a snapshot of legal matters handled by outside counsel and other vendors as well as access to similar information provided by other participating companies for purposes of benchmarking. The dashboard also offers law departments key performance indicators and trend metrics which can be flexibly analyzed, including by time frame, practice area, and business unit. Sky Analytics law firm scorecards measure and benchmark specific activities of law firms and lawyers, including rates, billing practices, staffing, and matter efficiency.