Suppose a legal department is asked to cut its budget by 15%. That request might sound straightforward until someone asks which 15%. Applying that same percentage across every matter can leave a team stretched thin, where the business faces its greatest risk. It can also preserve work that no longer deserves the resources it receives.
In Part 1 of Axiom's budget season webinar series, panelists offered a better starting point: a legal needs analysis. Before carrying last year's assumptions into another budget, identify the organization's legal needs, assess the risks, and decide where legal attention will do the most good. The discussion also made the next step just as clear. A budget works best when it reflects the work the business needs done, the outcomes it expects, and the resources available to deliver them.
What Is Legal Spend Management?
Legal spend management is the ongoing work of deciding where legal resources should go, tracking what they cost, and revisiting those decisions as needs change. For corporate legal departments, that means looking beyond a total spending figure and understanding which work is coming in, who is doing it, what risks the work addresses, and whether the investment is improving cost, quality, or timeliness.
The discussion positioned those last three measures as a useful way to assess the return on an investment and framed the legal budget around two priorities: the CFO's need for predictability and the general counsel's responsibility for risk management. A useful legal spend management program gives both sides enough information to make an informed decision when those priorities pull in different directions.
The conversation starts before a legal invoice arrives. It starts when a team decides which work needs legal attention and which resource is suited to it. It continues as actual spending and changing demands test the original plan.
The Benefits of Legal Spend Management
The immediate appeal is cost control, but the benefits of legal spend management are broader. A team can direct scarce capacity toward higher-risk work, explain why an investment belongs in the legal budget, and respond more deliberately when an unexpected matter appears. It can also spot opportunities for cost savings without assuming every category of work should absorb the same cut.
The budget should be considered a way to make choices during the year. For example, when a hiring request, an invoice, or a new product investment arrives with a claim of urgency, the budget gives legal leaders a way to ask what that choice would displace. What is the value of the proposed spend? What else will the team be unable to fund? Those are more useful questions than whether an item fits inside an inherited budgeting structure.
The point is to connect dollars with decisions. If a department can see where resources are going and why, it has a stronger basis for allocating the next dollar, changing course, or explaining a trade-off to finance.
Why Cutting Legal Spend Can Increase Business Risk
Consider the 15% reduction question posed during the webinar. One approach would trim every part of the department equally. That would be easy to calculate, but it would treat all legal activity as equally important. An alternative is to assess legal risk and concentrate resources on the areas where insufficient attention could cause the greatest harm.
In one example discussed during the webinar, a government department was spending substantial resources on technology without a clear relationship between that spending and its legal risks. The department first needed to know which activities carried the highest financial or reputational risk, then direct legal resources accordingly.
That assessment can reveal work a team would prefer to cover but may have to leave alone if resources shrink. Naming that choice matters. It allows leaders to explain the likely consequences of a proposed reduction instead of quietly spreading a smaller budget across the same workload. It also helps avoid underspending on an internal program that needs resources to finish on time.
AI may change the cost of legal work over time, but it’s too early to count on a specific savings figure when setting next year’s budget. Legal departments are still experimenting, so any expected efficiency gains should be measured against actual results before they are used to close a budget gap.
Start with a Legal Needs and Risk Assessment
A legal needs analysis begins with the business rather than last year's figures. What work does the organization need to carry out? Where is legal input most important? Which risks carry the greatest financial or reputational consequences? Last year’s spending carries assumptions about both the work and how it should be delivered. A fresh assessment gives a team a chance to challenge those assumptions.
From there, identify the work that deserves the closest legal attention. Ask where earlier legal involvement could prevent a problem, where specialist judgment is essential, and where the consequences of doing less are comparatively limited. Those questions turn a general instruction to reduce costs into a discussion about specific activities and their risks.
The assessment also creates a basis for resource decisions. Legal services can be delivered in several ways, including through internal teams, external providers, hybrid arrangements, outsourcing, offshoring, and subcontracting. The right choice depends on the need and the risk involved. A department cannot make that choice well if it starts with a fixed assumption that each type of provider should receive the same work as last year.
The strongest resourcing strategy adapts as legal needs and business priorities change.
Identify Where Your Legal Spend Is Going
After identifying the needs, compare them with the money and capacity currently assigned to them. Look at spending on internal teams, law firms, technology, and alternative legal service providers alongside the work those resources perform. The webinar's central question was whether resources match the outcomes the department is trying to achieve.
That requires usable spend data. A spend management system or matter management record can help organize the conversation if it lets a team see the work, the resource assigned to it, the cost, and how those figures change. Legal spend management software is useful when it supports those decisions.
One panelist described an approach that sorts work according to what it needs, rather than sending it automatically to a familiar provider category. That creates a pause before repeating an established pattern. With a clearer view of the work and available capabilities, leaders can ask whether a given assignment is the right investment for the outcome.
For an example of a legal operations team reviewing law firm panel spend and reducing outside legal spend, see Hershey’s legal operations case study.
How to Control Outside Counsel Spend
Outside counsel spend deserves scrutiny as law firm rates rise and legal teams face pressure to manage external costs. Where appropriate, teams can seek bids for work and consider what they can handle internally before choosing a provider. They should also ask how any productivity savings from a firm’s use of AI will affect what the client pays.
Those points suggest a practical review at the start of a matter. What work calls for a law firm? What can the internal team handle? Could another resource deliver part of the work? What cost, quality, and timing would the proposed approach produce? Revisit those questions as the matter develops, especially if the scope or expected return changes.
Billing guidelines and invoice review can provide another occasion to ask whether spending matches the planned work and resource choice. A legal invoice may show what was charged; it does not, by itself, establish that the original assignment was the best one. The panel did not prescribe particular billing rules, review thresholds, or savings figures, so each department would need to set those in light of its own matters and risk profile.
Use Legal Spend Data to Improve Budget Decisions
A budget is a plan, but unexpected work can change what a legal department needs to spend. Reviewing spend data weekly or monthly with finance helps the team see where costs are heading and make adjustments while there is still time. Spending above plan may call for a change in approach. Spending below plan may mean a program needs resources now to finish on time. For related guidance on the GC and legal ops partnership, see legal ops best practices.
When deciding where to invest, it helps to look across the full range of needs: keeping current operations running, making incremental improvements, and funding work that could change how the department operates in the future. For each investment, ask what it is expected to improve in cost, quality, or timeliness. Those measures give the team a clearer basis for deciding where the next dollar should go.
The same review should apply to work already underway. If an investment is not producing the intended result, reassess it and change direction when needed. Spend data is most useful when it helps a team make those decisions during the year, rather than simply explain the final numbers afterward.
No legal budget can account for every development. By tracking spending trends, discussing changes with finance, and revisiting the assumptions behind its choices, a department can respond to new demands while keeping resources focused on the work that matters most.
Legal Spend Management FAQ
What is legal spend management?
Legal spend management is the process of allocating legal resources, tracking legal costs, and adjusting spending based on the work, the risk, and the outcomes the business needs.
How can a legal department reduce legal spend without increasing business risk?
Start with a legal needs and risk assessment. Prioritize work with the greatest potential consequences, then examine lower-risk activities, resource choices, and investments that are not delivering the intended return. The webinar cautioned against applying the same percentage cut to every activity.
What are the biggest drivers of legal spend?
Legal spend can include internal capacity, outside counsel, technology, and alternative providers. Unexpected litigation or regulatory work can also affect the budget. The largest driver will depend on the department's actual workload and allocation.
How should companies manage outside counsel spend?
Decide what work requires a law firm, consider bidding work when appropriate, and compare the proposed resource with internal and other available options. Track the cost and the value of the work as it proceeds. Billing guidelines and invoice review can support that oversight.
When should a company use in-house counsel, a law firm, or an alternative legal service provider?
Begin with the work and its risk. Compare the capabilities available internally and in the market, then choose the resource suited to the desired outcome. Consider questioning default allocations by provider category.
What legal spend metrics should legal teams track?
Legal teams should track cost, quality, and timeliness, along with spending trends over time. Connect those measures to matters and resource decisions so the data helps leaders decide where the next dollar should go and when an existing investment should change.
Continue the Conversation on Legal Budgets
How do these budget decisions change when legal teams work across multiple regions? Join Axiom for Part 2 of its 2027 legal budget webinar series, Thinking Globally, Managing Locally, on October 8. Watch Part 1 on-demand, and register for Part 2.