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8 Reasons Why the Right Legal Budget Model Matters

October 2021
By Axiom Law

With budget season in full swing, many organizations are trying to navigate how to budget amid ongoing uncertainty leading into 2022. The one thing often lost in this repeated, annual exercise is a critical re-assessment of legal’s approach to budgeting. This reassessment ensures that the legal team isn’t just doing more of the same, but is fundamentally rethinking how to distribute legal spend in order to mitigate risk in an evolving landscape.There are many budgeting models. Some, like Precedent-Based Budgeting (PBB), are more traditional. Others, like Zero-Based Budgeting, are more paradigm-breaking and can lead to greater insights, yet can also place more burden on an already overextended legal department. Then, there are other innovative models, like Agility-Based Budgeting (ABB), which can better examine spend, without further taxing in-house teams.

We all know budgeting matters. But leveraging the right budgeting model may matter even more. The right approach can be a GC’s greatest tool toward building a high-performance legal department that can effectively navigate uncertainty.

Here are eight reasons why the right legal budget model matters:

1. Enhancing Planning:
The right model improves legal department planning by applying expected limitations to enterprise legal spend. These limitations provide a parameter for legal leaders to evaluate risks relative to costs, and to implement more cost-efficient litigation and settlement strategies.

2. Improving Predictability:
The best budget models provide an objective, historical context for managing matter costs that enables more accurate annual projections.

3. Informing Decision-Making:
Tracking legal spend while using more innovative ABB-like budgeting approaches provides both a context for decisions about when to bring in external partners, and a means of understanding potential risks based on historical trends.

4. Aligning Provider Performance:
A model that involves partners in the budgeting discussion not only improves matter management, but can improve the relationship with providers, by creating commercial alignment on spend limitations and enterprise business priorities.

5. Identifying Departmental Strengths and Weaknesses:
A process that incorporates a line-item budget can help analyze ongoing legal department costs and prior legal outcomes. The right kind of budgeting exercise can expose where there are unusually high cost centers within the department. Conversely, it can shine a light on the parts of the legal department that have been relatively effective at mitigating costs, while producing superior outcomes. Previous strategies that have yielded high costs can be re-evaluated in the context of the higher-performing intradepartmental teams and matters.

6. Exposing Employee/Cultural Concerns:
Budgeting models that examine employee expense not only provide context for expected labor and talent costs; they also uncover metrics to address employee turnover, which can lead to meaningful insights on lawyer satisfaction and management issues within the department.

7. Engaging with Peers:
Developing an approach that includes coordination with other functional leaders regarding legal spend, budgeting, and analysis fosters cooperation between legal and the business units it serves. In addition, the right budgeting model enables legal leaders to speak the same commercial language as their peers, providing GCs with the enhanced credibility required to gain a meaningful voice at the leadership table.

8. Mitigating Costs:
An ABB approach to legal budgeting can be a critical tool not only to reduce costs, but to create more effective strategies to increase legal department operational efficiency. By examining higher line-item costs (headcount and law firms), legal departments can develop more effective and innovative strategies to reduce spend, while mitigating risk and increasing legal department outcomes.

Interested in learning more about various legal budgeting models? Our whitepaper 2022 Legal Budgeting Strategy Amid Ongoing Uncertainty provides GCs with an overview of various models, an introduction to Agility-Based Budgeting, and a comprehensive 7 -Step Playbook for why and how to execute ABB this budgeting season.

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Posted by Axiom Law