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The course has been set. The budget polished and tightened. GCs have finished the painstaking task of cementing their annual budgeting plan for the coming fiscal year. Now, they are left with the final step: reconciling their plans with the unpredictable nature of a recessionary economy.
What’s a GC’s best, and yet often overlooked, tool to do so? Forecasting.
For most GCs, this won’t be their first recessionary rodeo. But it will still be unique, and every GC—whether sage with experience or a bit green—will need to rely on the critical support forecasting provides to supplement their budgeting plans. Dynamic forecasting empowers the legal team to address volatile and fluid economic factors as they present themselves, allowing departments to adapt on a dime while still keeping the budget’s broader baselines in mind.
No GC is a soothsayer, but savvy GCs can utilize forecasting to:
- Plan for contingencies (including unexpected hiring freezes and budget cuts)
- Understand legal department cash flow and transition spend from fixed to flexible
- Develop legal team benchmarks and KPIs that are more realistic compared to budgeting scenarios
- Anticipate the impact of new expenses, like hiring permanent lawyers with different expertise and/or engaging new law firms
- Identify financial variances from the budgeting exercise and understand their root causes (litigation, etc.)
- Reduce spend and provide easier financial planning and ongoing management
These benefits aren’t just theoretical. A recent survey of in-house legal leaders found that 99% expect their budgets to be further cut as a result of ongoing economic volatility. For GCs experiencing the same (or preparing for it), forecasting enables real-time realignment of resources and the development of creative solutions that provide better value for every budgeted dollar. In other words, forecasting is critical for course correction when annual budget plans become (inevitably) outdated.
Forecasting for Lawyers
If forecasting sounds too “financial” for lawyers, be careful of dismissing it based on nomenclature alone. Forecasting is an absolutely critical component of legal department management and will become a central part of the in-house leaders’ job. Forecasting can help GCs understand their current pain points, which may be (and likely are) quite different than those assumed when finalizing their budget.
Even for seasoned finance professionals, the line between budgeting and forecasting can be blurry, as are the reasons for doing each. For that reason, it’s worth a quick overview of the role both exercises play in the fiscal management of the legal department. A budget sets detailed targets for the year ahead. A forecast is the latest outlook based on the results. If the yearly budget lays out the plan for where the department wants to go, the quarterly forecast indicates where the department is actually headed (and as such, enables informed near- and medium-term decision-making).
The problem is, with a looming recession, budgets lack the elasticity necessary to withstand uncertain variables that can impact the course and strategy of a legal department. And while many department leaders are reluctant to dive back into what they see as a laborious and time-consuming project like quarterly forecasting after just finishing their budget, it is essential to survive what is to come.
2023 Legal Department Pain Points
It’s important to outline the legal-specific issues that financial models, such as budgeting and forecasting, are built to address. In other words, what are those pain points for which GCs require insight and visibility? While different GCs have different concerns, in 2023, most are facing five universal issues: Lack of budget, lack of resourcing support, lack of in-house specialization, and lack of cost-effective law firm rates.
What's the better solution? An agile approach to hiring, leveraging a bench of on-demand lawyers better known as the Core-Bench-Firm (CBF) model. In this model, the core team is composed of a leaner, full-time team of legal lieutenants who leverage internal enterprise knowledge, provide appropriate managerial scale, and handle core competency work. That core team is then supported by a bench of trusted, on-demand lawyers for expertise aligned with emerging risks and legal matters, workload surges, and law firm management.
Introducing Agility-Based Forecasting (and How to Implement in A Recession)
When GCs utilize this type of agile team approach in combination with quarterly forecasting exercises, they are introducing an important tool into the GC’s toolkit: Agility-Based Forecasting (ABF). By combining flexible resources with dynamic forecasting, ABF enables GCs to variablize their spend. It is that spend variability—the ability to transition line-item costs from fixed to flexible—that will enable GCs to withstand economic uncertainty, navigate hiring freezes, and continuously pivot in response to a fluctuating economic environment and escalating law firm bills.
ABF can be used as an ongoing way to capture real-time data and pivot accordingly by shifting spend toward the practices and matters that most demand attention in the moment.
How is that pivoting possible? At the core, it’s by investing in on-demand lawyers. Read our whitepaper to learn how to implement this forecasting model in your organization.
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