LegalShift’s consulting services are largely focused on operational improvement. However, based on our team’s broad experience, law firms and law departments approach us to help them review and save contractual costs. Spend categories for these services have evolved to include:
Law Firm Operations
Law Firm Technology
Legal research contracts spend reduction and library efficiency
Telecommunications cost reduction
Middle and back office managed services spend reduction
Technology (IT) spend reduction
Gas and electric fees reduction
Print/copier equipment and managed services cost reduction
The following case study is intended to highlight a recent law firm success.
AUDIT OBJECTIVE: LegalShift was hired by the new COO of a large law firm to perform a Back-Mid Office Services and Technology Software and Services Audit, scoped to include a variety of administrative services and technology contracts that were hand selected by the Firm.
Background: In the areas defined by the client, the firm was spending approximately $4.5M annually, in contracted back and mid-office services, software, hardware and technology services including telecommunications services (wireless, wireline and conferencing).
AUDIT DISCOVERIES: When reviewing the invoices, contracts, service level agreements, headcounts, utilization, etc., LegalShift discovered the following:
Billing errors by providers
Client was paying above-market rates
Delivered services were, in many cases, substandard
Auto-renewal clauses without limits on annual fee increases
Contract minimums above actual consumption
Heavier staff coverage than required to meet Service Legal Agreements
Zero-usage mobile devices (being billed at full monthly fees)
Inefficient processes relating to invoice validation and processing (e.g., paper bills, unconsolidated bills and manual bill review, G/L cost allocation, inputting of invoice data, tracking of contract expiration dates, processing and payment of bills)
RESULTS: LegalShift delivered a one-year cost savings of over 30%, totaling almost $1.4M. Four- year savings total approximately $5.2M. First year savings breakout, alone, can be found below:
$700,000 (43% savings) in copy, mailroom, print related services, software and hardware
$120,000 savings on expensive financial software licenses and subscription fees
$170,000 (13% savings) of optimization savings and credits due to telecommunications billing errors
$95,000 (15% savings) of optimization and contract savings
$100,000 savings switching conferencing service providers
In addition, LegalShift continues to expand its review scope with further savings to be identified.
NOTE: Importantly, the results had no negative impact on the Firm’s lawyers, while service levels and solution capabilities improved across the board.
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Based on LegalShift’s long legacy of consulting to General Counsel on areas of operational efficiency, cost reduction and technology improvement, LegalShift finds that corporate legal departments are often confused by conflicting terminology and unclear descriptions of various types of electronic content capture, search and retrieval systems.
Software companies often blur the lines, claiming their systems to have similar functionality to other software categories. The reality is that, today, there is no single system that serves as an “all-in-one” technology solution to the following functional categories:
We argue that, in many cases, no two software systems listedare reasonably addressed in a single platform.
LegalShift recommends that a thorough and structured requirements analysis be conducted so that the legal department understands and identifies their unique requirements and how they apply to the differing software categories and products.
Too often we see this confusion leading to mis- or under-used software products and investment.
This short overview is intended to address what LegalShift sees as a significant education gap and misunderstanding of the differences and benefits of each class of technology. Our goal, then, is to de-mystify these automated software categories.
Document Management Systems (DMS)
Document management systems streamline document creation, leverage existing work product, facilitate document collaboration, and provide a central repository for document storage. While the legal industry commonly uses the term, “document management”, other organizations sometimes prefer “content management”.
A DMS typically manages each of the following document stages:
Create/Capture:A DMS facilitates the creation and storage of documents in multiple formats (Microsoft Office, Adobe, etc.). They allow for the re-use of existing knowledge since they can include “best of breed” documents, templates, or other helpful information, and thus can be useful in contract drafting.
Manage/Version Control: A DMS includes mechanisms for controlling versions of documents, access and security, tracking physical files or allowing check-in and check-out of electronic files. Because they log transactions, they provide an audit trail of versions. Document management systems use metadata from documents to create document profiles including information such as document type, date, author, and more – information that can later be used for m
anaging obligations and compliance.
Deliver:A DMS provides a collaborative workspace for publishing and team review, which can be used to facilitate the approvals process. They provide full-text indexing and offer offline, remote access.
Retain/Archive:A DMS offers a central storage repository; they can also be integrated with enterprise applications such as corporate record management systems.
A DMS can be used to manage some stages of contract lifecycle management within the law department; in particular, drafting (including tracking revision history) and storage. They do not, however, include functions for tracking negotiation and execution of agreements, nor do they automate contract management such as post-execution obligations management, renewals, or compliance (although they may provide the information needed to perform the tasks), discussed in the next section.
Contract Lifecycle Management (CLM) Systems
Contract lifecycle management systems (sometimes termed “contract management systems”) are specifically designed to do just that – manage contracts throughout their lifecycle. They are targeted solely to that function and manage contracts throughout the organization. A big benefit of dedicated CLM systems is their use as a centralized, authoritative repository/database of contracts, amendments, and renewals.
Most CLM systems include functionality designed to manage each of these contracting stages:
Request/Initiation:Those with access to the CLM system, whether from the law department, the procurement department, or business units, can initiate a contract request.
Drafting: CLM systems facilitate the drafting of contracts using libraries of customized templates and clauses, typically pre-approved by the law department.
Negotiation: CLM systems track negotiations, including draft agreements, for reference and audit purposes. The system can track changes and versions of a contract and can flag exceptions to standard terms. CLM systems can also automate the approval process using pre-established criteria, sending notifications to the appropriate parties.
Execution: CLM systems document and track contract execution, including approvals routing and electronic signature.
Obligations management: Many provide post-execution monitoring tools to proactively track the performance of obligations and provide notifications when renewals are required or timelines have expired.
CLM systems can be integrated with other systems such as customer relationship management (CRM) systems and enterprise resource planning (ERP) systems. For these reasons, most CLM systems are considered functionally rich, “enterprise-grade” solutions, that can be used by teams both inside and outside the Legal function—e.g., Procurement and Sales.
Contract Discovery and Analytics (CDA) Systems
Most organizations want to leverage their contract terms and conditions to maximize value and minimize the potential for non-compliance with laws and regulations. Contract discovery and analytics (CDA) systems use latest-generation artificial intelligence (AI) processing to automate procedures and identify opportunities for revenue recovery and risk avoidance. These solutions can support the systematic review of a large contract dataset to assess and ensure compliance with corporate standard terms and conditions. This application of a machine-learning platform can greatly reduce the time (duration and resource hours) and accuracy of collection, extraction, testing, and review associated with what has historically proven to be a highly labor-intensive process.
CDA systems include functionality designed to manage the extraction and review stage of contract analysis:
Extraction and Review – CDA systems are designed to extract relevant policies and provisions that represent potential opportunities for revenue recovery and/or risk mitigation and cull these agreements into a contract subset for further strategy and execution.
Additional benefits in ongoing use of a contract discovery and analytics system include:
Aid in contract classification and metadata extraction in preparation for intake into a contract lifecycle management (CLM) system;
Assistance in identification of areas of regulatory and internal policy non-compliance and opportunities for additional revenue recognition;
Access to a true web-based SaaS solution that can be accessed from anywhere (as opposed to having to invest in purchase of software and its installation and use on premises).
CDA systems functionally complement the use of CLM systems to properly monitor and control contracts. As a result, many organizations subscribe to both CLM and CDA solutions as a means of managing the contract lifecycle while leveraging its value.
Document management systems (DMS) are electronic repositories for document storage, search and retrieval. Contract lifecycle management (CLM) systems are specifically targeted for the management of an organization’s contracts. Contract discovery and analytics (CDA) systems focus on extracting and reviewing terms and provisions that exist within existing contracts.
As confusion often exists between DMS and CLM technologies, we offer the following advice:
CLM systems facilitate each phase of the contract lifecycle, automating much of the process. DMS systems are not ideal for enterprise-wide, full lifecycle contract management but can be useful for some aspects of contract management within the law department, where they can serve multiple functions. DMS solutions do not offer the functions specifically tailored to contracts that can be found in CLM systems, such as automated approvals or obligations management and the related automated notices. They can, however, be tailored to assist with some contract management functions within the law department. Specifically, they can facilitate contracts drafting using templates and prior examples, track revisions, provide a central, collaborative space facilitating approvals, and collect profile information that can be used for subsequent contract management.
Document and contract management systems can be integrated with matter management systems and knowledge management systems, facilitating the drafting of a variety of law department documents in a collaborative environment.
Many law department organizations subscribe to both document and contract management systems and use them for different purposes and in achievement of different results.
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LegalShift, Inc. announced that is pleased to sponsor the Association of Intellectual Property Firms (AIPF) 2018 Annual Meeting in Chicago on September 26-28. LegalShift will present a Boutique Practice Session entitled, “Legal Project Management Essentials: Learn How to Align Client Expectations with Practice Efficiencies and Profitability.” The session is an in-depth analysis of Legal Project Management (LPM) concepts an the practical application of these concepts. Participants in this interactive workshop will form into working groups and engage in guided, hands-on, collaborative exercises to apply LPM “best practices” in the operation of an IP boutique. Each participant will depart with a working knowledge of LPM discipline and with the ability to immediately apply these concepts and techniques. For more on the event, visit https://aipf.com/event-2689725
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You have a well-constructed budget and routinely check actuals against it, but your case or transaction is rapidly approaching or already exceeds initial projections. Legal clients don’t like such surprises, especially cost overruns. Properly monitoring and controlling a legal project, often called a “matter”, requires adherence to the triple constraints of scope, budget and time. Managing to these assumptions can be tricky as the facts of the matter may change, in turn affecting the scope, budget, and/or timeline. If not communicated properly, this often results in uncomfortable conversations with clients requesting a budget increase or timeline extension.
Unlike other industries whose project management fundamentals are more mature and formal, perceptions as to the current state of a legal matter are too often determined by actual cost (AC)—i.e., how much money has been spent to date—against the matter budget (more formally referred to as budget at completion (BAC)). However, this type of informal “budget to actual” analysis can—and will—cause misleading performance measurement and an inability to properly control costs. For example, let’s assume that we are $20,000 into a $40,000 project. On a superficial level, things look good because we have not overspent. This analysis typically represents the full extent of legal matter cost assessment and status reporting. In fact, we have very little information regarding:
How much work have we actually completed? (we already easily know what’s been spent)
Have we got to where we want to be?
When are we going to finish?
To answer these questions, we must turn to a more structured approach for monitoring progress against the constraints of the project/matter. This is needed so that preventative measures can be taken to avoid budget overages and ensure schedule adherence. Fortunately, such an approach has already adopted and in wide use in many other industries. Called Earned Value Management, or EVM, this form of financial analysis has become a significant branch of project and cost management. The importance of EVM can be exemplified by the fact that in 1991, Secretary of Defense Dick Cheney canceled the Navy A-12 Avenger II Program due to performance issues detected by EVM. For those who claim that “you cannot manage what you cannot measure,” a clear grasp of EVM principles and their institutionalized application to legal matters and projects is essential.
The project schedule shows how you are progressing on your timeline. The Billing or Accounting department tells you where you are in regard to budget. Ultimately, we want to determine how far along we are in completing the scope of work, referred to as earned value.
There are several guiding principles when performing EVM analysis. To properly monitor and control your project using EVM, you must first plan for two things:
Budget at Completion (BAC) is the total scope of work to be performed and its associated cost—i.e., the matter budget
Planned Value (PV) is the matter budget at the current point on the schedule. It answers the question “how much work should have been completed at a given point in time” (e.g., 1/12 of the budget in 1 mo.)
For example, a hypothetical real estate acquisition has work allocated as follows:
The matter budget is $40,000
Expected timeline is 7 weeks
4 weeks (A) have elapsed so 70% (B)of work should be completed (first two phases)
PV = $40,000 X 70% or $32,045
In monitoring ongoing project status, we must then determine:
Percent Complete as of the reporting date
Actual Costs as of the reporting date
Actual Cost (AC) is the cost to date.
Billing department says $15,000 has been billed and $5,000 is in WIP
AC = $15,000 + $5,000 = $20,000
Once these values are known, we can then determine earned value:
Earned Value (EV) is the value of the completed work.
Budget for the matter is $40,000
The attorney team has completed the first phase – Fact Gathering/Due Diligence
4 weeks have elapsed but only 30% of work has been completed
EV = $40,000 X 30% or $12,000
Using the metrics above, it becomes very simple to objectively answer such questions as:
Is the matter on schedule? In project management terms, this is called the Schedule Performance Index (SPI). The formula for SPI is EV / PV. If SPI > 1, the project is ahead of schedule. If SPI < 1, the project is behind schedule.
Using the above examples:
EV = $12,000
PV = $32,045
SPI = $12,000/$32,045 or .37
Since SPI < 1, project is behind schedule
Is the matter on budget? This is called the Cost Performance Index (CPI). The formula is EV / AC. If CPI > 1, the project is under budget. If CPI < 1, the project is over budget.
Using the above examples:
EV = $12,000
AC = $20,000
CPI = 12,000/$20,000 or .6
Since CPI < 1, project is over budget
What will it cost to complete the entire project? This is referenced as Estimate At Completion (EAC). The formula is Budget at Completion (BAC) / CPI.
$40,000 / .6 = $66,666
A NEW, MORE THOROUGH APPROACH
Amazing as it may seem, EVM is not highly utilized in today’s law firms or law departments. Perhaps that is because EVM requires some additional effort in the planning stage of a case or transaction, and lawyers are loathe to engage in planning (focusing instead on execution). Yet, EVM’s adoption clearly provides a far more proactive matter management approach versus the basic “budget to actuals” reporting currently favored by most legal organizations. It is, in fact, an essential Legal Project Management tool whose metrics and calculations allow legal teams to proactively and quantitatively manage their matters and assess the performance of their vendors.
As an industry, let’s begin to institutionalize EVM and other project management best practices to really understand and control project success
Carey Lambert is a Senior Consultant with LegalShift, LLC. Carey has over 30 years in Project Management and is a PMI certified Project Manager, Six Sigma BlackBelt and Lean certified. He can be reached at (601) 227-4301 or firstname.lastname@example.org
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Magazine, Not Just for Law Firms and Techies, LegalShift consultants Scott Rosenberg and David Rueff explain the essential need for legal project management tools and techniques in law departments. Scott and David, both certified Project Management Professionals, point to a growing disconnect between in-house attorneys, their outside counsel and internal support teams in their quest to use performance metrics, financial analytics and periodic reporting as the mechanisms to manage budgets and promote process improvement.
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