As the holidays draw closer, you are probably getting ready for your Black Friday/Cyber Monday shopping. If you are like me, each year you put together a budget and as it gets closer to the holiday, your budget is knocked off course by a series of unexpected purchases. Every year, I vow to design a better budget for next year, with a more realistic view of any additional expenses.
When you think about it, planning your holiday budget is not much different than planning a litigation budget, except that the stakes are much higher. You are dealing with corporate funds, not your own money, and encountering a major surprise has a much more profound effect than putting a dent in your vacation fund. Dealing with litigation budgets can be challenging due to a lack of predictability in litigation as well as a deficiency of information early on in a matter.
By now, you’ve probably seen it all in your litigation budgets. The budget spectrum most likely ranges from law firms offering up low-ball estimates in order to keep you happy all the way to firms quoting something unrealistically high to stay within budget. As a client, these wide variations are troubling because your main goal is usually to avoid surprises and manage your fees and expenses. So how do you get more accurate litigation budgets from your firms? By looking at why firms dislike budgeting, why you are budgeting in the first place, and implementing budgeting best practices, you can assist your firms in producing more accurate litigation budgets.
Why Firms Dislike Budgeting
Unfortunately, many in-house law departments measure a firm’s success by their ability to bill at or near the initial budget. Additionally, a firm’s budget-to-actual performance is often a significant factor in deciding which firms are given future work. This causes a tremendous amount of pressure for firms. Litigation can be fraught with events and circumstances that are outside the control of the client and the firm. So how can a firm bill at budget when they have no idea what types of external contingencies can occur? This is just one common reason that lawyers tend to loathe the budgeting process. Others include:
- Lawyers assume that their first estimate is going to be incorrect because they only really know their side within the first 30, 60, or 90 days of the case.
- Budgeting usually isn’t a billable exercise.
- Often, when attorneys hear the word “budget” they think you want them to do the same amount of work for less money.
- Many attorneys feel they don’t possess the “number” skills to develop a sound budget.
- They are afraid that some clients will look at the budget as a fee cap and refuse to pay or discount any amount over the budget.
- Firms worry that if their budget is too high, the client will balk at the estimate and go elsewhere.
These are true concerns for the law firm. However, by clearly communicating the purpose of the budget to the firm, it will ease some of their initial anxiety.
Why Do You Budget?
Are you asking for budgets for the right reasons? Is it just an exercise mandated by the general counsel? Do you feel like you have been taken advantage of in other cases and want to control costs (partners were doing associate work or cases were overstaffed)? One of the best ways to ease an attorney’s fear of budgeting is by explaining why you require budgets.
There is no right or wrong reason to require budgets, but not communicating properly with your firms about the budget can be a cause for anxiety. In a perfect world, the initial budget is a preliminary assessment. It is a document that helps both parties discuss risk and assists the firm in understanding what is important and what isn’t. The budget should show that you and the firm are in alignment with how much you want to spend on the case as well as your approach to the litigation. In-house counsel needs to work with outside counsel to come up with a strategic plan, not just hand it over to the firm to defend.
Firms should understand that the budget is a collaborative document that keeps all parties on the same page with strategy and expenses. Additionally, firms need to be aware of the importance of budgets for your organization. In-house counsel wants certainty; they don’t want to go to the executive team and tell them that a case has gone over the budget.
Next month, we will review a few suggestions to assist your firms in developing more accurate litigation budgets and help you avoid an uncomfortable meeting with the executive team.