In last month’s blog post, we spent some time reviewing why firms dislike budgeting and why you are budgeting in the first place. This month we will review a few suggestions to assist your firms in developing more accurate litigation budgets so you can avoid an uncomfortable meeting with the executive team.
Firms should understand that a 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. The following are a few suggestions to assist your firms in developing more accurate litigation budgets and help you avoid an uncomfortable meeting with the executive team:
Communicate your company philosophy on budgets and litigation
Lawyers are trained to leave no stone unturned, so it is important to help them understand the amount of risk that the company is willing to take. Are you prepared to take every case to trial if necessary or do you prefer to settle cases as quickly as possible? Does management crave predictability or do they want to win a case at all cost? These philosophies have a very different impact on budgeting. By clarifying your company’s philosophy with your outside attorneys up front, you will receive more realistic budgets for your level of risk tolerance.
Ask for a budget with contingencies and include assumptions
It is difficult to budget based on limited information, but creating a budget can assist in selecting the right strategy by forcing you to review assumptions and known information. By being aware of different assumptions, you can gauge how various events can affect the budget. If assumptions are included, the client can assess whether it would be beneficial to change strategies, settle, etc. Firms should help the client understand how possible variations in assumptions will change the budget. Additionally, it will be much easier for a client to explain to management why the case may go over budget if they have a clear understanding of assumptions and contingencies.
Put alert measures in place
If you are using some type of electronic billing application, you should be able to put different alert measures in place for budgets. For example, some companies require a firm to upload a budget into their electronic billing application or the firm will be stopped before uploading an invoice for the case. Other companies put budget alerts in place when the matter is at 75% of budget, at budget, and over budget. This is especially helpful if the organization needs to keep track of many matters.
In most cases, the law firms will need to use UTBMS (Uniform Task Based Management System) codes when creating their invoices and when budgeting. These codes are used to standardize the categorization of legal work and expenses. Budgeting and invoicing by UTBMS code allows the client to follow the budget accuracy as a firm begins to bill on a matter. Tracking the budget against invoices allows the in-house counsel to quickly see where the overages are occurring such as in discovery or witness preparation. This helps the in-house counsel determine if the firm is adhering to the plan laid out by both parties. If an in-house attorney receives an alert that a matter is at budget or over budget, the in-house counsel has the opportunity to call the firm and discuss the status of the case and the mounting fees before it is too late.
Take a phased budget approach
Some companies have begun to request a phased budget from their firms. If your organization finds that a large percentage of cases settle before trial, it may be a wasted exercise to require firms to budget through litigation. Asking the firms to budget through litigation can present a false sense of accuracy in the budget-to-spend number if the case never makes it to trial. A better approach is to ask the firms to submit an initial budget covering the fees and expenses up to trial.
Planning a litigation budget is never an easy exercise. However, by treating the budget as an ever-changing document that lays out your strategy and expenses for the case, the firm will have a much better idea of your expectations and risk tolerance for the case at hand. Also, by taking the time to educate your firms on the company philosophy towards litigation, and working with them to lay out the fees and expenses involved if various contingencies occur, you have a better chance of receiving a budget that is on target. And if you do have a case that goes over budget, having alert measures in place can help ensure that you have the necessary conversation with your firm to keep your fees and expenses on track as the case progresses. Expecting the creation of budgets to be a perfect science is unrealistic due to the uncertain nature of litigation, but implementing one or all of these best practices can help increase accuracy during the budgeting process.