People crowd into Times Square. Streamers and confetti float through the air. The ball drops and champagne toasts follow. It’s a new year and time to evaluate the past and look toward the future. You start thinking about your goals: I want to drop a few pounds, cut back on the Starbucks, spend more time with the kids, and pay more attention to my spending. Money, and how to manage it, usually finds its way to the top of many people’s personal as well as work-related resolutions.
At the heart of many money management resolutions is the often dreaded budget. Personal budgeting is one thing—you can easily tighten your own purse strings. What about in the corporate setting? Managing your outside law firms’ spending is a much more complicated task but it can be done. When you consider assigning a case to an outside law firm, your first consideration is most likely how to contain costs but still maintain quality. One of the best ways to achieve this is through budgeting. This two-part article addresses some ways to develop your budgeting process for the new year by first looking at the importance of budgeting and then specific ways to improve your budgets.
Why require a budget from your firms?
Have you ever been met with resistance from a law firm when you request a budget? For many attorneys, they see budgets as a necessary evil and potentially a number that the client wants to tie to the outcome of the case. But, developing a budget can prove to be a benefit to both parties. A budget is a tool that can be used to educate the client, manage expectations, and align the objectives of the client and the outside counsel. Another important aspect of the budget is tracking. Just requiring a budget won’t do much good if the client does not hold the firm accountable if/when the case goes over budget. The budget should be used as a tool to monitor the case and not as the final accounting of the matter. All too often a law firm will inflate a budget in fear of going over budget. If both the client and the firm understand the budget is used to manage expectations and educate the client, a client is more likely to receive a realistic budget.
How to improve your budget process in 2015
-Require a budget in your billing guidelines
After struggling with law firms to receive budgets on assigned cases, many clients now require a budget in their billing guidelines. Clients working with a legal spend management vendor that has a budget application can require a law firm to submit a budget for approval directly through the budget application. Having this type of system in place is invaluable when managing multiple cases.
If a client still battles with receiving a budget from a firm, a client may also delay payment on invoices until a budget is sent and approved by the client. This process can be done manually or if you are working with a legal spend management vendor, the vendor may be able to program your workflow to reject an invoice if a budget has not been approved.
-Review the budget often and communicate with the firm
Requiring budgets won’t do much good if you don’t take the time to review them with your law firms. Reviewing budgets is a great idea in theory, but the reality of heavy workloads makes budget review something that can easily get put aside. A tip to help in this area: If you are using a budget application, you should ask your vendor to send you notifications if a firm is getting close to certain budget thresholds. With automatic notifications, you can rest assured that your case is on target and never wonder, “how did this case get so expensive?”
Next month we will examine some additional ways to improve your budget process in Part II of the article.