When any business is considering an investment in equipment or technology, a question that must always be asked is “what will we save by making the investment?” I thought it would be interesting therefore to publish an actual return on investment analysis recently developed by a general counsel client of mine when making the decision to implement a Lawtrac.
This analysis was conducted by a small law department in Pittsburgh, PA. Regardless of department size, however, the types of savings that can be generated apply to any law department. For example, this general counsel estimated a savings of two hours a week per attorney just in searching for documents by using an electronic document management system. This is actually a quite conservative estimate based on a survey performed several years ago by Accountemps. They identified an average of 4.3 hours per person per week saved when using an electronic information and document retrieval system.
The actual return-on-investment analysis that this law department is described below, along with the assumptions used to generate the savings. Please note that all estimates were conservative in order to increase credibility of the results.
There were two attorneys in the department, one of which also approved outside counsel invoices as part of her responsibilities. The law department had an outside legal spend of $700,000, of which $200,000 involved litigation. They made annual indemnity payments of approximately $100,000. Given these parameters, they estimated savings in year one of $116,820 and $146,820 in year two.
Here are the details behind the above savings.
Time Saved in Searching for Information and Documents
One concept needs to be explained regarding the savings in this category. Law departments retain outside counsel for two reasons – specialty expertise or because of overflow work – i.e., work they cannot handle inside due limited resources. So, the concept here is that for every hour saved internally, that is one hour less of overflow work that needs to be sent to outside counsel. The average outside counsel rate paid by this law department was $295 per hour. So the math worked out as follows:
Two attorneys saved two hours per week. That translated into four hours of overflow work at $295 per hour for 46 weeks for a total savings of $54,280.
Invoice Review & Approval
The department had one attorney responsible for reviewing invoices. By implementing an electronic e-billing system, the general counsel estimated he would 1 hour per month of overflow work that would not need to be sent to outside counsel. This would yield a savings of $3,540 over twelve months.
The law department estimated that they could save 2% of the $200,000 in litigation work sent to outside counsel because department personnel were unaware that work product already existed or were unable to find previously produced work product.
The general counsel estimated that he could reduce the amount of outside legal work spent on litigation by 5% if outside counsel were provided with Information and work product about existing matters of a similar nature when beginning work on a new matter. This would result in a savings of $10,000 per year.
This category yielded the largest savings on a percentage basis. The general counsel estimated 10% of work spent on outside counsel costs and indemnity costs could be avoided if the law department could be more pro-active in educating business partners in the use of model contracts and compliance with corporate policies and procedures. Given that the savings would not be immediate, the law department estimated no savings in year one and savings of $30,000 in year two.
The Association of Corporate Counsel estimates average savings of more than 22% in annual outside legal spending from improved bill review http://www.acc.com/legalresources/quickcounsel/ebtb.cfm. The law department referenced in this blog was very conservative and estimated their savings to be 5% per year, or $35,000.
The same article above by the Association of Corporate Counsel estimated savings of 26% by asking outside counsel to submit a budget prior to commencement of work. This law department again took a quite conservative approach in estimating just a 5% savings from tracking budgets against litigation work referred to outside counsel. This yielded a savings of $10,000 based on $200,000 in litigation activity assigned to outside counsel.
In reviewing the above initiatives, it should be apparent that all the savings were not only conservative, but relatively easy to implement. I strongly recommend that each department review its policies and procedures related to its technology utilization and determine its savings. Orzo & Associates would be glad to work with any law department that would like assistance in developing its own return on investment analysis.