Consolidated Matter Budgets
In this series, we will talk about both consolidated matter budgets and individual matter budgets. As always, if you are an Ops in a Box, Legal Edition customer, you have exclusive access to the full conversation video under your Ops in a Box profile.
As a legal ops professional it is not atypical on arrival to be greeted by finance colleagues with “Legal is over-budget.” An appropriate response is “What was the source of and inputs to that budget?”
The way out of this quagmire is to budget each matter with defined placeholders for any unallocated funds and a shared dashboard or report set between legal and finance. With both teams working from the same set of assumptions, you can eliminate the tedious process of reconciling finance’s numbers from the back-end accounts payable system against the front end legal billing system. Instead, you can focus on the story the numbers are telling and an appropriate business strategy.
Typically the legal operations team provides a first draft based on spend YTD. Each matter manager is provided with a list of his or her matters and offered the opportunity to indicate which will close by year end, which will continue into the new fiscal year and whether the budget will be consistent with the current year or require adjustment. The Matter Manager can also add new matters at this time. So that Matter Managers can own this task with confidence, they receive matter budget training and coaching.
Matters exceeding a threshold have more detailed budgets categorized by UTBMS code or phase. One good way to determine the threshold is to sort your prior year matters by spend from high to low and look at what cut-off applies to the top 20-30% matters.
Some matters are budgeted by category then assigned an average amount, at times within category by sub-category of size or location. A good example is trademarks. One can have a bucket for applications and renewals. While a single matter might cost only $1200-2700 per year, as a category the total spend can add up to several million. If appropriate the legal ops team may assign a placeholder for an additional unallocated amount consistent with analysis.
Each business unit controller receives the budget estimate for their cost center(s) in advance of the deadline for submission to Corporate and the Corporate CFO receives the consolidated estimate. Many companies adjust those budgets quarterly. I think that is a good idea for the small slate of significant matters. For the full budget, I think a mid-year check in as you start the budget process for the next fiscal year is generally sufficient.
Over time in my experience conversations shift from the finance opener “Legal is over-budget again” to “I saw the budget in the litigation matter went to the second scenario estimate. Were we unsuccessful on summary judgment?” or “I saw the patent numbers went up 10% as you had indicated they might last quarter. Congratulations to the Patent Committee receiving approval on its plan to dominate that patent family we discussed last quarter.”
Within two years, you will likely be able to rely on coming in within 5% of the top line budget. And those fraught budget meetings between the CFO and CLO with their staffs lined up on opposite sides of the tables will be replaced with collegial 30 minute check-ins between the VP/Director level staff on the variance since the last checkin.
Ops in a Box, Legal Edition has a Matter Budget Best Practices Deck, you can use to train your department, as well as a Matter Budget Report Template for submitting the matter budgets to finance, as well as a good dashboard sample and reclassification template.