Develop your Emergency Budget – by Xakia

The threat of a recession poses great danger to already-stressed Legal Department budgets. Here our friends at Xakia give advice on how in-house teams can get ahead of potential budget cuts.

Article written by Xakia

Heading into 2023, Legal Departments already were cost-conscious: according to the Thomson Reuters Legal Department Operations Index, 85% of respondents said controlling costs was a “high priority.”

This comes while a majority of in-house corporate Legal Departments – 65% – expect the volume of their work to increase. Despite this, 59% of respondents expect their legal budget to stay flat or to decrease.

In-house lawyers are no strangers to the “do more with less” edict. However, in a year where the threat of a recession looms large, budget pressures are likely to be more pronounced.

What can Legal Departments do now to reduce the risk of a CFO slash-and-burn?

Previously on this topic, Xakia wrote on the importance of aligning the Legal Department’s priorities with the C-suite’s. In short, dive back into the company strategy. What were the key objectives before a potential recession, and how might an economic downturn affect these plans?

Once you have reassessed the strategic vision, it’s time to revisit your 2023 budget to determine how it applies to the new environment. This is, of course, easier if you are starting with a well-developed budget, versus a version of “last year’s plus 3%.” (If you need help building a better budget, consult Xakia’s white paper guide, 10 Steps to a Smarter In-House Legal Budget).

While our economic futures remain uncertain, create a “Budget 2.0,” a document that is recession-ready in case of emergency.

Need some ideas for cost-control measures?

The critical starting point is having a good handle on what your Legal Department’s costs really are. A modern legal matter management software can give you a real time understanding of where your legal spend is going (and importantly, delivers that data in a way lawyers can understand). But if you don’t have a matter management software, don’t stress – your finance department has all the data, it’s just a matter of getting the right data in a form you can work with.

With good data on where your legal spend is going, cost-control opportunities will often identify themselves. But if you need some help, here are some of the tactics identified as top-three priorities in the Legal Department Operations Index:

  • Improved enforcement of billing guidelines to reduce invoice fees and expenses – 60 percent of respondents
  • Pursuit of standard discounts for outside counsel timekeepers – 34%
  • Requirement of law firm matter budgets – 30%
  • Regular review of budgets on high-cost matters – 28%
  • Volume discounts – 18%
  • Fixed/flat fees by matter – 16%
  • Utilization of a panel or preferred vendor program – 15%
  • Competitive bidding, i.e. RFPs – 12%

But to truly thrive during and after a recession, in-house Legal Departments should think beyond cost control – and start to brainstorm new ways to work. By applying in-house legal data in proactive, creative ways, Legal Departments can start to find solutions that not only provide budget breathing room, but also improve service delivery, lower stress and forge stronger relationships throughout the business.

Indeed, this is an ideal time to start thinking about some big ideas, among them:

  • What work could be automated?
  • What work could be eliminated with better policy, training or business self-help tools?
  • How could we better organize our internal staffing and external resources for balanced workloads and ROI?

A holistic approach to resource deployment that demonstrates a proactive, thoughtful and right-resourced Legal Department will demonstrate to the C-suite that the Legal Department is a strategic partner to the business….and not a cost center that can be cut at will.

How can you get started – and what else should you be doing now to position your in-house legal team for success in a potential downturn? Find out in Xakia’s white paper Four Ways Legal Departments Can Survive (and Thrive) in a Recession.