Legal Budgeting Strategy

How GCs Can Use Agility-Based Budgeting to Navigate the Budgeting Process

Legal departments, universally, are experiencing unprecedented budget pressures in the wake of a recessionary economy. And yet, many in-house leaders still anticipate an increase in legal spend for the remainder of 2023.

How do GCs reconcile increasing spend in a cost-controlled environment?

They think they must spend more to get more – and they desperately need “more.” 

• Ninety-nine percent of in-house legal leaders report that the volume and complexity of legal matters is increasing.  
• But nearly all (92%) also warn that their department does not have the right talent and aggregate resources to meet these escalating needs and do its job effectively. 
  
• Further, 99% say they have a shortage of specific expertise in their departments

So, it’s no surprise that most of the increased spend is going toward acquiring those in-house resources. Yet even with all that spending, 79% of GCs still acknowledge that additional permanent in-house lawyers will not solve their resourcing challenges. Why? 

• First, 52% say the right lawyers are difficult to find and hire in this market.
• In addition, GCs cite challenges with hiring full-time staff for what is only a temporary/transitory matter.
• Finally, GCs acknowledge a need for more part-time, rather than full-time, expertise across a variety of specialties. 

How will GCs fill the void between their escalating workload and what their in-house staff is actually equipped to handle?

Law firms. The majority of GCs expect legal spend on law firms to increase. That is problematic for few reasons.  

• First, with law firm rates rising at a historic clip, GCs are spending more, but getting less for their money.  
  
• Second, instead of limiting law firm use to the exceptional events for which they are best suited, GCs are actually using firms to handle the “overflow” work for which they are not. GCs say the work that should be outsourced to a law firm is work that is too complex to be handled in-house or work that requires less institutional knowledge. Yet, 82% of GCs leverage law firms, not because the work requires outside counsel, but because their staff is already at capacity.  
• Third, 80% of legal leaders acknowledge that law firms are not a highly effective solution to their resourcing solutions, citing a lack of commercial and business acumen, the provision of conceptual rather than practical advice, and of course, their expense.  

What does all this increased spending on inappropriate resources suggest?

It suggests that, for the majority of legal departments, their resource allocation process is inefficient and not aligned to the needs of legal or their stakeholders. 

But there’s a solution.

As we enter the 2024 budgeting season, GCs can effectively use the budget-building process to fundamentally reexamine where and how they spend their budgets in order to navigate uncertainty and derive increased value from their legal spend. 

The 2024 planning cycle represents an optimal time to shift dollars away from fixed costs, toward more variable spend, in order to effectively mitigate against budget reductions, volume spikes, and unanticipated legal matters. 

Our latest report offers a 7-step playbook for GCs to leverage new budgeting models to reduce fixed investments, variabalize their cost base, and improve legal outcomes.