Legal Expense Management
Looking at the business relationship with outside counsel, there are four main areas of expense management to establish, monitor, and review: negotiated terms and conditions, performance management, managerial accounting, and analysis of professional services.

Negotiated Terms and Conditions
With every firm there are negotiated terms and conditions that outline the basics of your business relationship. These terms include negotiated rates, approved timekeepers, and approved expense agreements. In managing outside counsel you need to apply your terms as policy and monitor for firm adherence.

Performance Management
You intuitively know how firms perform relative to outcome and are likely comfortable with the manner in which they deliver services. Do you know how they compare to each other, which firm has the best practice, which firm most complies with your policy, and can you bias future legal dollars to the most fiscally responsible firm?

Performance management is about looking at your firms comparatively, identifying superior performers and practices, measuring performance against your policy, and deciding how to spend future legal dollars based upon comparative metrics of time and cost per activity.

Managerial Accounting
Part of managing any expense is the reporting and analysis of where and how money and time is spent. Identifying legal spend by budget, project, matter, activity, task, etc. is paramount to financial management.

Time analysis is critical to accurate accounting of hourly based professional services as time is the equalizer for all activities. By studying time you may find the firm with the lower rate is actually less fiscally responsible in doing business with your organization than a more expensive firm.

Analysis of Professional Services
Law firms are a business, providing legal services for profit. As 85+% of legal spend is attributed to professional services, it is important to analyze what activities are being billed and the role of the professional billing activities. Care should be given to identify if G&A expenses of the firm are being billed, such as supervisory, administrative, and clerical activities.

Also, scrutiny should be given to the appropriateness of the timekeeper relative to the activity being billed. For example, is a partner or senior associate doing the work of a paralegal? From the perspective of business this is the same as the Senior VP of Customer Service answering phones in the call center.