By Alex Kelly.
Corporate legal departments face several financial planning obstacles that no other business unit would envy. Demand for their services is notoriously unpredictable and driven largely by factors beyond their control, such as industry regulations or competitive developments. The strategic nature and variable scope of the work also complicate the process of evaluating cost-efficiency. Projecting the price of a complex litigation matter, for example, is a much different exercise than forecasting next quarter’s sales training costs.
Nevertheless, the desire for financial predictability has only grown stronger in boardrooms around the world this year. And in my experience, I know that’s a challenge in-house legal leaders want to answer. They want to be dependable business partners and help steer their organizations safely through these financially precarious times. They just haven’t always had the appropriate tools at their disposal.
A.I. Forecasting In Theory
The first major leap forward in legal department financial management was the introduction of e-billing software. Accurately and efficiently tracking legal spend each month suddenly became the rule, rather than the exception, for teams using the technology to their advantage. But confirming what has been spent and declaring what will (or should) be spent are two different tasks. To help address the latter, some e-billing tools have been adding more analytical features and evolving into proactive spend management solutions.
Artificial intelligence (A.I.) is driving this development in two ways. The first is at the invoice review stage, where a machine learning engine can interpret line item descriptions at a rate of speed and accuracy that no human could rival. The software translates each task performed and hour billed into a data point available for future analysis and comparison. As a result, in-house legal teams can gather maximum context from their invoices with minimal effort.
As this detailed record of spending habits continues to grow, the A.I. can then step into its second role of financial forecaster — modeling what will likely be spent going forward. Using past behavior to predict future behavior is by no means new, of course, but the speed of calculation certainly is. Instead of trying to connect the dots across dozens of spreadsheets, legal staff can simply refer to the software’s continuously updated projections at any time.
There’s also a hidden advantage embedded within those forecasts. The A.I. is actually referencing the combined activity of all legal teams using the software when making its calculations. The collective experiences of your peers factor into your individual projections, increasing precision by several degrees. That ultimately provides you with a confident perspective on how much a certain type and scope of work is likely to cost — before it’s resourced and executed. And if that number puts you on the wrong side of your expected budget, then you’ll have time to take proactive measures.
A.I. Forecasting In Practice
Now let’s put the technology into context by applying it to a scenario many readers will have grown familiar with: You’ve been given a mandate to reduce the legal department’s spend by 10% year-over-over.
If you’ve been tracking expenses via A.I.-powered spend management software, you’ll be breathing a little easier than most of your peers. The basic e-billing features will help confirm what’s been spent to date across all matters and what’s waiting just around the corner in the form of accruals. Combine those two categories and you’ll know roughly how much runway you have remaining before exceeding your (now reduced) annual budget target. How quickly you’re likely to use up the runway is a question A.I. can easily answer. By referencing the spending patterns of all its users, the software can project the final annual cost for the legal services that resemble your current portfolio of work.
Let’s say, for example, the A.I. model suggests that you’re likely to overrun your annual budget in October. What proactive steps might you take to avoid that fate? First, it would be best to communicate that insight to the full legal team as quickly as possible. You’ll want to get everyone thinking about where some extra financial flexibility might be found within their portfolios. (That suggestion could be converted into a formal mandate as well, with internal matter leads held accountable to specific cost reduction targets.)
Next, it’s time to debate and devise creative cost control strategies. There are rarely any easy answers here, but it’s best to take a prioritized view of your legal spend and focus on the matters and vendors making the largest contributions to your bottom line. Is there a fixed fee structure that might fit one of those primary projects? Could the associated expenses actually be shifted to the business department which originated the matter? Might the law firm be receptive to a volume discount?
A.I. ultimately gives legal teams more time to pose — and better data to answer — such strategic questions. At worst, you may decide that there simply isn’t a path to reducing costs that doesn’t simultaneously raise unacceptable legal risks. But the ability to break that news months before an impending budget overrun would still be valued and appreciated by your business colleagues. At best, your clever reallocation of resources could be the reason your organization stays below a critical financial threshold. But in each case, you’ll enter the room with the same assured feeling that you have an equal seat at the table.
About The Author
Alex Kelly is the co-founder and COO of Brightflag, the A.I.-powered legal spend management solution. Alex leads global operations across Brightflag’s offices in New York, Dublin, and Sydney, ensuring the entire organization is aligned around its customers’ critical business objectives. Prior to Brightflag, Alex qualified and worked as a corporate lawyer with a leading international law firm.