Three measures to improve ROI for legal spend
Return on investment is an essential element of spend management
In-house legal teams that prioritize spend management are keen to show a return on investment (ROI) for any new initiative. This is especially true in corporate environments where the competition for budget is fierce. General counsel (GC) want to understand the financial tradeoff between hiring more staff and implementing significant software systems. True efficiency and effectiveness demand both people and technology; getting the math right can be tricky.
A recent Forrester Research Total Economic Impact study looks at how general counsel show return on investment for their legal operations system, Legal Tracker from Thomson Reuters. The study contains high-impact statistics that can help you shape your ROI story. While the specific numbers will vary from company to company, the report gives a helpful framework for calculating the returns a legal team can look for and quantify when implementing new technology. The main elements are the cost of the software, the quantifiable benefits, and the unquantifiable benefits.
Understand the costs
New software installations have two types of costs and your ROI calculations should reflect both. First is the licensing cost, which is often paid annually for the length of the contract. This cost should include training and support from the vendor, though you may need to work with a third party for implementation and configuration. Include all these hard costs in your calculation of the investment the company is making.
The second cost to include in your calculation is the internal labor required to implement and manage the software. Most likely, you will name a team responsible for getting the software ready for the team to use. This preparation includes migrating data, setting up processes, and training the team. Calculate the cost of their time and move tasks off their plate to give them adequate time to make the implementation and rollout successful.
Quantify the dollar savings
Consider all the ways the new software will save your department and your company money. For instance, the Forrester study on Legal Tracker mentioned earlier found several cost savings categories after successfully implementing the software. These examples can be helpful areas for you to investigate as you calculate the return on investment for the software you are implementing. They include the following:
- Lower timekeeper rates. If you can benchmark law firm rates across your region or other sets of firms, you may be able to negotiate more favorable rates from your law firms, especially if you are currently paying more than the benchmark.
- Enforcement of billing guidelines. A system like Legal Tracker makes it easy to see if an invoice matches the billing guidelines you’ve agreed to and to request a revised invoice if you find a mistake. Forrester found that Legal Tracker customers saw a 0.75% reduction in total annual outside legal spend. These savings can add up significantly.
- Efficient review of invoices. What’s it worth to your department to have your team spend more time on higher-value legal work? When you’re implementing a tool that promises greater efficiency, be sure to look at what your team will be doing instead and communicate the value of them being able to use their time better.
Articulate the intangible benefits
Of course, not every benefit will have a hard dollar amount associated with it. While you can’t necessarily calculate benefits in the ROI equation, they are important elements of your spend management approach .
The Legal Tracker report from Forrester found several intangible benefits associated with the sophisticated legal operations tool. While specific benefits will vary based on what type of software you are implementing, these are valuable areas to explore. For example:
- Does the software allow you to understand your spending better?
- Can you see opportunities to hire an expert and keep high-volume matter types in house rather than sending them to outside counsel?
- Does the software strengthen or harm your relationships with law firms?
- Can you configure the software to meet your specific needs for processes and reports?
These factors affect the team’s ability to work efficiently and effectively. They may contribute to morale, job satisfaction, and overall results. While you may be unable to tie dollar amounts to them, they are worth including in ROI discussions. What’s it worth to the company to improve the team's retention, engagement, and output?
Calculate the ROI of legal software
ROI discussions for legal department software should include an all-in view of the costs and a holistic look at the benefits. When quantifying the “investment” — or cost — consider both the price you pay as well as the internal and external implementation costs. For the “return,” be sure to look at hard dollar savings, like improved timekeeper rates, and less tangible factors, like relationships with law firms or employee morale and engagement. This approach will help you see and communicate the value of the tool and the value of the team that the tool supports.