Using Data Analytics in an In-House Legal Department

One constant question for in-house legal departments is “How are we doing?” This simple question is fraught with multiple meanings; it could mean how are we doing against budget, with turning contracts for the business, in the litigation, or with compliance efforts?

Historically, the legal department lacked the data to measure appropriately and report out on its findings. Increasingly, though, businesses of all sizes expect their legal departments to work with – and report out – data the same way as the rest of the company. This has made the use of data analytics a priority for in-house lawyers.

What is data analytics?
Data analytics is the process of creating, categorizing, and examining data sets in order to draw inferences and conclusions from them. The data and conclusions inform decisions or increase operational efficiency. For in-house legal departments, this cuts across a wide variety of issues, from budgets and spending to litigation outcomes. 

Why is it important?
The need for in-house legal departments to adopt and use data analytics is clear as legal departments are increasingly asked to report and operate like other business functions. A fundamental truth all in-house lawyers need to understand is the language of business is numbers, and data analytics can help legal departments talk the talk and make the case with accurate numbers for the needs and operations of the department as a whole.

Additionally, data analytics provide visibility and insight, create actionable intelligence and inform better legal decision making. When you consider how many legal decisions in the past were often made by hunches or guesses, and law firm relationships were based on who went to law school with the general counsel, you can instantly see the appeal – and importance – of using data analytics to make (and track) decisions. 

How do you start?
Start with identifying all of the data available to the legal department. This should come naturally to most in-house lawyers because it is part and parcel to their daily work – gather evidence to analyze and draw out legal conclusions. Data analytics is essentially the same thing: Find the data and use it to make conclusions. 

Locate every piece of data touched by the legal department. Here are some places to start:

• eBilling systems or manually gathering data directly from invoices or asking your law firms and vendors to provide it.
  
• Matter management systems.
  
• Reports generated by the legal department itself.
  
• Data available from legal-related tools utilized by the legal department.
  
• Data generated/created by other departments at the company. 
  
• Publicly available data (free or purchased, e.g. benchmarking data).
  
• Government data.
  

For most legal departments, especially those just starting to dabble with data analytics, the best source of data is your eBilling system (or paper invoices) and matter management data (electronic or manual). From this core, you can start to grab some low-hanging fruit without much additional cost. Start small and easy, prove success, then move on to tackle more complex analytics.

What do you want to measure?
Once you understand your data sources, your next challenge is to determine what you want to measure. The “what” is the fundamental purpose behind data analytics. Think about questions where the answers could make the department run more effectively and/or efficiently, or reduce risk to the company. 

Categorize measurements into one four categories: 

1.  descriptive (what happened)
   
2.  diagnostic (why it happened)
   
3.  predictive (what will happen)
   
4.  prescriptive (what you should do)
   

Here’s an example of a descriptive measurement: the legal department set a goal of reducing the hourly rate it pays outside counsel by 10% year over year. Next, locate the relevant billing data for the prior and current year. Run the analysis and compare the results. Is the average hourly rate lower by 10% or
more in the current year vs. prior year? If not, take action to reach your goal. 

The ways in which in-house lawyers can utilize data analytics are virtually endless. The only limit is the data you have on hand and your ability to imagine uses and questions. 

Go for quick wins
The smart play for those starting out with legal department data analytics is to go slow and find the quick wins. No in-house lawyer has time or money to spare. Start with the data on hand now, come up with some simple questions to measure, and get into a rhythm of generating simple, helpful reports. Share the results with the department to showcase the good and the bad. For example, if your average hourly rate for outside counsel is way out of whack, your team can help manage that number down through their engagement with outside counsel. Transparency is good for any in-house legal department, even if it hurts. 

Don’t feel pressured to share the data outside of the legal department right away unless someone has asked for it. Spend time refining your processes and making sure you understand the results and how you will utilize them. Throwing out numbers to the business without thinking it through can come back to bite you. As you gain experience and figure out different data sources or different questions to ask, you can start to expand your use of data analytics, with the goal always being how can you use this data to make the legal department operate better and keep the company out of trouble.

Reporting the results
One of the cool benefits of using data analytics in a legal department is generating dashboards to share the data and results. Dashboards are commonly used by businesses to give a visual summary of the status of a project, a goal (or goals), spending, IT systems, or pretty much whatever you would like to show visually. These allow for discussion of key points in easily digestible snippets revealed via the dashboard.

So far, most in-house lawyers are missing out on this trend. Embracing data analytics and measuring goals and questions creates opportunity to capture those answers in a dashboard. How widely the dashboard is used may depend on how the department is required to report out, but a basic dashboard for the legal department might include:

• Summary of outside spending vs. budget (or average hourly rate or legal spend as a percentage of company revenue.
• Summary of the number and type of commercial agreements completed.
  
• Discussion on the status of a key case or a legal department IT project.
  
• Summary of the company’s intellectual property. 
  

These are just examples. Your dashboard depends entirely on what is important to you, the department, and the C-Suite.

The role of artificial intelligence in data analytics
Data analytics and artificial intelligence (AI) go hand in hand. While you do not need AI to perform analytics, using AI can help make large data sets more manageable. AI is good for finding patterns in large data sets. For example, if you wanted to review a few years’ worth of outside counsel bills to look for entries of low value or indicating a heavy pen, AI can do it in minutes. Likewise, if you want to know if the data held by the company (emails, financial accounts, Slack messages, etc.) reveals any indications of FCPA/anti-bribery law violations so you can nip them in the bud, AI can do that, too. The future of legal department data analytics is AI, so it’s time to start figuring out how to get on board this train.

Lean on legal operations, if possible
If you have a legal operations person or team, data analytics is the perfect task to assign them. Professional legal operations people are trained/ experienced in the access, use, and manipulation of data sets. Why not let the professionals run the process, while you refine the questions and draw the conclusions from the data? If you do not have an operations person and it’s unlikely you will get one, realistically consider what you can do by yourself or by bringing in others on your team to help out – or, if possible, hire someone on a temp basis to help you get set up. 

Where can I learn more?
Good sources of data analytics best practices are starting to emerge. Here are a few places to go for more information and resources:

• Corporate Legal Operations Consortium (CLOC) – one of the two main bodies for legal operations professionals. Data analytics is a core competency for its members.
  
• ACC Legal Operations – the ACC Legal Operations section is the other main group for operations professionals. In addition, like all ACC groups, it offers tool kits, benchmarking, and other benefits. It also offers an operations maturity model with a specific component dedicated to metrics and analytics.
  
• Coalition of Technology Resources for Lawyers - like the name suggests, a resource for all lawyers interested in the use of technology and analytics in the practice of law. Worth downloading is their 2018 Legal Analytics Survey.
  
• Strategic Legal Technology Blog – a great blog for lawyers interested in technology. It includes a number of posts on data analytics.
  
• Your company – if you have seen others in your company use data analytics, invite them to lunch and pick their brain. Sometimes the best resources are right under our noses and cost us nothing but the time to ask for help.
  

Conclusion
Using data analytics in legal departments is a no-brainer. Not only will you get deep insights into the operations of the department, you will be able to provide better advice to the business – backed up by data and not just gut instinct. Start small and simple and work your way up to more complicated questions. Ultimately, your analysis will start to drive excellence, efficiency, and better decisions.