The ROI of Legal Operations: Measuring Success and Demonstrating Value with Legal KPIs

Note: originally published in the German-language legal tech publication “Legal Tech Verzeichnis.” Translated here.

In a challenging economic environment, Legal — like all departments — faces increased scrutiny for operational and cost efficiencies. Metrics are vital to showing Legal’s value to the organization — and Key Performance Indicators (KPIs) are a potent tool to demonstrate the department’s importance.

As detailed in a recent PriceWaterhouseCoopers survey, organizations of all shapes and sizes worldwide face an increasingly worrisome economic environment. The combination of global conflict, aftereffects of the pandemic, new rules and regulations, and a persistent wariness about economic foundations make for a business world defined by uncertainty.

The result of this environment? A new focus on operational and cost efficiencies throughout every department of the organization. Legal is no different. An optimized, streamlined legal department can help fuel growth in trying corporate times. The current environment provides Legal with a sterling opportunity. Per the 2022 Enterprise Legal Reputation (ELR) report, Legal can “materially impact” the organization by bolstering revenue, improving sales negotiations, and increasing efficiencies — evolving beyond its traditional role as the “protector of the business” and into a material business partner.

The challenge for Legal? The value of a legal department is mainly known to the organization anecdotally; traditionally, it’s been tough for organizations to quantify the impact of Legal on the business. In a data-driven world, this puts the legal department at a disadvantage.

Metrics drive departments, and for Legal to be recognized as a direct, material contributor to the enterprise, it needs numbers to back that assertion. That’s where key performance indicators (KPIs) come in.

How KPIs Drive a Modern Legal Department

KPIs are measurable values that indicate how well an organization is achieving its strategic or operational goals. KPIs that demonstrate how Legal is optimizing its processes include:

• Total outside counsel spend
• Spend by law firm
• Legal spend as a percentage of revenue
• Budget-to-actual total spend comparison (e.g., percent handled within budget)
• Outside expense versus in-house
• In-house lawyers versus revenue
• Cost per matter
• Matter staffing
• Spend after implementing billing compared to spend without

When used effectively, KPIs demonstrate the legal department’s value and enable it to make data-driven decisions to improve efficiency. However, remember that you can’t manage what you don’t measure. To use KPIs, you need an effective means to collect and measure them, including technology. That’s what an enterprise egal management (ELM) solution can provide.

Using Enterprise Legal Management Solutions to Track KPIs

For KPIs to work for a legal department, you need an ELM solution to provide real-time access to critical metrics or data. Here’s how they can help:

• Cost savings. A legal spend management capability provides insights into where the department spends its budget, allowing you to find out where to achieve cost savings — for example, by reducing outside counsel spend, streamlining legal operations, or renegotiating rates.
• Matter management. Track key matter management metrics, including case volume, time spent on cases, and outcomes; with this, you can identify trends and areas for improvement (e.g., reducing cycle times, improving settlement rates, and increasing win rates).
• Vendor management. Help track vendor performance, and get insights into vendor cost, quality, and timeliness to discover your top-performing vendors, negotiate better rates, or terminate underperforming vendors.
• Compliance: Track legal compliance metrics — such as regulatory compliance, internal policy adherence, and risk mitigation — to ensure the department meets compliance requirements and identifies areas where additional training or policies may be needed.
• Team productivity: Explore team productivity metrics, such as workload, time spent on administrative tasks, and team utilization; discover areas to streamline processes or find where to utilize team members better.

Another benefit of adopting ELM software? Over time, the solution creates a database of historical matters and associated spend, arranged int Uniform Task Based Management System (UTMBS) and Legal Electronic Data Exchange Standard (LEDES) codes. From there, you get powerful analytics and insights into legal spend that can inform data-driven decision-making.

Armed with enterprise spend management software that tracks KPIs, your department gets the valuable information it needs to contribute to business goals and achieve year-over-year improvements — and become that driver of value and savings for the company rather than just a “cost centre.”

The Seven Golden Rules of KPI Implementation

Ready to get started with KPIs for your legal department? Before you begin the project, remember these seven golden rules of KPI implementation and use them as your guide:

1. Start now. Don’t wait. Begin your KPI project now with existing data instead of delaying the implementation.
2. Align with strategy. Make sure the KPIs are in sync with overarching corporate and department goals.
3. Customize. Use KPI lists as inspiration — but tailor them to your company’s needs.
4. Collaborate with stakeholders. Engage with all needed stakeholders in the KPI development process to secure alignment and buy-in.
5. Keep it simple. Don’t develop too many KPIs or bring in complex metrics that are difficult to measure or understand. Simplicity should rule.
6. Be realistic. Set realistic targets. Ensure KPIs are challenging yet attainable based on historical performance and industry benchmarks.
7. Look for continuous improvement. Regularly review and update KPIs to keep them relevant and effective in driving business outcomes.

By keeping these seven golden rules in mind as you develop your KPIs, your legal department can get the robust metrics it needs to quantify its value to the organization and take its place as a direct, material contributor to the enterprise.