Law departments shouldn’t claim savings from business profits (GE)

General Electric’s law department has apparently invested in a document management and document assembly system, an innovation that the department anticipates will save $12 million annually. In the fine print of the article, Corp. Counsel, Vol. 14, Jan. 2007 at 61, the law department mentions outside counsel fees and inside lawyer hours, but also includes the profit or revenue expected to be made by General Electric, through use of the contract toolkit, from quicker or more frequent sales of aircraft. Thus, faster and better turnaround of contracts leads to more corporate profits than would have happened otherwise, which the law department has appropriated as departmental savings.

On this reasoning, where a law department process improvement can take credit for business revenue, no law department should ever be considered only a cost center. But, second-order “savings” (increased corporate profit) is not legitimate; savings from a law department initiative needs to come from less cost for the same output. For more on ROI estimates, see my posts of May 1, 2005 on bill review software; May 14, 2005 on knowledge management; May 14, 2005 on projecting savings; and July 31, 2005 on implausible assumptions.)

We welcome comments

Your email address will not be published. Required fields are marked *