Twists and turns when general counsel measure the accuracy of law firm budgets for matters

“Comparing individual law firms’ forecasts against the company’s actual spend with those firms is a useful key performance indicator.” That belief – matter budgets compared to actuals tell something – comes from an article in the Practical Law J., Vol. 1, Nov. 2009 at 70, about the 100-lawyer department of Computer Sciences Corporation (CSC). CSC asks law firms engaged by it to “forecast their likely billings on a monthly basis” and then pores over how the forecasts turn out.

If you make a fuss about the accuracy of a monthly forecast, firms are likely to forecast high, because it is better to come in below the budget than to break it. But budgets that are consistently overly-generous harm the fiscal integrity of the process. The goal is not to predict high spending but to better manage spending and even reduce it.

On the downside, a firm knowing its budgets are being watched may bump up its hours to hit its budget for a month, a pernicious practice akin to companies smoothing out their earnings to hit quarterly projections. The end run distorts the ends sought. Law departments ought to be pleased if firms accomplish the services needed from them for less than they had anticipated.

Third, what is the role of the oversight lawyer in-house vis-à-vis budget accuracy? That lawyer should be as accountable for budgetary accuracy, both up and down, as the firm.

To close this comment, budget numbers, without explanatory assumptions, are like giving only the weight of someone, not their gender, age and occupation: a mere number that lacks context.