“Cost creep” and its subversive inevitability in law departments

In 2010, a major division of Royal Dutch Shell decided to use zero-based budgeting to reset its cost structure (See my post of July 16, 2007: zero-based budgets; Jan. 2, 2009: advantages of zero-based budgets; March 29, 2009: five steps toward more reality in budgets; April 22, 2009: zero-based staffing decisions by general counsel; and Aug. 11, 2009: along with just-in-time budgeting.). Describing the effort in strategy + business, Winter 2011 at 20, the author sees “continuous improvement in a big corporation as necessary in what I would call managing cost creep: reducing the 3 to 5 percent in additional costs or waste that most large companies seem to generate every two or three years.”

If large companies lard on budget fat at that rate, their functions are doing so. How would a general counsel put the department on a scale and measure the “additional costs or waste” that has built up. Obviously, some costs rise from inflation, but “waste” is a subjective, normative judgment. Someone’s additional subscription; another’s new propensity to take a car service to the airport instead of driving; some laxness on bill review; a subsidy for a new espresso machine; PDAs issued to paralegals, theater tickets added to the All Lawyers’ Conference – what is waste and what is investment or legitimate expense? A budget that defers to no sacred cows and scrutinizes all expenses as if there were no history behind them would be a salutary discipline.

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