We who contemplate management of outside counsel focus hugely on total amounts paid, overlooking the importance and insights of the regularity of spending during a matter’s life. How much a department spends each month on a matter I define as the burn rate.
Burn rate analyses shed light on volatility and indirectly on drivers of costs. When significant events happen in a matter, the burn rate leaves a tell-tale singe (See my post of Aug. 31, 2005: importance of burn rates; Sept. 5, 2005: further on defense costs and amounts at risk; March 20, 2006: burn rate calculations and cycle time; May 20, 2005: burn rate jumps during trial; March 20, 2008: data shared between law departments allows comparison of burn rates; and June 25, 2006: match budgets to burn rates.).
Burn rates also highlight dormancy periods (See my post of April 17, 2007: percentage of dormancy months; Oct. 25, 2007: dormant cases; April 17, 2007: inactive cases; and Aug. 1, 2006: dormancy as a performance metric.).
Burn rates, especially when calculated as a rolling average (See my post of Jan. 6, 2006: rolling averages.), help legal departments budget.
Finally, burn rates provide a basis on which to compare the performance of various law firms on similar matters.