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A Common Outside-Counsel Budget Challenge – Adjustments

Even though the responsible in-house lawyer has approved a budget by a law firm handling a matter, there remains the possibility of the law firm wanting to revise the budget.  Here are some ideas for analyzing budget modifications.

Thoughtful budgets should state the most important assumptions grounding the budget.  What events, in other words, cause the budget to be what it is.  Modifications to the budget, presumably, arise from a circumstance that was not covered by the assumptions.  A law department could track the accuracy of the assumptions made by a law firm, rather than focusing entirely on the budgeted spending.  All things being equal, a firm that consistently takes into account most of the likely occurrences that buffet a budget brings more value – and more realistic budgets – than a firm that overlooks foreseeable events.

For major matters, the law firm might state not only the assumptions, but also their range of variance.  Of the total budget, a given assumption could change the range from 5 to 10 percent, that assumption is less of a cost driver than another assumption that has a range of 30 to 50 percent variability.  Thus, to pay closest attention to the events that might cause the largest swings in a budget, have firms give key assumptions and their the range of variance.