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A methodology to show the cost savings a law department generates

A previous post (Dec. 16, 2005), listing unanswered questions in the realm of law department management, included: “how can we quantify the value we deliver to our company?” The Ernst & Young Corporate Conflict Value Model, as described in Chief Legal Executive, Spring 2004 at 42, purports to quantify the value produced (or saved) by the legal function.

The inputs to the model include four categories of annualized direct cost savings: processing, settlement, productivity gains, and reserves. Adding these cost savings to risk reductions, the law department can arrive at a sum for total savings. There are six kinds of relationship risks that can be reduced (relationships with customers, suppliers, partners, investors, employees, and competitors) as well as four varieties of risks (adverse publicity, regulatory, insurance and “catastrophic” risks).

The article explains that E&Y consultants work with the law department and corporate executives “to populate worksheets in each identified area with data that are used to calculate” the savings. In other words, my skeptical minds says, if you estimate savings and add them up, you can say you have shown your worth.