In today’s business world, where analytics plays such a key role in performance management and the strategic distribution of resources, it’s not a matter of “if” key performance indicators (KPIs) should be instituted, but “when,” “what,” “how,” and “why.”
Some might say that the best answer for “when” is yesterday, if not before. But KPIs are not something to rush into or put into place without careful consideration of the ultimate goal desired, what activities or metrics are the best to monitor, and how the process of data gathering and analysis alone might affect performance (sometimes tasks that are not being closely measured can become demoted or disregarded). Additionally, it could almost go without saying – but let’s mention it, just to be safe – that the right KPIs for your in-house legal department are likely not to be the same as those most appropriate in measuring the performance of your outside counsel.
Hence, the title of this piece: We will look at KPIs (Key Performance Indicators) that all legal departments should consider, but not necessarily implement. It’s unlikely you will need (or want!) all of these.
Cost and cost effectiveness: Gone are the days of external law firm invoices with only the cryptic explanation “For Services Rendered.” (Or, if not, they should be.) As part of legal spend management, it is critical to track outlay; the availability of sophisticated billing software makes it easier than ever to collect and evaluate detailed reports, tailored to your needs.
Key Performance Indicators (KPIs) for Legal Departments worth considering include:
- Total cost of services (inside and outside)
- Legal spend as percentage of revenue
- Budget-to-actual total spend comparison (e.g., percent handled within budget)
- Outside expense versus in-house
- In-house lawyers versus revenue
- Cost per matter
- Cost per lawyer
- Spend after implementing ebilling compared to spend without
Process, process efficiency and productivity: Is performance consistently meeting expectations in terms of staffing, case work, and time usage? Relevant data in this area can cover:
- Percentage of cases solved/resolved successfully
- Matters per attorney and/or per paralegal
- Staffing (internal) or billing (external) of paralegals to lawyers
- Matter practice area and which department raised the matter
- Legal matter time and expense versus administrative tasks
- Legal matters handled versus revenue
- Number of law firm secondees and/or contractors vs permanent staff
- Time for legal invoice processing and payment
- Deadline compliance
Cycle time: Timeliness in delivery of services is always important; spotting shifts in performance against this metric, especially notable trends in a particular area, can allow an issue to be investigated to determine the root cause. Here, you might monitor:
- Time per legal dispute
- Time to trial
- Time per non-trial matter
- Response time for e-mails or other requests
Customer satisfaction: This can be determined by surveys of stakeholders and “clients,” including those in all departments that interact, regarding both inside and outside counsel. Metrics can include:
- Level of satisfaction (e.g., on a scale of 1 to 5, etc.)
- Number of complaints filed
- Subject of complaints (to reveal trends, etc.)
- Are law firms delivering promised benefits (secondees, training)
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Determining the most critical areas, how to monitor and measure them, and expected performance levels are at the foundation of the process. These decisions must be made in concert with leadership and other departments to ensure that they align with the company’s overall strategic vision, specific business unit strategies, and other considerations. The Key Performance Indicators – which need to be clear, measurable and achievable, and should validated against comparable benchmarks – must then be effectively communicated to all affected parties.
Accurate collection of data, measurement, and analysis must follow – and it’s important to confirm that systems are in place to allow for these steps to be conducted before finalizing the KPIs themselves.
Establishing and measuring KPIs, of course, is only half of the process; even more important is evaluating the data and determining what, if any, action needs to be taken to improve a current situation. (Evaluation could also indicate that systems are working well, and even suggest that appropriate reward or recognition is warranted.)
Information is power. Implementing and acting upon smart, well-defined KPIs can incentivize superior performance – especially if, for example, fees or bonuses are at risk – and they can greatly help to manage legal spend and reduce costs. Even reviewing current performance measures and processes in preparation for establishing KPIs can bring its own rewards in acting as a business health check-up. There’s no time like now to begin.