Understanding the things that drive costs in e-discovery, knowing how to design and execute the project with those drivers in mind, and developing the scope of an e-discovery project to be commensurate with the value of the case and the expectations of the client are essential skills for any e-discovery practitioner.

In project management, the process of estimating and controlling costs is called cost management.

In the legal business, we might refer to this as proportionality management.

The goal is to prepare a cost estimate and budget for an e-discovery project. Practitioners, whether lawyers, paralegals or e-discovery professionals, must identify the scope of the project including the time, resources, and materials needed to complete the project. It will be necessary to gather inputs, like the cost of the resources and the people performing project work and any vendors who may have a role as well.

One way of budgeting and cost estimating is called bottom-up estimating. This process uses a work breakdown structure or WBS to break the project into its smallest parts. In project management, we use a WBS to break work down into its smallest component parts. Each activity is broken out—using a project management technique called “decomposition”—and the cost and time for each activity or task are identified. The costs are then aggregated upward through the project activities to arrive at an overall project cost.

Begin this process by breaking down each phase of an e-discovery project into its component parts. Using a task list, measurable expenses, and the resources needed, it is possible to build an accurate working cost estimate.

Identification and Preservation

Cost estimates in the identification and preservation phase will be based on the number of consultative and advisory hours dedicated to the project. Multiplying the number of hours required by the hourly rate of the individuals involved (attorneys, paralegals, project managers, litigation support, or vendors) will result in a reasonable estimate of the cost to identify and preserve ESI for the project.

Collection

Assess the number of custodians, the data sources, and the volume of the overall collection (usually in gigabytes). Collections are typically performed by a technician who charges by the hour. Knowing the volume of the data enables the technician to estimate the number of hours required to complete the collection. Multiply the hours by the technician’s hourly rate and that should be an estimate of the collection cost. Service providers may also charge a flat per-custodian fee. If the work is performed by client in-house personnel, use a reasonable hourly rate based on their salary and benefits or a rate the company routinely charges for their services.

Processing

Costs are based upon the volume of the ESI collected and the various processes to be run on the data during processing. In most instances, processing services are charged on a per gigabyte basis. Multiply the cost per gigabyte by the number of gigabytes and that’s the cost of processing. Sometimes there are also charges for project management time at an hourly rate.

Document review

This is the most expensive phase of an e-discovery project because of the human element and the time involved. Attorney billing rates for reviewing documents can be high. Even when using temporary or contract attorneys, who charge much lower rates, review costs can be considerable.

To prepare a cost estimate for a document review, it is necessary to know the volume of documents to be reviewed and the hourly rates of the individuals involved. It can be difficult to estimate how many documents may be reviewed in a given period of time. It varies depending upon the types of documents, the density of the document content, and the skills and motivation of the reviewers. An estimate for document review is prepared by dividing the number of documents by an acceptable review rate and multiplying by the hourly rate.  For example, if a document review involves 100,000 documents, and if a single document reviewer who charges $100 per hour can complete 500 documents in a 10-hour day, it is possible to conclude that it will take 2000 hours (or 200 days) and cost $200,000 to complete the review. Rarely, does a single document reviewer look at this volume of documents, but understand that adding additional reviewers to the review will result in the review being completed sooner, but not necessarily less expensively because the time still needs to be spent looking at the documents.

Document production

These costs are straightforward. Whomever is preparing and quality checking the production is billing for their time by the hour. Multiply the number of hours required to prepare the production by that individual’s hourly rate and you have your estimate.

Finally, it is a good practice in cost management to include what is referred to in the world of project management as “reserves.” An e-discovery project leader might add a 10% reserve cost to a budget to account for anticipated but uncertain events or what are called “known unknowns.”

In the end, aggregating the costs of each phase of a project using the bottom-up estimating process will result in a reasonably accurate estimate of the cost of an e-discovery project.

Remember, volume is the single most significant driver of e-discovery costs, and the number of custodial sources included in the collection is the biggest driver of overall volume. Reaching agreement on the number of custodians and taking steps throughout the process to limit the volume of ESI to be reviewed will ultimately help control costs.