[author: Jim Boyer]

A nightmare scenario for attorneys and clients is when a client receives an invoice and learns that a matter exceeded budget. If the parties went through an extensive budgeting process, documented the scope of work, and agreed to a fee arrangement that provided value to both the client and firm, this situation will be even more frustrating and could put the relationship at risk. Proactive budget management is key to avoiding unwanted surprises and requires only a few extra steps to identify budget risks. More importantly, the process encourages open communication between the client and its outside counsel. Here are a few tips to help you become a pro at managing budgets proactively.

Timeline Planning

Creating an accurate timeline is crucial to developing an accurate budget. As a part of the initial budgeting process, the parties should estimate how much time outside counsel will spend on each phase or task associated with the work and plot the phases or tasks against a timeline that estimates when the work will take place. If the scope of work is unclear, making it hard to initially determine the estimated cost of each phase or task, using a start and end date around key tasks provides a great starting point. Then, when outside counsel monitors and reports on the budget, it will be easier to frame the actual spend around the dates on the timeline the parties identified at the outset, see the story the numbers tell, and predict future spend.

By way of example, say you have a quarterly budget for a complex litigation matter that has an aggressive budget and timeline that requires weekly team check-ins and reporting. At the end of the first month of the quarter, 75% of the budget remains, but outside counsel determines that a large amount of work will be done in the second month of the quarter that may result in overruns. The firm’s legal project management (LPM) professionals work with the legal team to review current and historic data and use technology to proactively identify the risk to the overall budget and stay on track. This helps the lead attorney to proactively communicate concerns regarding overruns to the client before they happen, which allows the client to take an active role in deciding a course of action.

Pro tip: Go the extra mile and suggest various spend planning options to fine-tune the budget. By asking the team if it expects a matter to be a steady stream of work, or if it expects the work to ebb and flow through the various stages of the project, you can more accurately predict the cadence of the effort and resulting fees, allowing everyone to be prepared for bills as they arrive. The goal is to eliminate uncertainty and improve communication.

Track It

Once you have an accurate budget and timeline, it is critical that you develop a plan to accurately monitor and track them. Setting up phase and task codes that mirror the budgeted phases or tasks is the first step. You then need to work with the legal team to make sure everyone enters time consistently to the same phase or task codes. This step is often overlooked and can lead to anomalies in the data. Implementing a process to audit time entries ensures that they go under the right phase or task codes and that the budget is accurate. There are legal technology solutions out there, such as Clocktimizer, that use machine learning to assist with this step, which reduces the amount of manual effort involved.

Pro tip: We recommend timekeeper memos at the onset of every engagement. These memos include the budget and fee arrangement for a matter, along with a description of the phase and task codes. By setting clear expectations up front, we ensure that each timekeeper on a matter participates as a proactive budget manager.

Now you will need technology to report against the budget. At Ballard Spahr, we require a budget for most matters, regardless of whether the client asks for one. Early on, we identified a need to integrate our matter intake system with our financial systems and developed our Ballard360 technology to meet that need. We now have an intake to invoice business process in place that integrates the matter opening with our matter management application and financial systems. The process is designed in a way that adapts to changes, grows with the firm, and is always evolving to meet the legal demands of tomorrow.

Pro tip: Use visualizations to show budget to actuals. It is no longer enough to report numbers and percentages in a table. Using bar graphs and pie charts goes a long way toward giving your numbers context. Our Ballard360 applications recognize the power of visuals. We’ve developed an enterprise data warehouse that enables our teams to take ownership of their data and create interactive visual reports that are shared with both attorneys and clients.

Talk About It

Communicate with the client every step of the way. Make sure the budget report goes out with each invoice. If an invoice does not go out on a monthly basis, work with the matter billing and relationship attorneys to ensure the budget to actuals report is regularly shared as part of your communication plan with the client. Weekly reporting is the best bet for aggressive or complicated matter budgets.

Final pro tip: Don’t forget to review your outside counsel guidelines. The reason clients stress periodic budget reviews or accruals is simple: they budget and plan their spending. Clients feel the same pressure we do to control costs and demonstrate efficiency. Increasingly, budgets for legal are scrutinized and benchmarks delivered to encourage savings at every stage. It is important to walk hand-in-hand with your client through the life of the budget and to be attuned to helping them achieve their business goals.