How to prevent legal spend running over budget

With legal costs rising by 30% last year alone*, managing legal expenses is crucial to financial responsibility and success. Using budgets to manage legal spend doesn’t just help to control costs, it also improves the predictability of your legal spend and helps you partner more effectively with your advisors.

However, many firms struggle to control legal costs, with rates in 2022 and 2023 rising above inflation. Increasing costs are only part of the problem; many in-house teams have also felt the pain of unexpected invoices landing where the costs are much higher than anticipated.

Getting control of your legal spend and using budgets effectively requires a little planning. But with the right approach, you can automate budget tracking and make it a very efficient way of managing spend. In this blog, we’ll look at the practical ways for in-house teams to use budgets to control their legal spending—without sacrificing the quality of legal services.

Let’s get straight into it…

Budgeting: The foundation of effective spend management

Even simple budgets can be a powerful tool for in-house teams to control costs and make their external legal spend more predictable.  All too often, legal spend that’s not well managed can exceed expectations, causing friction with your law firm partners, as well as internal finance teams.

Good legal spend management involves setting clear budgets for all legal work, whether routine advice or complex transactions—and then tracking them to keep forecasts up to date and avoid overspending. There are two main ways to form a matter budget:

1. Look at historical data and form a view on what the matter should cost from an internal perspective.
2. Reach out to one or more of your firms and ask for an estimate.

This initial estimate then forms the starting point for your budget, and you can compare how the matter is progressing against it to ensure expectations are aligned.

But how can you track legal budgets in real-time?

Enter: legal spend management software—the modern way for in-house teams to control legal costs.

Legal spend management software:

✅Provides real-time tracking of legal and other professional services expenses

✅Enables automated monitoring of ongoing costs against budgets

✅Monitoring WIP enables value-based conversations ahead of the invoice

✅Offers rich analytical insights to inform legal service procurement and budget decisions

The result? By adopting legal spend management tools, like Apperio, in-house teams can balance controlling costs and securing high-quality legal services. This strategic approach helps prevent surprise budget overruns and gives the legal team powerful ways to forecast and control legal costs.

Keen to learn more? Let’s look at best practices for using this software in real situations.

Strategic budgeting frameworks for legal and professional services expenses

Companies can achieve greater control and visibility over spend by adopting a tiered strategy for budgeting expenses. This approach involves tailoring the budgeting process to each specific project, matter, or task.

We’ve covered these in more detail below and shared a screenshot of legal spend management software in action so you can see how it helps to visualize spend in real time:

1. Simple matter-level budgeting

If you are new to using budgets with your law firms, this is a great starting point! Budgets are defined for individual legal matters, and then spend is tracked against them (including the WIP). Where scope has increased, or there are unanticipated costs, the budget can be amended to ensure that the forecast is correct. This ensures that you are always in the loop about the anticipated end result–no more shocks at invoice.

For example: A company instructs a corporate matter with a law firm. They set a matter budget using the initial estimate provided by the firm. The work against the matter can be monitored regularly using real-time WIP, and if the matter starts to reach its budget, the system will alert the matter owner so they can discuss it with the law firm and revise the budget, if necessary.  

2. Project-level budgeting

This involves setting a budget for an entire project with multiple workstreams, covering all external costs from start to finish. For example, in an M&A transaction, the project-level budget would cover both law firm costs and external professional services for due diligence, regulatory approvals, and more. This holistic view allows firms to allocate resources efficiently across the whole project, ensuring there isn’t one single point that drains the budget.

For example: A company executing an M&A transaction is using multiple law firms and a tax consultant. They have an overall budget for the transaction, so as well as individual matter budgets, they have budgets that show them if there is any risk to the overall budget and help them identify the source of that risk.

3. Task-level budgeting using phase and task codes

This is the most detailed approach. It breaks down legal work into specific tasks or phases, each with its own budget. Using phase and task codes allows for precise tracking and control of legal spend, such as separate budgets for discovery, witness preparation, and trial proceedings in a litigation.

For example: During a litigation process, separate budgets might be allocated for discovery, witness preparation, and trial proceedings. This granularity helps firms identify areas of high spend and adjust their strategies accordingly.

Firms can use these approaches individually or combined, depending on the complexity of the legal work and their management preferences. By tailoring their legal spend management to each engagement, firms can ensure every pound is invested strategically towards their objectives.

Monitoring WIP with legal spend management software

Continuously overseeing legal tasks and expenses gives firms an accurate, real-time picture of their financial commitments—and this is where WIP/accruals monitoring comes in. This visibility is key for managing budgets and preventing surprises in legal spending. If a matter is gaining cost faster than expected, timely intervention can help reassess priorities, renegotiate terms, or change staffing to stay on budget.

Technology is essential for effective WIP monitoring. Legal spend management software provides comprehensive tools:

✅Track legal tasks, hours, and expenses, often in real-time

✅Integrate with billing & project management systems for a holistic view of legal spend

✅Offer dashboards and reporting to easily analyze legal spend data

Moreover, alerts can be set when expenditures approach budget limits, enabling proactive budget management.

Keeping legal costs under control

We’ve covered quite a bit of ground in this blog so we’ll keep this brief… Adopting these strategies–made easier with legal spend management software—allows for a proactive, rather than reactive, approach to managing legal costs.

It enables firms to forecast, plan, and control legal spend with greater accuracy and confidence. And by integrating these practices into the financial strategy, firms are better places to safeguard against the unpredictability of legal and professional services expenses.

Keen to see how else we can help? Apperio has designed legal spend software specifically for this. Take a look at customer success stories here. Or, dive straight in and book a demo of our legal spend management software.

*2023 Law Department Management Benchmarking Report