7 pragmatic tips for selecting legal department KPIs
The key to selecting legal department KPIs is to have a well-defined reason for choosing any given metric.
In my observation, the most prominent reason legal departments adopt key performance indicators (KPIs) is to reduce cost. Yet legal department KPIs can be used more widely for measuring progress ranging from process maturity to data-driven legal decisions.
Given the broad range of applications, how should a legal department go about choosing the metrics it wants to track? A while back we co-produced a webinar with the Association of Corporate Counsel, that addresses this question (and more).
Below are some of the tips I shared.
1. KPIs should be capable of driving change.
The key to selecting KPIs is to have a well-defined reason for choosing any given metric. It’s tempting to fall for vanity metrics, but KPIs should address a business problem. The data collected should be easy to interpret, simple to present to non-legal stakeholders, and useful for guiding behavioural change.
2. Tie KPIs to operational priorities.
Department level KPIs should reflect the criteria people on your team are measured against but where possible they should also link to overall company objectives. For example, when launching new products in the market, KPIs linked to law firm team composition and risk exposure ensure you’re getting the right coverage from your firms.
3. Seek KPIs that depicts a rate of change.
Be cautious of absolute numbers in selecting KPIs. While these can be interesting and relevant, it’s often the rate of change that’s truly informative. Ideally, you want to understand where you are now and where you would like to be – and examine how you close the delta.
4. KPIs need to be easy to collect and track.
If it’s too complicated to collect and track the KPIs you want to measure, it’ll become a burden. As a result, your legal department can find itself stuck with data that quickly goes stale. This will lead to apathy and distrust of the data.
5. Set law firm KPIs in advance and enforce.
Their legal department holds 15% of the monthly fees due in an escrow account. Next, they give each law firm on their panel a score of 1-10 based on how well the firm met the objective and established KPIs. If the firm scored 7 or above – they pay 15% to the firm. However, if the firm scored 6 or below, those fees were withheld.
What was the result? The KPIs either drove the desired change – or Network Rail earned a 15% discount (see this case study).
6. Be wary of the monolithic spreadsheet.
There are risks in using spreadsheets to collect and track metrics. Spreadsheets are prone to errors and often lead to single points of failure. For example, a spreadsheet that gets named “legal_fees_Julia_FINAL_copy_2” and then one day Julia is on holiday and unreachable.
Suddenly you have a spreadsheet that no one besides Julia understands, it may have version control issues, and often leads the department to question its accuracy. Your team may have spent many hours building that monolithic spreadsheet, but no one wants to rely on it anymore.
7. Common legal department KPIs.
A ‘tips’ post wouldn’t be complete without some sample KPIs. Here are some common examples we see used in legal departments:
- Percentage of matters with no budget
- Percentage of matters over budget
- Number of legal matters opened and closed
- Spend forecasts vs. actual spend
- Overall spend by law firm
- Overall spend by matter type
- Overall spend by business unit
- Mix of fees structured under the billable hour vs. alternative fee arrangements (AFAs)
- Percentage of work/spend performed internally vs. externally
- Legal spend as a percentage of company revenue
- Percentage of partner time on external work (AKA the leverage ratio)
- Risk exposure
- Matter outcome, and
- Team composition.
Team composition is a good example to provide some additional context. A good way to establish a baseline is to examine the matters you instruct most frequently. Segment those matters that went well and those that didn’t. Next look at the time spent on those matters by role – and compare both segments - to see if there’s a noticeable variation.
This gives you an accurate picture of what the right team composition looks like. Finally, communicate your findings with the law firms and let them know this is one of the KPIs you’re going to be monitoring moving forward.
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This post is based on a webinar we co-produced with the Association of Corporate Counsel. An ungated recording is freely available to watch here: Upping your game: five principles to drive efficiency and effectiveness.