4 hacks to measure legal department KPIs with limited data
Key performance indicators (KPIs) reveal how well a department meets your company’s goals. While reporting on KPIs has not always been standard practice in the legal profession, expectations have changed. Now, legal departments need to be closely aligned with the company vision, budget, and priorities. Unfortunately, many legal operations teams tackle this new challenge without access to the type of data-generating software that would make KPI reporting automated and easy.
Your in-house legal team does have measurable KPIs, however. It is possible to track and report on your team’s performance without access to in-depth data — it’ll just take some extra legwork to collect and organize the information you have into an insightful report.
These four tips will help you keep track of your legal department’s performance with a clear focus on metrics that matter and a standardized process for collecting them.
1. Understand the purpose of reporting
KPIs show management the value that your legal department brings to the company. Build your reporting process around KPIs that highlight how your business unit’s performance positively impacts the company’s bottom line.
If you’re working without legal ops management software, you’ll need to be strategic in the data you collect. While you can’t possibly record every data point, you can target information that will prove your worth.
Focus your efforts on data that will show your value to the organization. Are you trying to showcase your department’s efficiency in handling legal matters or your ability to save costs by preventing problems from developing? Target that data and set aside the rest.
KPI reporting can also uncover trends in your legal ops. For example, imagine you’re reporting on departmental costs based on practice area, and you see that the cost of data privacy protection is consistently rising each month. That metric could point to a company-wide need to fix the root cause of your privacy breaches — teaching employees how to avoid phishing schemes, perhaps — so you can lower your legal spend in that area.
Your report can also help you build a strong case for changes. If your outside counsel spend is out of control, for instance, you can use your KPIs to prove that hiring in-house counsel would actually reduce costs for your department.
Once you understand what you’re trying to say in your KPI reporting, you can zero in on determining which KPIs would best tell that story. Then you can create a process to sift through your records and find the specific data you need to make your case.
2. Determine which KPIs show value to the C-suite
Because your purpose with reporting is to show the value you’re bringing to the company, you’ll probably start by tracking operational efficiency, total spend, projects or matters cleared, and contracts closed.
Without legal ops management software, you’ll be limited in the amount of data you can collect, but you do have a treasure trove of insights hidden in your invoices, timesheets, contracts, and other records. You can still create low-lift reports that show your value to the C-suite if you plan for it.
Legal department KPIs to focus on
The KPIs you choose will depend on your specific needs. However, some metrics from the legal department map back to core areas within the business. Your overall spend affects the budget, your contract closure rate impacts vendor relationships, and your hours affect personnel decisions, for example. These KPIs are valuable to your leadership team because they can help inform their choices as they make decisions about overall spend and hiring. Start by reporting on:
- Actual spend by month
- Total hours billed
- Discounts, adjustments, and alternative fee arrangements
- Number of contracts closed
- Number of matters your team has resolved
- Time spent per matter
If your C-suite is looking for more in-depth data, there are more metrics available in your records. This may be a good opportunity for you to suggest dedicated legal software since it can easily show:
- Top matters broken down by attorney hours and average rate (using information from your outside counsel invoices or in-house attorney timesheets)
- Matters broken down by specific attorney
- Matters handled by in-house lawyers compared to outside law firms
Look for revenue data that’s already tracked and categorized. For example, your in-house timesheets will reveal your top timekeepers. The task codes you use for third-party invoices can give leadership insights into vendor spending. This is a great way to keep track of costs and spot areas where you may be overspending. Depending on how detailed your invoices are, you could also report on line-item reductions broken out by category (like travel, research, administrative/clerical work, overhead, postage, etc.).
You can also get a good look at how your different practice areas function within your department by looking at each practice area’s hours and average rate over a given timeframe. Practice area-based metrics show how your work is allocated within your department, and these KPIs can make trends more apparent.
For example, a spike in time spent working on litigation could be a worrying sign of increased lawsuits. An upward trend in M&A transactions might be expected after a recent acquisition. Excess time and budget spent on IP management could point to some inefficiencies within your department.
You can also measure and report on qualitative KPIs. Contract quality determines how valuable each contract is to the business. While there’s a monetary component to determining “value,” some contracts may offer strategic benefits as well. It’s up to your expertise to rate how valuable one contract is compared to another.
Qualitative KPIs matter because the value your department brings to your organization doesn’t always translate easily into quantitative data. If your team spent significant time and budget managing a particularly valuable contract, you want to be sure you spell that out for your leadership team. Otherwise, it may be harder to justify that resource expenditure.
You can also look at your co-workers’ satisfaction. Similar to customer satisfaction surveys, ask members of other departments how valuable they find your legal services. You can get granular with your questions as well by asking about their thoughts on your average time to close a contract, settle a matter, or complete a project.
3. Build internal recordkeeping practices around your KPIs
After you determine which KPIs you want to track, organize all of your recordkeeping processes to support those metrics. This step is potentially the most time-consuming part of implementing a new KPI reporting process, but it’s one that you should only need to complete once. Your process may start out a bit clunky or slow, but you’ll be able to refine it over time.
After you take the time to establish a procedure and reorganize your records to match your needs, your team can replicate those administrative tasks each month or quarter to report on your KPIs. (If you’re creating a system from the ground up, check out Thomson Reuters’ guide on records management.)
You’ll likely have to put in quite a bit of time establishing an organized recordkeeping process that will allow you to track and report on your KPIs. For example, you might need to change up your invoicing to include custom codes, so tracking is easier. Or you may need to establish a custom workflow that tracks matters or projects as they move through your internal pipeline. Legal management software takes this setup off of your plate, but without it, you’ll have to do some initial heavy lifting to get your recordkeeping process on track.
- To organize your recordkeeping around KPIs:
- Tag your invoices with specific categories that match the metrics you’re reporting on.
- Communicate to your staff which details are crucial for them to record (and make sure they have a way to do so).
- Ensure everything is kept in the right format (like LEDES) and coded correctly.
- Make sure you’re still in compliance with recordkeeping regulations (like the Sarbanes-Oxley Act, the Health Insurance Portability and Accountability Act, and the Gramm-Leach-Bliley Act).
As an example: If your leadership team has established a new initiative that focuses on maximizing cost-effectiveness across all departments, you need a recordkeeping system that aligns with that company goal.
To accomplish that goal, you would first need to identify which projects, matters, and practice areas save costs. Then, you would need to ensure that every invoice, contract, and other record has a place for recording that information. As your admin team manages documents, they can file them using a hierarchy that takes those categories into account. In a well-organized system, you should be able to find all expenses related to a specific category.
4. Create a legal department KPI tracking spreadsheet for reporting
We recommend moving away from a reliance on spreadsheets for tracking purposes, but in a pinch, you can use them to consolidate KPIs from different sources. A KPI tracking spreadsheet will create a central hub that you and the rest of your team can use to track your metrics and spot trends.
As you create your spreadsheet, take advantage of the data that you do have. You may not have a crystal-clear view into every facet of your operations, but you do have access to valuable insights.
Creating your tracking sheet
Establish a reporting timeframe — this could be monthly, quarterly, or ad hoc. The point is to report on a regular, recurring timeline, so you can establish departmental trends. Or, if you’re reporting ad hoc, your timeframe should match up with some other company or departmental milestone. You may want to see how outside counsel costs have dropped since hiring an in-house attorney, for example.
Build your KPI tracking dashboard using Excel or Google Sheets. Using cloud-based software (like Google Sheets) is a great choice since your entire team can see updates in real time — just be sure to check that your data is encrypted and secure. You can set up a template with spots to record your chosen KPIs. It’s typically a good idea to link your tracking dashboard directly to your data source if possible. That will save you from manually copying and pasting the number of contracts you closed over the last month, for example.
Identify trends in your progress — as you report on your KPIs, you build a record showing how your department performs over time. Using that information, you can compare the change in each KPI from month to month (or quarter to quarter) to show trends. You may see costs in some areas rise and fall seasonally, for example, or you might notice that demand for one of your services goes up at predictable intervals. You may also spot positive trends that occur after making changes.
Build your report
The data you gather via your spreadsheet should make up the backbone of your report. However, it’s a good idea to distill the information you’ve gathered into a digestible format for your leadership team. Remember, your purpose is to show your legal team’s value to company executives.
When you report, include an overview summarizing your performance over time. You should also put a strategic analysis front and center, so your C-suite gets the most valuable insights immediately. You can use your analysis to explain why some KPIs were off benchmarks, for instance, and to explain what actions would resolve the issue. You can also use this portion of your report to showcase wins and paint a clear picture of how your legal ops team has met company goals.
Visuals will also help make your report easier to understand. Pie charts are a good fit for showing what percentage of your total spend goes toward specific matters or projects. Line graphs can track your actual spend data trends over time.
Automate your tracking processes
Finally, see if you can automate some of your tracking through data integration. This will allow you to link spreadsheets together or use external workflow tools, like Zapier, to pull data from your internal tools into your reporting spreadsheet. If you can sync your tracking spreadsheet with spreadsheets that track invoice payments, for instance, the information for each paid invoice would auto-import to your KPI tracker. That would save you a lot of time in administrative tasks and reduce the chance of human error.
Upgrade your software for simpler metrics measurement
A KPI tracking spreadsheet will get the job done before your next quarterly meeting, but keeping it up to date can get time-consuming and complicated. If you don’t have the time or admin support to handle reporting, consider making a case to your leadership team for a legal tech solution.
Legal reporting software creates a centralized database shared across all departments and cuts the complication out of measuring and reporting your KPIs. With SimpleLegal, you get access to an easy-to-use, automated analytics dashboard that’s configured to track your specific KPIs in real time. You can create custom reports for the C-suite that highlight the spend areas you want to show off. Schedule a demo to find out more about how we can help you simplify legal reporting.