How to use metrics to prove Legal’s value

In a previous post, we looked at how financial and operational pressures have forced legal teams to do more work with fewer people, and explained how automation and metrics can help your team close the resourcing gap. This time, we’re going to dive a bit deeper and give you a three-step framework for implementing key performance indicators (KPIs) on your legal team.

Most in-house counsel lack a clear framework for identifying and prioritizing areas of improvement. As a result, their first forays into tracking metrics tend to be scattershot and unfocused. When it comes to tracking KPIs and metrics, the most common mistake we’ve observed is failing to select metrics that align with concrete company goals. This is because when KPIs can’t be tied to operational changes, they can’t do anyone any good. By narrowing your focus to metrics directly linked to company goals, you can act on what your data tells you. Here’s what that looks like, in sequence:

Step One: Identify your team and company goals.

In every industry, executives are asking their legal departments to demonstrate value and become more efficient. But what does that mean for your team? How a legal team can best demonstrate value varies considerably by its company industry, size, and other factors. One of our customers, a SaaS company, saw tracking compliance risk as its most critical business and legal goal. Another customer, a large retailer, saw accelerating contract turnaround as Legal’s top priority. Optimizing around company goals can ensure that your executive team sees the value in your operational improvements. Working with other departments to establish goals is also helpful for getting buy-in across the company early on.

Step Two: Identify and track metrics that correspond to your team’s most important business goals.

Once you’ve identified your top company and team goals, you should select a small set of metrics (5-10, for example) that directly measure your progress against those goals. For example, a company focused on ethics and compliance improvements might choose to measure contract breaches, average time to issue resolution, and service level agreement (SLA) fulfillment. A company focused on accelerating contract completion, on the other hand, might choose to track average Legal spend per contract, average contract turnaround time, and percentage of contracts that require additional rounds of review.

Scroll to the bottom to see a glossary of contract-related metrics and some advice on when to use them. Regardless of what goals you choose, implementing a contract management system can ensure that you have always have access to the metrics you’ve chosen to track.

Step Three: Make operational adjustments based on metrics.

Simply tracking metrics won’t make your team more productive. Sounds simple, but many legal departments spend time and money tracking metrics, only to fail to make meaningful changes once the metrics come back. Metrics are only useful if they’re part of a feedback loop. One useful exercise is to go through each of the metrics you’re tracking and plan possible action items for each depending on how they track against your goals. This is also a great opportunity to share your findings with other stakeholders across your organization, whether with dashboards or automatically generated reports.

Conclusion

Why does any of this matter? Well, for one thing, metrics are a critical element to streamlining your legal operations. But for another, metrics are how you can prove Legal’s value to the rest of the business, who otherwise might just view Legal as a cost center or a roadblock when the reality is that Legal is the invisible business enabler oiling every Sales contract, Marketing Partnership Agreement, and NDA.

Glossary of Legal Metrics and When to Use Them

We’ve researched commonly used legal operations metrics and present them in a contract-specific context here.

1. Spend to budget. This metric tracks the percentage of a legal department’s contract-related spend relative to its allotted budget. A department with a spend to budget of 100% is spending exactly what its company has budgeted for its costs.

2. Contract cost and workload metrics. This metrics tracks the total cost and hours spent processing each contract. As we’ve previously covered on our blog, the total average cost of processing a contract is probably higher than you expect.

3. Spend by contract type and business unit. Are certain types of contracts costlier to process than others? Identifying the contracts that cost your company the most to process can help you figure out which contracts to prioritize for automation. Alternatively, perhaps your alter that business unit’s contract templates so that they’re easier to manage.

4. Contract process evaluations. This metric looks at subjective evaluations of your contract process and can be collected based on surveys conducted with teams across your company or contract counterparties.

5. Outside and inside spending as a percentage of total company contracts. This metric tracks the combined cost of internal and external legal costs relative to company contracts. Its especially useful at rapidly growing companies, since rising legal costs may be acceptable if outpaced by total contract value.

6. Internal trainings vs. contract complaints. This metric tracks contract-related trainings and contract complaints or issues over time. You can use it to track the effectiveness of contract- or contract management system-related trainings.

Want more information? We recently came across a great ACCDocket blog post by Olga V. Mack and Stephanie Corey that provides a novel “Why, What, and How” framework for thinking about legal metrics. If you haven’t checked it out, we highly recommend it. If you’re interested in seeing how contract management software can simplify and automate the process of tracking metrics, sign up for a consultation with one of our reps here.