The COVID-19 pandemic is finally slowing down, and everyone seems to be eagerly anticipating the return to normalcy. However, the concept of normalcy has become outdated as a result of the recent unprecedented times, or as Axiom’s report (link) simply puts it – “normal is gone.”
People fear the idea of change, but change is inevitable. Nothing is meant to be constant, and if you don’t follow along the path of change, you will fall behind. In this case, the “you” is the GCs that continue to rely on the familiarity and comfortability of obsolete systems of budgeting.
The pandemic has largely intensified the amount of volume and risk that exists within the legal world, forcing General Counsels (GC’s) to take a hard look at the reliability of the traditional legal operating model.
According to Axiom, 73% of in-house teams say they spend too much on outside counsel. The old methods of budgeting and legal work are ones that do not align with the changing times, nor are they cost-effective. Although GCs have attempted to alleviate these problem areas, there has been little to no significant change.
However, Axiom emphasizes how the end to normalcy has sprouted a new financial world, one that thrives off alternative-budgeting processes, rather than precedent-based budgeting. GCs have the chance to get ahead of the post-COVID normal by adapting to these newly-paved financial pathways.
Out with the Old
Precedent-based budgeting is best explained as taking last year’s budget and tweaking it around to create a new “go-forward” budget based on the old one.
These budgets can be made up of a variation of categories, which generally include: full-time employee costs, outside counsel, legal matters, technology, allocations, education and accreditation fees, travel, team events, and miscellaneous.
While the precedent-based process is a simple one, as the GCs avoid taking the time to generate a whole new budget from scratch, less is not always more. Using the structure from the old budget as the standard for the new one presumes that the previous year’s expenditures are still relevant and beneficial to the business.
It opens up the possibility for budget reallocation, and eliminates the need to onboard new in-house staff which is often noted as a significant pain point for legal departments looking to expand or scale up/down their team in a relatively short period of time.
By averting proper revaluation of expenses, GCs fail to acknowledge the unsuccessful parts of their budget and therefore are losing the opportunity to strengthen their business.
This “go-forward” process is actually a backward one, and GCs that continue to rely on precedent are unable to keep up with the changing times.
In with the New
While precedent is crucial in some instances, it is not always the most sensible approach to lean on. Axiom highlights that there are redesigned and improved budgeting options for GCs to resort to. One alternative to the precedent-based method is Zero-Based Budgeting (ZBB).
Unlike traditional models, businesses that use ZBB build a fresh budget from scratch every year. Each cost is carefully examined and then further separated into decision packages, which detail the purpose and importance of the proposed expense. These packages are then reviewed and priority-ranked by owners with varying opinions. Through this complicated yet conscientious process, unnecessary expenditures are removed. In turn, the overall budget is a more cost-effective and suitable one.
ZBB also gives light to the concept of a hybrid-model, a less radical yet still productive alternative method, which combines the processes of both precedent-based and ZBB. This hybrid method utilizes the idea of decision packages, which makes it a forward-thinking one, but also takes the relevant categories from the previous budget and includes them in the new one. The expenses that are no longer useful are removed and new ones are established from ground zero.
Both alternative models involve strategic planning and careful communication from all parties involved. Axiom emphasizes that “it’s impossible to recalibrate legal spend without reexamining how legal work can be broken down into more discrete work streams.”
By taking advantage of these substitute methods, GCs can not only avoid the costly fees from law firms, but they can also better manage their resources.
Long Story Short
Change is inevitable. The COVID-19 pandemic has permanently transformed the world as we once knew it, and we can choose to either adapt to the new norms or get left behind. The new financial age is one that challenges precedent and instead encourages GCs to make use of the alternative budgeting methods available to them.
These replacements are not only more efficient and accurate, but they also prove that the GCs that choose to apply them are ones who “dare to meet the moment.”
This article is a summary of Axiom’s fascinating report “Legal Budgeting in the New Normal” which can be found here
“Juliana Greene is an incoming senior at The Ohio State University in Columbus, Ohio. She is studying political science and criminal justice on a pre-law track and plans to attend law school postgraduate. Juliana has spent the last two months interning with LawFlex through an intensive Masa program. During her time with LawFlex, Juliana has learned about the future of ALSPs and the NewLaw industry. She is looking forward to taking her internship insights with her back to the US as she begins her career endeavors.”