Law Department Management Blog
Previous posts have addressed different aspects of the fully-loaded cost per hour of corporate counsel (See my post of Oct.18, 2005: how to calculate a fully-loaded cost per lawyer hour; Nov. 16, 2005: links to other posts; Nov. 16, 2005: about $190 an hour; and Jan.10, 2006: estimate for US law departments of $150-170 an hour.). In November 2007, I published an article about the three most important benchmarks for law departments, one of which is the fully-loaded cost of inside counsel.
The fully-loaded cost of your lawyers on a per-hour basis with all expenses of them included is a vital metric. Partly is it important because that cost is a fixed cost and lets you compare your rate to the rate of outside counsel (See my post of Feb. 18, 2006: fixed versus variable costs; Aug. 14, 2006: estimate of $270 an hour for effective rate of outside counsel; Sept. 5, 2005: European law departments at about $220 an hour; and Feb. 21, 2008: a UK figure of about $151 an hour.). Important as the metric may be, it still presents several methodological monsters to slay.
The first issue is how to define a chargeable hour (See my post of Nov. 20, 2006: low estimates of chargeable hours in British law department; and Oct. 30, 2005: administrative time squeezing out substantive time.).
The second issue is how many chargeable hours a typical in-house lawyer works (See my post of Sept. 25, 2005: 1,850 chargeable hours as a proxy; Feb. 17, 2008: 1,850 may be too high a figure; Feb. 25, 2008: wasted time per day; and Aug. 21, 2008: leisure time-wasters for workers.).
The third issue is what expenses should properly be included. Mostly they are compensation (See my post of Jan. 27, 2008: nearly three quarters of internal budgets are paid to employees.). Several posts have explored the other law-related costs that swirl in a poorly-defined, poorly-captured cloud around the harder numbers of compensation, benefits, travel, telecommunications, and the like (See my post of Aug. 5, 2005: how to calculate the fully-loaded cost and what are some of the missing elements ; and Jan. 6, 2006: impossible to track all costs of a law department.).
Many expenses related to in-house lawyers could be included (See my post of July 20, 2005: internal costs of responding to litigation, July 25, 2005: costs of independent directors’ counsel; Aug. 3, 2005: valuations of options and stock grants; July 27, 2007 on valuing options; Aug. 15, 2005: facilities costs; Oct. 4, 2005: insurance premiums; July 26, 2008: benefits with references cited.)
The fourth issue is whether fully-loaded cost per lawyer, as compared to per legal staff, is best
(See my post of May 14, 2006: changes in leverage alter fully-loaded lawyer cost; Nov. 26, 2006: extensive use of contract lawyers; May 16, 2006: better to use cost per legal staff; and Jan. 30, 2008: high-level inside lawyers and their costs per hour.
Once you iron out the methodological niceties, the fifth consideration is what use to make of the metric (See my post of Dec. 16, 2005: consequences of understating this metric; Nov. 16, 2005: how to use your metric of fully-loaded cost per lawyer hour; May 3, 2008: compare your internal rate to effective billing rates of your firms; and June 19, 2006: unfair to compare average partner rates.).
The return on investment of all kinds of activities depends on this cost metric (See my post of Sept. 14, 2005: invoice review; Feb. 4, 2008: cost per corporate entity maintained; Jan. 16, 2006: patent application time consumed; April 3, 2005: savings from technology; and Feb. 21, 2008: PDA effectiveness. Courts sometimes award fees based on it (See my post of Jan. 1, 2008: lodestar for court awards of fees.).