Show Me The Math: The importance of cost estimates when engaging a law firm

RICHARD BRZAKALA Richard Brzakala is a recognized legal marketplace thought leader and expert in legal operations, sourcing, and cost efficiency strategies. He has been a trusted advisor to many senior executives and general counsels, having worked and consulted for numerous FIs, law firms, and government agencies. Richard is a frequent speaker, panelist, and writer, having published numerous articles on a variety of legal ops topics such as legal sourcing, winning RFPs, convergence practices, and creating corporate cost-saving strategies. Richard’s most recent essay, “The Impact of COVID-19 On Future Legal Operations and the Legal Marketplace”, appeared in Horizon Scanning: Modernizing Legal service Delivery (ARK Group). He is a contributing author for Thomson Reuters Legal Executive Institute, chairs a number of legal sourcing discussion groups, and also participates in an executive advisory capacity for a global IT legal service company. In 2017, a leading US publication recognized and awarded Richard with its annual Trailblazers award for his work in developing a comprehensive global methodology for evaluating law firm compliance with cyber security standards. Richard is currently working as the global director of external legal services at a large FI in Canada where his mandate includes the oversight of legal ops, compliance, finance, and risk management practices as they relate to the management of external counsel globally.

Chapter one: The benefits of cost estimates
- Background
- The increased popularity of cost estimates
- What do clients look for in a cost estimate?
- What don’t clients want to see in a cost estimate?
- How clients are empowered by cost estimates
- The benefits of cost estimates to a law firm

Chapter two: The mechanics of cost estimates
- The continued utilization of the hourly rate billing model
- Cost estimates based on task-based billing models
- Utilizing dollar ranges in cost estimate proposals
- Buyer beware – stay away from commercial (street) rates in cost estimates
- Leveraging historical data and work
- Highlighting cost savings and efficiency in a cost estimate
- The importance of understanding variances and assumptions
- Calculating the variance cushion
- Leveraging law firm resources to develop cost estimates
- Calculating the staffing utilization ratio
- Challenging the traditional legal model
- Monitoring staff utilization ratio in cost estimates
- Measuring and monitoring work in progress (WIP) ratio
- The impact of changing resources on a cost estimate
- The benefits of using Alternative Fee Arrangements in a cost estimate
- Third party vendor costs
- How to treat disbursements in a cost estimate
- The importance of a communication strategy
- The criticality of properly defining and understanding scope
- The importance of communication during the cost estimate process
- Defining scope
- The law firm’s responsibility in defining scope
- The unpredictability of “scope creep” and accounting for variances
- Dealing with cost estimate overages
- The blame game – dealing with law firm fault bias
- Avoiding cost overages that impact a cost estimate
- How law firms should communicate overages to clients
- Dealing with multiple clients and instruction points on a cost estimate

Chapter three: Operational challenges
- Operationalizing a successful cost estimate strategy
- Case study – US insurance company
- Working through differences on a cost estimate
- Educating lawyers on the business of law
- Leveraging Legal Operation (Legal Ops) specialists
- Why do in-house counsel fail at cost estimates?
- Top ten list – what law firms dislike most about cost estimates
- The resistance to utilize cost estimates
- Beware of law firm caveats and disclaimers
- Chapter four: Value and cost estimates
- How does value factor into a cost estimate?
- Measuring value using Value Indicators
- Value Indicators
- Law firm Value Indicator calculator
- What happens in the absence of value?
- Law firms need to stand their ground – clients are not always right
- Unlocking the value of cost estimates
- What type of insight or strategic advantage can cost estimate data give clients?
- How clients track the success of a cost estimate
- Tracking the success of cost estimates
- How firms should leverage cost estimate data for the benefit of their clients
- How can a firm win work on the basis of a cost estimate?
- When are cost estimates a waste of time and not necessary?
- Who cares about the math, show me the value!
- Is there any room for an “instinctive approach” on a cost estimate?

Chapter five: Other considerations
- How third party pass through hourly rates impact a cost estimate
- Treating cost estimates like a request for proposal (RFP) bid
- The importance of trust in cost estimates
- Challenging a law firm’s cost estimate
- How to get a firm to reduce its cost estimate
- What to do when a cost estimate fails
- Billing for a cost estimate
- What is the future for cost estimates?