Table of contents

• Introduction
• What is legal spend management?
• Key challenges in legal spend management
• Core strategies for effective legal spend management
• How technology and AI are transforming legal spend management
• Best practices for building a robust legal spend management program
• Key performance indicators for legal spend management success
• Conclusion: Building a future-focused legal spend management strategy

Introduction

Managing legal expenses involves more than auditing invoices. Legal spend management has evolved into a strategic practice that enables organizations to drive transparency, accountability, and informed decision making. By optimizing how legal budgets are allocated, companies can gain greater control over expenses and enhance the effectiveness of their legal operations.

In this guide, we’ll cover the fundamentals of legal spend management for insurers and self-insured, explore the key strategies and technologies that make it effective, and highlight best practices for building a sustainable, data-driven approach.

What is legal spend management?

Let’s start with the basics. Legal spend management encompasses the tools, processes, and strategies used to track, analyze, and control legal expenses. While cost control is a major aspect, legal spend management also emphasizes gaining insight into spending patterns, improving cost predictability, enhancing transparency, and producing better claim outcomes.

For many companies, legal spend management offers a structured approach to understanding and controlling one of the most unpredictable parts of their budget. Beyond financial oversight, it also enables better decision making and ensures alignment between legal operations and business objectives.

Key challenges in legal spend management

Organizations face several challenges in managing their legal spending effectively, including:

• Unpredictability of costs: Legal expenses are inherently uncertain, especially when cases evolve or escalate, leading to budget overruns.
• Limited transparency: Complex billing practices and nonstandardized invoices can obscure where and how resources are used, making it difficult to understand the full scope of costs.
• Vendor evaluation: Assessing the quality and value delivered by legal providers is challenging without established metrics, which can make it hard to justify spending or optimize vendor relationships.
• Internal coordination: Legal departments don’t always have the same reporting structures or budgets as other departments, leading to siloed data and limited insight into overall impact.

Legal spend management addresses these challenges by creating a systematic framework that brings clarity, control, and accountability to legal expenses.

Core strategies for effective legal spend management

Developing a structured approach to legal spend management involves six key strategies.

1. Setting realistic budgets and adjusting forecasts: To avoid budgetary surprises, organizations should set and regularly update budgets based on historical data and market trends. A realistic budget provides a baseline, while regular forecasting adjustments allow teams to manage any changes in cost expectations.
2. Defining billing guidelines: Establishing clear billing guidelines with external legal providers ensures standardized billing practices, reduces discrepancies, and fosters transparency. Guidelines might cover hourly rates, expense limits, and reporting requirements, helping avoid unexpected charges.
3. Tracking and analyzing spending patterns: Data analytics can uncover insights into spending patterns, helping companies understand cost drivers, identify trends, and make informed decisions. Analytics can also support benchmarking, enabling companies to compare their costs with industry norms and similar cases.
4. Implementing performance metrics for legal providers: To measure the effectiveness of legal providers, organizations should define metrics such as case cycle time, cost per type of litigation event, and outcome success rates. This data-driven approach helps assess performance and ensure that spending aligns with value delivered.
5. Automating billing audits: The right automated tools can audit invoices in real time and flag inconsistencies and unusual charges immediately. This reduces administrative burden and operational costs and ensures greater accuracy and compliance with billing guidelines.
6. Benchmarking costs: Regular benchmarking against industry standards helps verify whether costs are reasonable and competitive. It also allows for strategic adjustments to ensure spending aligns with both market rates and internal budget targets.

How technology and AI are transforming legal spend management

Advanced technology and AI play a critical role in legal spend management by enabling deeper insights, automating manual processes, and enhancing predictability. Key ways technology supports legal spend management include:

• Predictive analytics: Predictive analytics leverage historical data to forecast future expenses, helping companies better allocate resources and get better claim outcomes. These tools can assess which attorneys outperform and underperform the predicted outcome.
• Real-time data dashboards: Dashboards provide real-time visibility into spending, enabling finance and legal teams to monitor costs as they evolve. This level of transparency promotes faster, data-informed decisions and proactive management of costs.
• Automated workflows and audits: Automating repetitive tasks, like invoice auditing, helps reduce errors, save time, and ensure that spending aligns with guidelines. Automated workflows enable teams to focus on more strategic activities, contributing to more effective resource use.

These technologies give organizations the power to transform data into actionable insights, ensuring greater accuracy, efficiency, and strategic foresight.

Best practices for building a robust legal spend management program

• Conduct regular audits: Regular audits provide ongoing oversight of expenses, helping organizations identify any inefficiencies or unexpected charges early. This practice supports continual improvement and ensures compliance with budgetary and billing guidelines.
• Define clear and measurable goals: Establishing specific objectives—such as reducing costs by a certain percentage or achieving a particular ROI—provides benchmarks that guide decision making and help track progress over time.
• Collaborate with legal vendors: Effective legal spend management requires strong communication and transparency with vendors. Collaboration fosters accountability, improves service quality, and supports more favorable terms in contracts.
• Standardize reporting practices: Clear and consistent reporting ensures that all stakeholders have access to the same information, facilitating informed decision making and efficient resource management. Standardization also simplifies performance tracking and future benchmarking efforts.

Key performance indicators for legal spend management success

Measuring success in legal spend management requires tracking key performance indicators (KPIs) that reflect cost control, efficiency, and value. Some effective KPIs include:

• Cost savings: A reduction in total legal spend as compared to previous periods or budgeted amounts.
• Resolution time: The average time taken to close cases, indicating process efficiency.
• Compliance with billing guidelines: The degree to which invoices adhere to billing guidelines, signaling both vendor compliance and internal efficiency.
• ROI on legal spend: A measurement of the tangible value derived from legal expenditures, showing alignment with broader organizational goals.

By consistently tracking these KPIs, companies can monitor the effectiveness of their legal spend management strategies and adjust them as needed.

Conclusion: Building a future-focused legal spend management strategy

A well-rounded legal spend management strategy combines financial oversight with actionable insights, helping organizations align their legal expenditures with long-term objectives. As companies continue to seek efficiency and accountability in every department, legal spend management becomes an essential practice for maintaining competitive advantage.

Milliman’s Datalytics-Defense® offers an advanced, AI-driven approach to legal spend management, tailored to address the complex challenges insurance companies face with legal e-billing. Beyond standard invoice review, Datalytics-Defense delivers powerful analytics and workflow automation to help organizations gain full visibility into their legal expenses. By aggregating data from all vendors and mining critical insights from defense counsel invoices, this platform enables precise benchmarking of attorney performance and tracks outcomes against risk-adjusted expectations.

Datalytics-Defense goes further to drive meaningful improvements in claims outcomes, using predictive analytics to forecast costs and case outcomes accurately. Its intuitive, web-based interface simplifies daily tasks—whether auditing invoices, monitoring workflows, or accessing real-time reports. Developed by actuaries who understand the intricacies of the insurance sector, Datalytics-Defense seamlessly integrates claims data, third-party invoices, and performance insights, all in a managed, always-updated cloud-based environment.

Datalytics-Defense is a single, comprehensive solution that addresses each of the six core strategies identified above. For insurers looking to maximize efficiency and impact in legal spend management, Datalytics-Defense offers an essential toolkit to streamline operations, cut costs, and ensure legal budgets are aligned with strategic objectives.