Finance has long since leveraged analytics for business insights, but legal departments have been slower to do so, despite having plenty of usable legal data at its disposal from sources such as e-billing and contract management systems. This is a missed opportunity — analytics can improve efficiency, reduce risk and increase profitability across corporate functions.
“ Legal departments that use analytics to inform their decision making exhibit higher work quality, reduced litigation cost, and lower spending.”
“The explosion of information from recent technological developments has created the opportunity for legal to harness available data and use analytics to inform decision making,” says Chris Audet, research director at Gartner. “Legal departments that are more analytically mature exhibit higher work quality, reduced litigation costs and lower spending.”
Research from CEB, now Gartner, shows that nearly 50% of legal departments intend to use analytics for process improvement, and more than a third for legal analysis. However, many legal departments aren’t sure how to best start leveraging legal analytics, but some simple steps will enable any legal department to apply analytics to their work and processes.
Pick a legal workflow to examine
The first step in the process is to find a suitable workflow to examine. In general, most legal departments’ analytic efforts target resource allocation (e.g., cost-cutting), process improvement (e.g., efficiencies), risk management (e.g., minimize litigation risks) or legal analysis (e.g., optimize case strategy).
The choice of workflow should depend on:
- Impact: Where will increased accuracy of information and certainty of decision making have the most significant impact on our goal?
- Feasibility: Where do we have existing company, department or publicly available data?
Ask a specific question
Next, identify what questions you want answered. Analytics can answer four types of questions:
- What happened? Descriptive analytics catalog history. For example, many legal departments use descriptive dashboards to visualize and understand metrics about their efficiency (e.g., average contract life cycle length, variance against department budget). Nearly 60% of legal departments already use descriptive analytics, according to the 2018 Legal Technology and Analytics Benchmarking Report from CEB, now Gartner.
- Why did it happen? Diagnostic analytics, which answer this question by identifying the root causes of problems, are currently used by only a few legal departments (16%). For example, a legal department can understand the most significant reasons for litigation by performing a root-cause analysis and testing to see which variables (e.g., number of legal and compliance audits) are statistically associated with higher litigation rates.
- What will happen? Predictive analytics, which pinpoint causal relationships and show the impact of a factor or factors on an outcome, are currently used by even fewer legal departments (10%). One use is simulations to predict what legal department spending will look like in the coming year, based on how different variables (e.g., number of nonlawyer department staff members) impacted spending in the prior year.
- What should we do? Prescriptive analytics, also used by very few (10%), can prescribe a course of action based on business outcomes. For example, legal departments can use prescriptive analysis to quickly recommend that a contract be accepted or rejected.
“ Starting with a solid, data-driven understanding of what happened will allow you to answer all subsequent questions more accurately.”
Identify the necessary tools and skills
The skills and tools required for analytics depend on the question you are asking and the level of specificity you need in your answer. More skills and capabilities are needed as you shift from asking “What did happen?” to “What should we do?” For example:
- Descriptive analytics can often be performed in Excel, and more complex visualizations can be created using Tableau.
- Diagnostic analytics require regression analysis capabilities and statistical analysis software.
- Predictive analytics need those same capabilities and tools, as well as statistical computing and other mathematical modeling.
- Prescriptive analytics require all the tools and capabilities needed for predictive analytics, plus additional computer programming or software programming skills. For instance, prescribing whether a contract should be accepted or rejected requires natural-language processing to interpret contracts, and an in-depth analysis of which clauses generate risks and the potential business value of the contract.
If your legal department does not have the analytic capabilities it needs to answer your selected question, you can still use analytics to address a more foundational question as a starting point. Begin with the resources the department already has and focus them on one or more basic analytic questions.
“Starting with a solid, data-driven understanding of what happened will allow you to answer all subsequent questions more accurately, even if you are unable to apply analytics directly to those questions right now,” says Audet.