Budgeting & forecasting: a case study.

• Author: Hodges, Silvia
• Position: Cover story

[ILLUSTRATION OMITTED]

It's Friday afternoon--finally the weekend is here! You are about to shut down your computer when another email comes in. It is from one of your firm's long-term clients, a large pharmaceutical company.

The corporation has been hiring your firm primarily for corporate transactional and regulatory compliance matters. it has received large and critical matters on an informal basis without much business development effort, owing to a strong history of excellent performance. According to regular surveys, the company was satisfied with your firm. The managing partner at the law firm and the new GC at the corporation went to law school together and have a great relationship. Your firm charges them at full standard rates for all hours worked and fully bills and collects them.

The email now says that the legal department has to reduce legal spend and ensure that budgetary projections are reached. To meet those pressures, they are reducing the number of firms they are working with and the GC now requests budgets and annual forecasts--by practice area and line of business--for all matters going forward. They are inviting your firm to be on the corporation's panel of preferred firms. To qualify, you have to also bid for their substantial intellectual property (IP) business.

Until now, your firm has never provided IP services to them. The corporation makes it clear that they expect a 35 percent discount for IP matters. The managing partner wants your help to prepare for the negotiations. You sigh deeply and start thinking, at the outset of the negotiations:

The GC knows:

* What fees the corporation is being charged by all of its law firms for IP matters;

* The ranking of your law firm in terms of fees paid, and thus, the criticality to the corporation's overall portfolio; and

* Their IP firms' staffing.

He doesn't know:

* What your firm charges other clients;

* Their ranking by fees paid among your other clients; and

* Your staffing profiles for IP matters. Your managing partner knows:

* What fees your firm charges each of your clients for IP work;

* The client ranking of the corporation in terms of revenue, and thus, its criticality to your firm's overall client portfolio; and

* Your firm's staffing profiles for IP matters.

She doesn't know:

* How much other firms charge the client for IP matters;

* Your firm's ranking among the client's firms by fees paid; and

* Other firm's staffing profiles for IP matters.

You are wondering what information is necessary to come up with a solution. How much information would law departments share to help law firms craft an RFP, as well as a budget? Who is responsible when something unexpected occurs and the budget no longer reflects the discussed scope of the matter?

To be successful, your managing partner would need to propose a solution that:

* Demonstrates value to the GC and the corporation;

* Allows for predictable costs;

* Promotes favorable outcomes; and

* Ensures firm profitability.

The GC, on the other hand, would need to make sure that their agreement:

* Improves the value the firm provides;

*Allows for predictable costs;

* Promotes favorable outcomes; and

* Ensures firm profitability.

To address these issues, use the "Four Pillars for Providing Value" (below).

Your Firm's Approach

Step 1: SCOPE

Your firms need to understand the value of the corporation's IP portfolio and its objectives. What is its annual revenue? Approximately how many cases would be included annually? What type of registration--offensive or defensive? Is the client dissatisfied with its current IP firm or is it consolidating work? Why does the...