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The Perils of Zero-Based Outside Counsel Budgeting

February 27, 2009 | Filed Under Cost Control 

There’s nothing quite like setting a stretch goal for next year’s budget. You set it realistically, and then you try to beat it, namely come in under budget.

Some years, 5-10% under. For 2009, many GCs are shooting for 10-20%, particularly for outside counsel spend.

If you’re really budgeting from a zero base (and not sandbagging) , sometimes you miss. Even a 1% miss puts you under the microscope. Go to 5% on the high side and you may find yourself quickly moved into a corner of the budget meeting conference room with a large pointy hat on.

What if you overshoot by 1254%?

A recent report shows this in concrete terms. It recounts how the Philadelphia city solicitor set a 2008/09 budget where she:

… initially expected to spend $566,000 on outside lawyers, budget documents show those costs will be closer to $7.1 million when the fiscal year ends June 30.

There were many reasons, staff turnover, an increase in litigation, major matters handled by higher-cost, larger firms. In recent years (since 2000), the city had spent between $2.7 million and $5.5 million annually on outside law firms.

So $566,000 really isn’t a stretch, it’s more of a moonshot.

Measure your budget projections twice, cut once, and then work like hell to beat it.