Legal Document Automation – Measuring ROI
By Catherine Bamford, Legal Engineer, Document Automation Specialist, Founder of BamLegal.
I am asked almost weekly by clients and contacts how they should measure the return on their investment in buying and implementing legal document automation software. Whilst this was important 15 years ago when only a few firms were dipping their toes in the water with automation, the fact that this is still a popular question is, in my view, a tad ridiculous these days as using automation to prepare the first draft of a contract or report should by now simply be seen as the business-as-usual way legal drafting is done! No one asks for the return on investment of using emails rather than the post or using excel rather than an abacus.
However, as it might help law firms achieve more buy-in from Group Heads, Partners and PSLs to roll out document automation to their departments (the associates do not need any convincing, believe me) and because there is no ‘magic’ to measuring the usage and time-savings (you do not need to pay a consultant to help you set this bit up), I thought I’d outline how to measure it here.
Before I explain the simple way that firms can gain some insight into their ROI, I must stress that when asked this question, my first answer is always to highlight that many of the benefits of legal document automation are ‘intangible’, such as increased job satisfaction for your lawyers as we are taking away the ‘boring bits’ of drafting (not the true bespoking), clients being impressed that you get the first draft out the same day as they send instructions and often within a couple of hours, or knowledge lawyers knowing where to focus their attention based on data recorded about the deals you are actually doing.
When I first started out, most of my early jobs were with firms who had bought document automation software several years before and were recognised for being early adopters. They were paying licence fees for either Contract Express or HotDocs, paying one or more employees to automate precedents, and yet they had no clue whether or not they were making any return on their investment. To be honest, most were not, not by a long way.
By setting up a few simple procedures to capture the usage of the various documents that had been automated and converting the usage into hours saved, they could better judge how the automation was going, which sorts of documents were getting used by the lawyers and for which departments. This allowed them to make better decisions as to what to do next rather than simply working on a request by request basis, often with long delays and bottlenecks.
So, how can you measure ROI?
I always recommend that firms keep not only a Work In Progress (WiP) list for all automation projects but also a “LIVE” or completed list. Setting up a ‘Go Live’ process can ensure this information always gets captured and is kept up to date.
In short, once a document or suite of documents has been automated, tested and made live to all lawyers to use, it need s to be noted – recording the template name, date it went live, department/country, along with the estimated time saving (manual drafting to now – this is the crude part but the lawyers are pretty good at giving you this info and you quickly get a feel – e.g. a Licence to Underlet saves approximately 18 minutes, a Legal Opinion 30 minutes, or a Construction Appointment Suite 1-1.5 hours). Always err on the side of caution and go for the lowest estimate so that you cannot be accused of over-inflating the figures.
Then, each month, take your usage stats from your software platform (most document automation software providers now make this really easy for you by having a tab called ‘reports’) and match them to your template names. You then can see the total monthly time-saved per document, per department, per month, in total, per year etc.
You can decide as a firm the hourly rate you want to apply to this.
Some firms I work with go for their average charge out rate. I think this is madness for the obvious reasons, published charge out rates are rarely recovered and you are not ‘saving’ chargeable hours, that makes no sense… you are instead improving margin on fixed fees, working more efficiently, increasing the capacity of your lawyers, reducing risk, improving consistency, providing a better service to your clients… sigh… why do I still in 2018 have to reiterate all this?!
Most firms go for the nominal hourly cost attributed to a mid-level associate across all of their locations or apply different rates dependent on the location. Multiply the nominal hourly cost by the total hours saved for all your documents automated per month and then you can see your annual saving and estimated saving for the next 12 months. These figures will let you see whether you need to look at scaling up your automation to get better value for your licence fees and resource costs.
I personally wouldn’t double the annual figure achieved when calculating savings to the firm, but some law firms do as they argue that in the time the lawyer has saved by using automation they have been able to carry out another task that they wouldn’t otherwise have been able to – double recovery so to speak.
How long should it take?
In my experience, working with many different law firms, you should expect to see returns that pay for the software licence fees and the resource required within 2-3 years. A handful of firms who have budgeted extra to include experienced resource at the beginning have achieved ROI in less than 1 year.
OK, now to deal with you critics who will say this is too simple and firms need to get the data on drafting time from the phases within the time recording systems and accurately measure time saved – my answer to you is ‘sadly never going to happen in reality’ – I have not to date worked with any law firm who has this information at their finger-tips and I have worked with many of the top firms in the world. Despite improvements to time-recording systems, lawyers (especially corporate lawyers for some reason?!) will continue to record time to the ‘matter management’ or ‘general phase’ than actually recording it into neat categories like ‘drafting’, ‘negotiating’, ‘completing’ etc.
The data simply doesn’t exist. Making the process simple and quick for the automation team means you have something to measure from the start and won’t waste days/weeks and months trying to extract information that is simply not there and if it is, is not accurate due to the amount of general recording (btw – I am not blaming the lawyers here – if you give them ‘general categories’ to record time to like ‘admin’ or ‘matter management’ of course they will use them! [Rant over]
Create healthy competition!
Back to measuring ROI… The automation team should calculate at least the time saved each month, by country and department and report this to their senior sponsors, for example, the Head of KM, IT and Practice Group Heads. By breaking it into Practices you can also create a little friendly competition which helps encourage departments to prioritise automation and nudge along their PSLs or whoever else is the bottle neck stopping their department from getting their documents automated.
For example, if the Banking department are saving 200 fee-earner hours a month and the Corporate are not yet saving anything, and this is sent in a nice graph to the Heads of Department – the Corporate head might be inclined to encourage her PSL to finally get started on getting the SPA automated!
I hope you found this article helpful. Do let me know if and how you record your document automation usage and ROI stats. I would love to hear whether you find it helps encourage buy-in or actually distracts from the bigger picture. Is it even necessary any more to measure ROI for legal document automation or should preparing first drafts using an automation tool just be business-as-usual for lawyers now?
[ Many thanks to Catherine for this great article that really looks at the inner workings of doc automation implementation. If you’d like to know more check out the BamLegal site. If you’d also like to share your views on AI and automation technology in the legal world, please drop me a line. ]