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By Eric E. Bensen & Rebecca K. Myers
There is probably no other part of the litigation process where the cold hard reality of hindsight has less in common with the lofty expectations of planning than the much demanded, but universally dreaded litigation budget. Budgeting is a foundational brick in virtually every sound business process. While it always poses its difficulties - too low for the department head, too high for executives- and usually imperfectly matches expectations, it serves a legitimate purpose and, with some planning, can usually serve that purpose well.
In litigation, that all goes by the wayside. It would state the obvious to say litigation is unpredictable and thus, difficult to budget for. It goes beyond that. Were it the case that litigation budgets were typically off by 20, 30 or even 50%, they would still largely serve the financial function of helping corporate law departments set their overall annual budgets. However, even the most carefully prepared litigation budget can be off by 100%, 1000%, or more.
To illustrate, a given budget for a litigation that reflects thoughtful consideration of the costs of discovery, motion, trial preparation and appeal may anticipate total costs of, e.g., $1.5 million. If the case is dismissed at an early stage on dispositive motion, however, actual costs may be as little as $75,000. In that event, the budget, although carefully prepared, will prove to have been completely detached from reality. That can happen in the best of circumstances. Small, but critical mistakes can lead to the opposite result as well. For instance, where a plaintiff brings what appears to be a small matter, but fails to anticipate complex counterclaims, a $75,000 budget may quickly give way to $1.5 million in actual legal fees. In between, unanticipated depositions or motions, related litigations, and the like, can easily put the most thoughtful budget to shame.
The reality, however, is that corporate law departments are parts of corporations and corporations require budgets. Moreover, as litigation becomes a more regular part of the business process, stricter budget requirements are being imposed on law departments. Thus, as difficult as the budget process can be, budgets are a reality to be dealt with.
To hear more about budgets from Eric Bensen & Rebecca Myers, register for a complimentary webinar on May 12th by Clicking Here!