Here are some ways to conquer the necessary evil.

It’s a new year, and with a new year come the requests for budgets. Oh, the fear. I felt you shudder all the way to my office in Colorado.

A request for a budget for eDiscovery — the practice area with the most potential for change and fluctuation in the key variables for budgeting — can strike fear in the bravest among us.

I’m here to tell you that with some creative thinking, metrics for your client, good assumptions, and excellent communication with your client about the basis for your budgeting, you can create an eDiscovery budget and do it very well.

Remember out of the gate who your audience is and why they want the budget. In-house counsel have to get approval for dollars, and your budget is, in essence, a response to an RFP to the finance or procurement department to work against after you’ve already gotten the case. In-house counsel are held to their budgets and yours is incorporated. When yours gets blown, so does theirs, and that does not endear those relationships. Many corporate clients require budgets that are submitted to and managed by their online billing systems and any bill that exceeds a specific percentage of the budget is flagged and rejected until the firm and in-house counsel communicate about status. Some just reject the invoices outright.

My point is that budgeting isn’t just a number to be thrown at the wall. Being good at budgeting is a crucial part of managing litigation. I learned how to create a budget for an entire litigation matter early on in my career, and the exact same principles apply to budgeting for eDiscovery. You will have to breakdown the various tasks and time to do them, as well as any data costs including processing, hosting, review, etc. Talk with your client about what will be included.

Let’s get to actual budgeting. Who should do it?  This is definitely a process that the lawyer overseeing discovery has to manage in conjunction with the team handling the merits of the case. Litigation support and other team members that interact with the data will provide input by giving you the metrics that form the basis of your assumptions.

The two keys to great budgeting for eDiscovery are 1) knowing how the case will move forward procedurally (standard federal court litigation, ADR, state court, administrative court, etc.) as well as what the legal strategy will be (how many depos agreed to, summary judgment motion, etc.), and 2) having good metrics on which to base your assumptions.

Note:  If you are getting a budget from a service provider that you are including in your litigation budget, YOU WILL BE HELD RESPONSIBLE when the provider goes over budget. So work with them on developing the budget, don’t just blindly add it to your calculations.

Let’s dive into the process. Where to start? Gather your data and what information you have about the case including:

  • Metrics for the client. We discussed these previously, and you need them now. If you don’t have them for this particular client, use the base metrics you’ve developed (averages across similar clients) that I know you compiled after I wrote about them and use your assumptions about whether to increase or decrease your estimates based on client variables, e.g., how targeted the collection can be, what the specific issues in the case are, etc.
  • Number of custodians. This is the number of custodians that will be interviewed and data will be collected from, not the complete list of custodians on the legal hold list. It would be great if they were one and the same, but they never are, so you need the number of people you will actually handle data for during the case. We develop metrics for this too for clients — both overall and by case type (employment, marketing, project based contract dispute, etc.).
  • Length and disposition of case. When is it scheduled to go to trial? You need an anticipated date for data hosting costs (you can archive or take them down during the appeal process, but remember to manage that).
  • A list of activities taken during discovery. This list will be the left hand column of your budget spreadsheet and will vary with the case. I recommend setting up a template and then modifying it for each case, because you won’t necessarily have every activity on every case. For example, we encourage our clients to manage the legal hold process internally and we provide oversight generally. That means for budgeting that we have oversight costs, but not actual management costs. Keep in mind that this list of activities should be broken down in detail — from the custodian interview, to drafting notes from it into useable form, to getting data in the door and coordinating follow up, to culling data, etc. Every step should be thought out in setting up your template budget.
  • Team members for the case and rates. Depending on your fee arrangement with the client, you may use hourly rates, or you may use an internal rate to help you get to a number that you can use on a flat fee. The sample template I’m sharing with you includes hourly rates, but we do it both ways. There are no formulas in the sample template but they are simple calculations to set up,

Next, start inputting those pieces into a spreadsheet and create your formulas to calculate costs. By using formulas, you can change the inputs at any time (number of custodians, number of hours, etc.) and the spreadsheet will automatically update.

The expenses will be the biggest chunk of your budget, and we typically calculate different lengths of time so the client can understand expenses for 6, 9, and 12 months in case they want to consider those in evaluating the value of the case at any point. Think about and talk to the client about what they’d like to be able to reference the budget for and then build those in. It’s not hard, and it goes a long way to collaborating with your client.

Remember to build in extra time for the inevitable screw-ups, things that take extra time, and whatever overage percentage you build in — it’s better to be under budget than over. That’s dictated by human perception AND personal experience.

Once you start listing out your discovery activities, just like in litigation, you will find that the budgeting process is not as painful or difficult as it seems at first blush. Regular input and communication with the client on the budgeting process is very crucial — try to avoid making assumptions without enough information just because you have a deadline.

Like the discovery and litigation processes, the budgeting process should be collaborative. And once you’ve completed it, plan to spend time going over it with your client every three months to see whether you are still on track, what the spend is relative to the budget and where you should make some adjustments. That’s hard to do for both of you, but I highly recommend it. Rather than being a perceived nightmare, budgeting is yet another way for you to build a more collaborative relationship with your client. Be less like the lawyers of old where the bills are just submitted, and more like the lawyers who work as business partners with the their clients to solve business problems.

Good luck, and let me know your feedback and what works for you on the budgeting process and what doesn’t.

This article first appeared on Above the Law.