How Technology Can Help Reduce e-Discovery Costs

Economists rarely agree on anything. But, if the Fed's recent actions are any guide, most believe the U.S. is already in a recession (defined as two consecutive quarters of negative growth). This downward economic outlook for the country will soon begin impacting corporate budget discussions, forcing every department ' including legal and the law firms that serve them ' to re-examine their expenses. When companies are struggling to grow the top line, every cost gets scrutinized. Legal expenses are no exception, especially given the sharp increase in spending and dollars going towards e-discovery.

According to Gartner, the market for e-discovery products and services is growing by more than 37% per year. Similarly, IDC's recent forecast for the legal discovery market predicts spending will reach a staggering $21.8 billion by 2011.

The downward economic outlook combined with spiraling e-discovery costs has prompted more General Counsels ('GCs') to begin partnering with Chief Information Officers ('CIOs') to figure out a solution. Together, the two departments are developing strategies to tackle rapidly growing e-discovery expenses. Collaboration is critical. Just as sales executives partnered with CIOs to implement Customer Relationship Management ('CRM') systems in the 1990s, the same alliance is beginning to take place between legal executives and CIOs. By leveraging each team's area of expertise, organizations can make the smartest decisions possible about investing in new technologies to streamline the critical e-discovery business process, reducing costs and risks.

The Cost Is Real

Historically, e-discovery has been the least thought-about line item on the legal budget. Twenty years ago, discovery primarily involved paper records and costs were minimal. When it was required, most GCs assigned the work to their law firm, then forgot about it and focused their energies elsewhere.

In recent years, however, the exploding growth in electronically stored information has catapulted the discovery of electronic data, and e-discovery is now a very large line item within the legal budget. How large is the problem? According to a Fulbright and Jaworski survey, the average company with $1B+ in sales is involved in approximately 556 legal-related cases per year. Almost all of these cases require some form of analysis of electronic data, and many entail teams of attorneys picking their way through reams of information.

The cost to conduct e-discovery for just one of these cases isn't cheap. A recent report by Gartner Research estimated the average cost for a single case can easily exceed $1.75M.

Consider the recent case at Monster Worldwide Inc. Due to the e-discovery fees and severance payments the company had to incur as part of its stock options backdating investigation, midway through 2007 Monster announced that profits fell 28%, 800 jobs were being cut, and the company missed its earnings even as sales increased.

Almost overnight, e-discovery has become the most worrisome and uncontrolled expense for legal departments. As a result, this line item has been identified by many proactive GCs as the area ripest for cost reductions in support of new corporate mandates to lower expenses.

How to Begin Reducing e-Discovery Costs

One of the biggest fallacies about e-discovery is that it is a cost of doing business ' it's a 'black box' and nothing can be done about it. This simply is not true, as evidenced by public case studies from Fortune 500 companies such as Cisco, Constellation Energy, and Halliburton. These trend-setting companies manage e-discovery as a business process, just like any other business process within the enterprise. By teaming up, CIOs and legal executives have applied technologies to streamline the e-discovery process, reducing costs and risks.

A good place for any organization to begin researching before standardizing on a process is the Electronic Discovery Reference Model ('EDRM'), created by e-discovery experts/analysts George Socha and Tom Gelbmann. EDRM (http://edrm.net) addresses the lack of standards and guidelines in e-discovery by providing a common, flexible and extensible framework for the selection and use of products and services. It provides an unbiased and valuable resource for enterprises looking to streamline e-discovery efforts and reduce costs.

With many moving parts, tackling the entire EDRM process at once can be overwhelming, costly and will ultimately end in failure. Instead, a more effective approach is to adopt the '80/20 rule' by first focusing on the steps that deliver the biggest impact and highest cost savings. Across the e-discovery landscape, customers and analysts agree the most expensive steps to e-discovery are processing, analysis and review.

By starting with the most expensive part of the e-discovery process first, and figuring out how to more cost-effectively manage the processing, analysis and review of data, organizations can achieve the biggest reduction in their overall e-discovery budget. It's easy to see how costs quickly add up during this phase considering that 80%-90% of the information identified and collected will end up as irrelevant to the case. Factor in the cost to process data ' about $1,800 per GB ' and, the need for efficiency becomes even more apparent.

Therefore, the number one priority for legal departments and CIOs should be to whittle down the pile of electronic evidence at the first pass to find the 10%-20% of relevant data. The goal here is to identify a tight and relevant subset before passing it on to outside counsel or contract attorneys who charge upwards of $200 per hour to analyze and review the evidence.

When law firms and enterprises think outside the box, innovative solutions to the challenge of e-discovery can be developed. Just as Salesforce.com ushered in the electronic age of CRM, new tools are entering the market to pave the way for streamlining and automating the processing, analysis and review steps of e-discovery.

Forward-thinking legal departments are beginning to use purpose-built technology versus manual review or rudimentary search tools. For example, in a case with 100GB of electronically stored information ('ESI'), processing costs would be approximately $180,000 at $1,800 per GB. By using technology to automate the processing and cull-down of data to the relevant 10%-20% (roughly, 20GB), the processing costs dwindle down to about $36,000, delivering a cost savings of approximately $144,000 in just a matter of hours. Factor in the significantly shorter timelines, and the cost reductions become even more pronounced. This doesn't even include the additional costs of attorney review, which can be further reduced using visual and contextual review tools.

In addition to the hard dollar cost savings, the intangible benefits of having an efficient e-discovery process are compelling. Next-generation analysis and review products enable legal departments to perform better early case assessments and determine the best-case strategy ' such as deciding on whether to fight or fold. This can save millions of dollars in processing, review and analysis ' and, potentially preserve a company's reputation by avoiding litigation.

Conclusion

Managing through a downturn is never easy for the legal department. Often, workload increases as the business comes under greater scrutiny, but there is no funding available to support the necessary resources. A great way to get ahead of these pressures is to focus on the biggest cost drivers of the department and develop more efficient ways to conduct them by leveraging technology wherever possible.

e-Discovery, and specifically the processing, review and analysis of electronic evidence, has unquestionably become one of the biggest line item expenses for legal departments and the corporations they serve. Working together, CIOs and legal professionals can reach a common understanding of the e-discovery process and set specific goals for the department. The EDRM reference model is a good place to start.

Because of the large volumes of electronic data involved in a case and rising costs, e-discovery is a prime candidate for automation. Adopting the right mix of technologies that streamline the process and lower expenses, rather than increase complexity, is critical. The right combination of tools can make a dramatic impact on the bottom line while benefiting legal departments by enabling them to perform rapid early case assessments and obtain a better understanding of case evidence. Making informed decisions on when to fight and when to fold based on case facts versus instincts is not only prudent, but it enables legal teams to proceed with greater confidence. The need to lower costs combined with the rampant inefficiency of e-discovery are causing legal department everywhere to re-think their strategies, and begin looking at technology to turn the e-discovery process into a competitive advantage versus part of the problem.

Economists rarely agree on anything. But, if the Fed's recent actions are any guide, most believe the U.S. is already in a recession (defined as two consecutive quarters of negative growth). This downward economic outlook for the country will soon begin impacting corporate budget discussions, forcing every department ' including legal and the law firms that serve them ' to re-examine their expenses. When companies are struggling to grow the top line, every cost gets scrutinized. Legal expenses are no exception, especially given the sharp increase in spending and dollars going towards e-discovery.

According to Gartner, the market for e-discovery products and services is growing by more than 37% per year. Similarly, IDC's recent forecast for the legal discovery market predicts spending will reach a staggering $21.8 billion by 2011.

The downward economic outlook combined with spiraling e-discovery costs has prompted more General Counsels ('GCs') to begin partnering with Chief Information Officers ('CIOs') to figure out a solution. Together, the two departments are developing strategies to tackle rapidly growing e-discovery expenses. Collaboration is critical. Just as sales executives partnered with CIOs to implement Customer Relationship Management ('CRM') systems in the 1990s, the same alliance is beginning to take place between legal executives and CIOs. By leveraging each team's area of expertise, organizations can make the smartest decisions possible about investing in new technologies to streamline the critical e-discovery business process, reducing costs and risks.

The Cost Is Real

Historically, e-discovery has been the least thought-about line item on the legal budget. Twenty years ago, discovery primarily involved paper records and costs were minimal. When it was required, most GCs assigned the work to their law firm, then forgot about it and focused their energies elsewhere.

In recent years, however, the exploding growth in electronically stored information has catapulted the discovery of electronic data, and e-discovery is now a very large line item within the legal budget. How large is the problem? According to a Fulbright and Jaworski survey, the average company with $1B+ in sales is involved in approximately 556 legal-related cases per year. Almost all of these cases require some form of analysis of electronic data, and many entail teams of attorneys picking their way through reams of information.

The cost to conduct e-discovery for just one of these cases isn't cheap. A recent report by Gartner Research estimated the average cost for a single case can easily exceed $1.75M.

Consider the recent case at Monster Worldwide Inc. Due to the e-discovery fees and severance payments the company had to incur as part of its stock options backdating investigation, midway through 2007 Monster announced that profits fell 28%, 800 jobs were being cut, and the company missed its earnings even as sales increased.

Almost overnight, e-discovery has become the most worrisome and uncontrolled expense for legal departments. As a result, this line item has been identified by many proactive GCs as the area ripest for cost reductions in support of new corporate mandates to lower expenses.

How to Begin Reducing e-Discovery Costs

One of the biggest fallacies about e-discovery is that it is a cost of doing business ' it's a 'black box' and nothing can be done about it. This simply is not true, as evidenced by public case studies from Fortune 500 companies such as Cisco, Constellation Energy, and Halliburton. These trend-setting companies manage e-discovery as a business process, just like any other business process within the enterprise. By teaming up, CIOs and legal executives have applied technologies to streamline the e-discovery process, reducing costs and risks.

A good place for any organization to begin researching before standardizing on a process is the Electronic Discovery Reference Model ('EDRM'), created by e-discovery experts/analysts George Socha and Tom Gelbmann. EDRM (http://edrm.net) addresses the lack of standards and guidelines in e-discovery by providing a common, flexible and extensible framework for the selection and use of products and services. It provides an unbiased and valuable resource for enterprises looking to streamline e-discovery efforts and reduce costs.

With many moving parts, tackling the entire EDRM process at once can be overwhelming, costly and will ultimately end in failure. Instead, a more effective approach is to adopt the '80/20 rule' by first focusing on the steps that deliver the biggest impact and highest cost savings. Across the e-discovery landscape, customers and analysts agree the most expensive steps to e-discovery are processing, analysis and review.

By starting with the most expensive part of the e-discovery process first, and figuring out how to more cost-effectively manage the processing, analysis and review of data, organizations can achieve the biggest reduction in their overall e-discovery budget. It's easy to see how costs quickly add up during this phase considering that 80%-90% of the information identified and collected will end up as irrelevant to the case. Factor in the cost to process data ' about $1,800 per GB ' and, the need for efficiency becomes even more apparent.

Therefore, the number one priority for legal departments and CIOs should be to whittle down the pile of electronic evidence at the first pass to find the 10%-20% of relevant data. The goal here is to identify a tight and relevant subset before passing it on to outside counsel or contract attorneys who charge upwards of $200 per hour to analyze and review the evidence.

When law firms and enterprises think outside the box, innovative solutions to the challenge of e-discovery can be developed. Just as Salesforce.com ushered in the electronic age of CRM, new tools are entering the market to pave the way for streamlining and automating the processing, analysis and review steps of e-discovery.

Forward-thinking legal departments are beginning to use purpose-built technology versus manual review or rudimentary search tools. For example, in a case with 100GB of electronically stored information ('ESI'), processing costs would be approximately $180,000 at $1,800 per GB. By using technology to automate the processing and cull-down of data to the relevant 10%-20% (roughly, 20GB), the processing costs dwindle down to about $36,000, delivering a cost savings of approximately $144,000 in just a matter of hours. Factor in the significantly shorter timelines, and the cost reductions become even more pronounced. This doesn't even include the additional costs of attorney review, which can be further reduced using visual and contextual review tools.

In addition to the hard dollar cost savings, the intangible benefits of having an efficient e-discovery process are compelling. Next-generation analysis and review products enable legal departments to perform better early case assessments and determine the best-case strategy ' such as deciding on whether to fight or fold. This can save millions of dollars in processing, review and analysis ' and, potentially preserve a company's reputation by avoiding litigation.

Conclusion

Managing through a downturn is never easy for the legal department. Often, workload increases as the business comes under greater scrutiny, but there is no funding available to support the necessary resources. A great way to get ahead of these pressures is to focus on the biggest cost drivers of the department and develop more efficient ways to conduct them by leveraging technology wherever possible.

e-Discovery, and specifically the processing, review and analysis of electronic evidence, has unquestionably become one of the biggest line item expenses for legal departments and the corporations they serve. Working together, CIOs and legal professionals can reach a common understanding of the e-discovery process and set specific goals for the department. The EDRM reference model is a good place to start.

Because of the large volumes of electronic data involved in a case and rising costs, e-discovery is a prime candidate for automation. Adopting the right mix of technologies that streamline the process and lower expenses, rather than increase complexity, is critical. The right combination of tools can make a dramatic impact on the bottom line while benefiting legal departments by enabling them to perform rapid early case assessments and obtain a better understanding of case evidence. Making informed decisions on when to fight and when to fold based on case facts versus instincts is not only prudent, but it enables legal teams to proceed with greater confidence. The need to lower costs combined with the rampant inefficiency of e-discovery are causing legal department everywhere to re-think their strategies, and begin looking at technology to turn the e-discovery process into a competitive advantage versus part of the problem.