CLM Financial Management & Legal Budgeting Flashcards

A legal department's cost per matter is rising. Which data point would BEST help identify the root cause?

Answer: Matter budget vs. actual spend by phase

Comparing budget to actual costs broken down by matter phase pinpoints where overruns are occurring.

Which document formally authorizes a vendor to provide legal services up to a specified dollar amount?

Answer: Purchase order

A purchase order is a formal authorization specifying the goods or services approved and the maximum spend.

What financial concept measures the present value of future cash inflows relative to initial investment costs?

Answer: Net present value (NPV)

NPV calculates today's value of expected future cash flows minus the initial investment to assess project viability.

In legal department operations, which expense category is typically classified as a 'soft cost' or overhead?

Answer: Law library and research subscriptions

Library and research subscriptions are general overhead shared across matters, unlike court fees or expert costs billed to specific matters.

Which financial ratio indicates how quickly a law firm converts outstanding invoices into cash?

Answer: Days sales outstanding (DSO)

DSO measures the average number of days it takes to collect payment after an invoice is issued.

When preparing a legal department's annual budget, which step should occur FIRST?

Answer: Reviewing prior year actual expenses and variance explanations

Analyzing prior year actuals and variances establishes an informed baseline before projecting future needs.