From scope to budget in a legal project

Agreeing on scope

Before estimating begins, the team records the client's need, the deliverables and their acceptance criteria. The definition specifies the legal areas, entities and jurisdictions covered, together with exclusions, assumptions and tolerances. It also identifies who can approve the engagement and any changes to it.

A tolerance needs boundaries the team can test. In the book's case, accepting late documents requires staying within the agreed cumulative limit and the same perimeter, with comparable complexity and unchanged deliverables and acceptance criteria. Remaining within scope does not itself authorize additional spending or capacity. A few documents concerning another entity may require a scope change. Clarification needed to complete the original report remains part of the agreed work.

Estimating the work

The work breakdown organises deliverables into packages that can be assigned, estimated and reviewed. Each package identifies the output, the accountable person and hours by professional role. The estimate includes coordination and quality control. Review checks that each task appears once and that the packages cover the full scope.

The basis of estimate retains the scope version, sources, technique, assumptions, uncertainty and reviewer. When historical data is unavailable, the book proposes estimating from work packages, checking the result through expert judgment and recording ranges. Agreement between two calculations built on the same premises is a consistency check; it does not provide independent validation.

Calculating and authorizing the budget

The calculation converts hours into cost using the fully loaded internal hourly cost for each role, including allocated overhead. It adds expenses directly attributable to the matter, without counting them again in overhead. Rates charged to the client belong in the calculation of fees.

The budget documentation identifies risks within scope and the basis for their contingency. Base cost plus that contingency forms the cost baseline. Any authorized management reserve for unforeseen work within scope sits outside the baseline and forms part of the internal cost budget. Neither reserve authorizes new deliverables.

Explaining the calculation and approving it serve different purposes. The internal cost budget, the fee and the client's legal spend budget support different decisions. Correcting a worksheet requires the team to assess the consequences and obtain any necessary authorizations.

A worked example from the book

DD-US-01 is a fictional buyer-side legal due diligence engagement for the purchase of all the stock of a private Delaware company operating in Texas. It covers four review workstreams, 420 material document units, seven interviews, a red-flag report and a client session. A unit comprises an instrument or coherent set of records, with relevant schedules and amendments. Negotiating the acquisition agreement and implementing closing are outside the mandate.

The exercise estimates 500 hours. Applying internal costs by role produces USD 60,000 in professional cost. It adds USD 8,800 in direct expenses and USD 5,160 in contingency for identified risks, giving a USD 73,960 cost baseline. No management reserve is allocated, so the initial internal cost budget is also USD 73,960.

These figures are teaching assumptions, not market prices. The contingency comes from the case's risk analysis; its percentage should not be transferred automatically to another matter.

Decisions when work changes

The response to each variance depends on its cause. Lower productivity may call for corrective action; an identified risk triggers its response within the available authority. A request for another deliverable or work beyond the agreed scope requires an assessment of its effects on effort, schedule and commercial terms.

The decision and approval are recorded before the new work starts. Earlier versions of the scope, estimate and budget allow the team to explain what was added and which variances remain unresolved. Clarifying the original engagement and correcting errors in that work do not, by themselves, become additional services.