James D. Shook, Esq., CIPP EMC eDiscovery Expert

In today’s economic environment, companies deploying new technology have to show not just that they will be better and faster, but also just how much faster and better so that they can justify the expense.  Part of the buying process frequently involves gathering data on how much it costs to handle a business process in the current environment, how much can be saved with improvements, and establishing that the savings will justify the cost of the improvement (and frequently, how long it will take to do so).  Most companies refer to this process with the shorthand acronym of “ROI” or “return on investment”.  (In financial circles, ROI is actually a more complex analysis, but it’s still a good acronym for our purposes).

For companies that are looking to bring more of their eDiscovery process in-house, the ROI process can be difficult.  While we intuitively know that we can save money and cut risk with a leading eDiscovery solution, it can be tough to show that quantitatively because financial information is usually not readily available.  Even within the legal department, the cost of eDiscovery is frequently not well-known.  Often, time and money spent on eDiscovery issues is buried with other tasks in time entries from outside counsel; internal costs are generally not tracked at all; and payments to third-party processes are passed through (or marked up) by outside counsel and difficult to locate.

The benefits can also be difficult to calculate.  For example, many companies have poor eDiscovery processes (what we term “Faux eDiscovery“), where they wrongly or negligently ignore data sources and/or sound eDiscovery processes.  Faux eDiscovery can actually be very inexpensive — the real “cost” is in the risk with being caught and sanctioned.  But risk is difficult to quantify.  The result is that some companies trying to improve their eDiscovery processes may actually find a negative ROI (i.e. we only spend $10,000 per litigation now but it will cost us $50,000 to do it right) because they fail to identify or quantify the real ROI — their reduction in risk by handling eDiscovery properly.

If you are putting together an ROI analysis for bringing eDiscovery in-house, here are a few things to consider:

The general statistics available about eDiscovery costs are startling.  It’s well-established that having legal professionals review data – one of the later steps in the eDiscovery process — is expensive, with $18,750 per gigabyte a well-accepted number.  (Gartner, Reducing the Cost and Risk of EDiscovery in 2009, 1/9/2009 at 6).  Over the last several years, the average cost of discovery per case ranged from $621,880 to $2,993,567 (Litigation Cost Survey at 3).  And as noted earlier, Gartner advised an IT eDiscovery budget of $500,000 for a modestly sized case.    (Gartner, Reducing the Cost and Risk of EDiscovery, at 5).

Cutting through the noise, Gartner notes that many companies report a full return on their investment in an eDiscovery solution within 3 to 6 months — or within a single large case.  (Gartner, Marketscope for E-Discovery Software Product Vendors, 12/21/2009 at 2).  While these high-level facts alone may not be enough to convince anyone who requires a detailed ROI, they can help to set the stage for acceptance and also tend to strike a nerve with many C-level executives.

Undertake basic investigation on costs.  Talk to the legal department about how many “cases” they handle in each month (or year), being sure to include internal investigations and employment claims, regulatory inquiries and other matters where data is being preserved, collected and/or processed — not just “lawsuits”.  Ask them if they have information about amounts paid to outside service providers (perhaps through their law firm) for eDiscovery services.  Also check with the people who handle backups and email within the IT department — since different groups within legal may be asking them for help, they may actually have the best view of this work, and could even have hired an outside vendor to handle some eDiscovery-related work.  IT wil generally know whether the company has had to purchase tape processing equipment, additional storage or other non-standard equipment to help the lawyers with eDiscovery.

Check on soft-costs, too.  Most IT departments are only too ready and able to tell someone (anyone!) how much time they have devoted to eDiscovery tasks.  Frequently groups of 2-3 staffers can be assigned full-time or better for weeks or months on a medium or large case.  Without a chargeback model, legal might not even be aware of the massive undertaking to help them.

You may only be able to gather information on a few cases.  In that scenario, try to figure out whether it’s legitimate to extend the information out across the full volume of cases:  were these cases representative of what’s happening?  Do our cases tend to be similar or repeatable?  Do I have a good sampel?  When detailed information is not available — and usually it’s not — your goal is to get an understanding of the magnitude of the spend, and not necessarily the exact dollar amount.

There are a variety of ways in which you can begin to assess the savings that an eDiscovery solution will bring to the company.  In many cases, after purchasing a solution the incremental costs fo reach case will be almost nothing.  The better systems will enable custodian notification, search, preservation, collection and processing within the platform, so that investigators can efficiently handle these tasks.  This is really the purpose of the ROI analysis — case-by-case handling costs should be very small, because the expense is up-front in the purchase and deployment of the solution.

One area where the savings can be significant, but still substantial, is with “eyes-on” legal review.  An efficiently deployed system will help to minimize the amount of data collected, processed and eventually reviewed; but the review volumes can still be large.  And the hourly costs of review will be the same (although you can get some savings from de-duplication, clustering, email threading, etc.).  Still, we routinely see 50%+ savings in review based on the reduction in volume for efficient collection and culling.

You may decide that risk is too difficult or political to calculate as part of the ROI.  Or you may decide that it’s a necessary component that you must include.  Both approaches can be effective.

If you decide not to calculate a specific value for risk, you should still consider some risk analysis as part of your process, even as merely a “plus” factor to your overall analysis.  In doing this, take note of recent cases where companies have paid sanctions, had their case compromised and/or faced a backlash in the press (and potentially from shareholders).  You may not have a value for that risk, but the message will resonate with management.

If you do calculate risk, consider a conservative approach and factor in the probability of a sanction.  For example, you might decide that a severe sanction would compromise your ability to effectively defend (or prosecute) a case, and a larger case can be worth $5,000,000.  If you estimate a 10% chance of being sanctioned, you could take the resulting product ($5,000,000 x 10% = $500,000) as a basis for your risk value.  Remember that this risk amount would apply to each such case; so while the risk amount for a sanction on a smaller case might seem low (let’s say $20,000), it would be applied over a far larger number of cases.  It adds up!

Also remember that sanctions costs can exceed the entire estimated value of a case.  There have been many cases where shoddy eDiscovery processes have resulted in expensive remediation efforts — legal fees in determining what went wrong and how to fix it (and fending off motions for sanctions), repeating earlier work or being forced to use extraordinary efforts such as tape restoration.  So even a $500,000 case with eDiscovery problems could easily require more than the case value to try to “fix”.  (And don’t let anyone argue that you could always just write a check to settle the case.  Opposing counsel may have valued the case at a higher value than you, and once they realize that you are in trouble, it could be tough to negotiate a fair settlement).

Sometimes a simple model is better.  We have used extremely complex ROI models that were spot-on, but difficult to explain, and ultimately were ignored. We have also seen very simple models — “an eDiscovery solution will save us 50% in review costs, and last year review costs were $5M” — that have carried the day.  Hopefully, as you work on your ROI project, you’ll uncover the method that will best establish your case.  Until then, consider using a scenario-based approach (small case, medium case, large case), develop your facts for each one, and extrapolate the costs across the volumes that you expect to see each year.

DISCOVER MORE

“The new Discover microsite will deliver the ability to go directly to dynamic site which has the listing of all new videos, podcasts, news, blogs and eDiscovery news,” says J. David Morris of EMC SourceOne eDiscovery – Kazeon.  ”On Discover, we have the new video with Gartner and a special guest from Fulbright & Jaworski which covers the emerging trends in eDiscovery, Information Management and Governance. It is a powerfully insightful video. Also,  the new ESG video with Brian Babineau and Karthik Kannan discussing the growing trend of internal investigations in corporations.  The new interactive EDRM model allows both legal and technical professionals to investigate and learn about the capabilities of our eDiscovery suite including Early Case Assessment, Legal Hold and the all important Application Connectors within the context of the model.  For all the latest info, www.kazeon.com/discover is your destination.”

Discover more at Discover

J. David Morris, EMC

All corporations need to find and manage content for litigation, compliance, and internal or regulatory investigations. Responding in a quick and cost-effective manner is directly related to how effectively an organization can identify and act on potentially responsive information. Today, most business communications and activities take place electronically; subsequently, the volume of electronically stored information (ESI) is growing exponentially. This information exists in a wide and ever-expanding variety of disparate systems and locations across the enterprise. Many of these sources are unmanaged, unorganized, and continually changing. As a result, the eDiscovery process—the identification, collection, preservation, processing, analysis, and review of potentially responsive ESI, can be an extremely time-consuming and costly endeavor if not properly planned for and managed.

The adage “Look Before You Leap” is a well known and a much heeded piece of advice.  It also applies to eDiscovery.  Performing analytics and an early case assessment can deliver valuable information on document volume, document type, repositories, custodians, document ownership, key date and timelines. With the insight provide by initial analytics and early case assessment, corporate attorneys can better determine litigation risk, legal strategy and eDiscovery scope, as well as litigation related expenses.  Initial analytics and early case assessment should be a standard part of a corporation’s eDiscovery processes.

Why? Realistically, the work must be done anyway, as the courts expect companies to be ready for litigation.  This includes having fluent knowledge of the IT infrastructure, content repositories and network architecture, so that the pretrial conference leads to consensus on what ESI is discoverable (FRCP 16).  Despite the legal necessity and overwhelming value, most corporations don’t conduct initial analytics or early case assessment before collection begins.

Corporations, more often than not, find themselves in a reactive eDiscovery situation, i.e. “Leap before You Look.”  After litigation is initiated, the legal clock starts (FRCP 26(a)(1)(c) & 26(f)) driving the eDiscovery timeline.  Due to the tight timelines and often lack of eDiscovery capability, legal and IT are faced with deploying eDiscovery capability, constructing policies and collecting relevant documents for the litigation proceedings all at the same time. The aforementioned tasks are each projects in and of themselves.  Trying to solve them all at once forces corporations to sub-optimize and over collect, which wastes time and money, as well as forces the corporation to accept more litigation risk than necessary ((FRCP Rule 26(b)(5)(B)… we have a clawbacks provision, but they aren’t a given.).

How can corporations avoid the “Leap before you Look” challenge and deploy the necessary capability to heed the “Look before you Leap” advice?  The answer is to deploy eDiscovery capability that delivers the ability to conduct initial analytics and early case assessment and construct your IT policies prior to the initiation of a litigation event.  According to Fulbright & Jaworski’s 6^th Annual Litigation Trends Survey Report, 89% of companies face litigation and 40% of the largest companies spend over $5M annually on litigation. So, it is not a question if you are going to have a lawsuit; it is only a question of when you are going to have a lawsuit and be forced to conform to FRCP16.

EMC SourceOne eDiscovery – Kazeon delivers a robust suite of capabilities across the Electronic Discovery Reference Model (EDRM) from information management, identification, preservation, collection, processing, review, analysis and production, as well as an initial analytics, early case assessment and legal hold capabilities.  The ERDM model below highlights Kazeon’s capabilities across the eDiscovery model:

EMC SourceOne eDiscovery – Kazeon capability model (see interactive EDRM):

EMC SourceOne eDiscovery - Kazeon EDRM+

Furthermore, Kazeon’s application connectors allow corporations to perform eDiscovery on the most common enterprise applications to deliver electronically stored information (ESI) no matter where it is in the enterprise.  EMC SourceOne eDiscovery – Kazeon delivers your corporation the capability to “Look before You Leap.”   To Discover more visit www.kazeon.com/discover.

Date: Wednesday, March 17, 2010
Time: 10:00 AM Pacific

EMC SourceOne eDiscovery – Kazeon hosts this special eDiscovery Webinar with United States District Judge James M. Rosenbaum and Magistrate Judge Franklin L. Noel discussing eDiscovery and the law. Jake Frazier, MBA, Esq., author of “Bringing eDiscovery In-House for Dummies” will be moderating the webinar.

The Judges decree that attorneys can no longer hide behind the arcane intricacies of Information Technology to sidestep eDiscovery motions. Attorneys that plead IT ignorance can be sanctioned and referred to the Bar. The Judges say that it is time for attorneys to understand their companies IT capabilities and limitations or face the consequences.

Join us for the Judges

Register today and Discover, as space is limited for these once only premium webinars.