Risk analysis with decision trees is a rigorous way to analyze disputes and decide how much to invest in the litigation. An important threshold question is when does it pay to do risk analysis, which is not that easy and can take a fair bit of time. More generally, when does any legal question warrant an investment to answer? And how much work is “good enough”? 

A government lawyer who read my material on risk analysis asked these good questions. It’s the same questions in-house counsel should ask. For both corporations and the government, the surest way to reduce legal cost is to do less legal work. Improving efficiency or reducing rates is beside the point if skipping or reducing the work altogether is an option. And part of reducing work is to accept a “good enough” answer rather than a 100% answer.

So, is there a structured way to decide how much to invest in legal questions? That is, when a legal question arises, how can a lawyer assess its magnitude and rationally decide how much to invest to address it? Some lawyers believe every question merits thorough analysis. From an economic perspective, however, the client should first know the order of magnitude of the problem. Problems come in different sizes – a pebble, rock, boulder, hill, mountain, or asteroid – and the effort should depend on the size?
Because formal risk analysis incurs a cost, one might reasonably apply it only to problems that are say, at least boulder-size.

A reasonable economic / business decision might be to ignore pebbles and rocks. Certainly treating every problem as if it were an asteroid or boulder is uneconomic. I am not aware of any systematic and documented in-take process designed to assess a legal question and how much to invest in it.

Of course this assessment, intake process, or “gate keeping” happens; I just don’t see evidence that it is systematic and documented. No matter how experienced the gate keeper lawyer, questions will arise outside the scope of experience. What then?

If business and government are to reduce legal expense, then we need a systematic gate keeping approach. A knowledge management professional might suggest that every incoming query be captured in a database, along with its disposition. Then, once there is enough data, the gate keeper can search for similar past questions. The problem with this approach is that the range of legal issues is enormous, as is the language describing them. So I’m not convinced this would get us very far (aside from the challenge involved to collect and maintain the database).

Some of my peers likely would suggest a “crowd sourcing” approach. If the gatekeeper cannot answer with confidence, he or she could use a variety of technologies (inside or outside the firewall) to seek the opinion of other lawyers and experts. Those opinions could help gauge the severity of the problem and how much to invest.

Perhaps my suggestions take us in the wrong direction. Does anyone have examples of a systematic gate keeping / intake approach, one specifically designed to assess the level of investment appropriate to answer a legal question? And does anyone have views how government lawyers should deal with this given that many legal issues they face may have as much to do with policy as with dollars? I welcome your comments here or on Twitter (flag @ronfriedmann).

Update (26 Jan 2010): Steven Levy of Lexician references the above post in his very helpful Simple Risk Analysis blog post. He presents a simple but systematic way to assess risk. I agree with his view that just the act of getting a group to write down, working collectively, what the risk are is very valuable.