Forty billion dollars. That’s the approximate annual budget for discovery in the United States. Most of that discovery involves electronically stored information (ESI) rather than physical items or papers.

It’s no surprise, then, that ediscovery represents a massive expenditure for most corporations. Accurately measuring that spend and minimizing it — while maximizing the value you gain from it — is key to your business’s success. But many businesses don’t realize how much ediscovery costs, because they’re focusing on a single line item instead of looking at the whole picture.

Costs may be hidden within individual cases or dispersed among different departments, preventing you from accurately evaluating your ediscovery spend. Whether you’re managing ediscovery entirely in house, sending everything out to a third-party vendor or a law firm, or something in the middle, there are bound to be areas where you can better capture and reduce your spend.

As Peter Drucker said, what gets measured gets managed. Let’s look at some ways to account for ediscovery spending and effectively manage it.

Three Ways to Frame Ediscovery Costs

The cost of civil torts in the U.S. was estimated at nearly $265 billion in 2010, with discovery costs accounting for 20 to 50 percent of all litigation expenses. Ediscovery costs include legal holds and collections, data storage, processing, staffing needs for IT and legal departments, outside counsel fees, software, and myriad other categories of expenses. We’ve identified three main ways to capture those costs.

First is the linear approach:

assessing costs by stage in each individual case. This requires assembling cost information about every case that your business has dealt with, whether it lasted two days or two years. Those costs can then be analyzed over time to see how much each stage of ediscovery cost for your company.

SECOND, THERE’S THE HOLISTIC APPROACH:

evaluating costs based on each type of infrastructure needed to support ediscovery. Here, we consider human resources costs like hiring and training staff, investments such as servers and software, IT department costs for support and maintenance, legal department costs, and payments to outside vendors, law firms, or data hosting sites.

FINALLY, WE HAVE THE DIRECTIONAL OR PAYEE APPROACH:

examining the costs you invest in your own company for ediscovery-related tasks as opposed to those payments you send outside of the company to third-party vendors or law firms.
Across every framework, the total costs for ediscovery are related — directly and inextricably — to the amount of ESI your organization retains. According to ediscovery consultant Sherry B. Harris, a charter member of The Sedona Conference Working Group 1 on Electronic Document Retention and Production, data management is the key. “If companies did a better job of managing their records, from creation all the way through the lifecycle to destruction, they’d be in a better position to manage litigation and discovery — and to control the costs associated with both.”

THE LINEAR APPROACH:

Evaluating and Minimizing Costs by Stage
In this approach, you’ll investigate your ediscovery costs stage by stage across the entire EDRM process. For example, assess how long your custodians spent on legal holds and how many custodians were involved. Calculate how much you spent on data collection and hosting. Determine how much you paid for review. In addition to costs for each ediscovery phase, remember to account for hosting costs that continue throughout the life of a matter.
As we noted above, controlling your data volume is critical to minimizing your ediscovery costs. Nowhere is this cost per volume more obvious than when considering costs at each stage. The RAND Institute for Civil Justice has estimated that each gigabyte of data reviewed costs a company approximately $18,000. Those per-gigabyte costs break down to $125 to $6,700 for collection, $600 to $6,000 for processing, and, in the most expensive stage, $1,800 to $210,000 for review.
The RAND Institute for Civil Justice has estimated that each gigabyte of data reviewed costs a company approximately $18,000.
A conscientious, defensible, proactive approach to information governance can lead to tremendous savings. Every gigabyte of outdated ESI that you delete in following a uniform data destruction policy saves you, on average, $18,000 per case.

Preservation alone can cost a large company over $2.5 million per year — and most of that preserved data will never even advance to collection, much less later stages. Consider making a decision tree to guide your data preservation and collection strategy. Harris often uses this flexible approach with clients to account for all the moving parts that affect discovery in any given case. “There are so many factors to weigh, including the judge, the venue, your adversary, the specific facts, and any experts or key factual witnesses. And then you have to account for the number of custodians, how you’re going to negotiate and narrow the scope, what kind of data types and data volume the company has — it helps to have a customizable approach, recognizing that every case is different.”

Ensure that you aren’t overpaying for data hosting as you progress along the EDRM stages. If a project is temporarily inactive, you shouldn’t have to continue paying the active hosting rate for it. An in-house data-hosting and management system that allows you to effortlessly toggle projects between active and inactive statuses can make a sizable dent in your storage costs.

Finally, given that discovery costs accumulate as a case proceeds, aim to minimize the time you spend on a matter before making a decision about it. The faster you can reach an informed decision, based on a solid understanding of the facts, the more cost-effective your ediscovery process will be. In-house ediscovery offers a distinct advantage in this regard, as it eliminates the weeks or even months you might have to wait for a law firm to analyze your data, improving your speed to insight.

THE HOLISTIC APPROACH:

Evaluating Costs by Infrastructure or Category Type
If accounting for ediscovery costs by case or stage is challenging, consider looking at your spending across different types of infrastructure or spending categories. These categories include internal costs, such as staffing, software and tools, storage infrastructure, and IT support, as well as external costs, such as data hosting, vendor fees, and law firm costs.

With staff, make sure you’re accounting for training as well as hiring and retention costs. Additionally, you’ll need to increase your budget as you decrease your reliance on external service providers. Harris observed, “I’ve seen companies trying to bring ediscovery in house without increasing their resources. Remember that your IT and legal departments are already spread thin. If you’re asking them to do more, you have to give them more resources to work with.”

With staff, make sure you’re accounting for training as well as hiring and retention costs. Additionally, you’ll need to increase your budget as you decrease your reliance on external service providers.
For software and tools, including servers and storage infrastructure, consider both your one-time and ongoing costs. The good news here is that modern ediscovery software — by which we mean a true cloud software-as-a-service (SaaS) platform — requires no expensive hardware or internal management. Today’s in-house ediscovery software is designed to be intuitive and user-friendly, limiting your need for IT support. This both reduces your IT department costs and eliminates a common bottleneck that causes expensive delays. Recent research by one ediscovery software vendor showed annual benefits of as much as $1.4 million from moving ediscovery in house.

THE DIRECTIONAL APPROACH:

Evaluating Costs by Payee
The final way of evaluating your ediscovery spend is similar to the infrastructure method, but it divides your bill into just two portions. There’s the amount you send to external vendors and law firms, and then there are the infrastructure costs that you invest back into your business.

This last method of assessing costs asks a familiar question: do you want to rent or buy? As it does in the housing market, renting has its advantages and disadvantages. It can be efficient over the short term, especially when initial capital is low, but it leaves you at the mercy of a landlord, or, in the case of ediscovery, at the mercy of the vendor or law firm handling your data.

The better you can quickly categorize and locate data, cull it down to its essentials, and eliminate it after its useful life is expended, the better you can protect your bottom line.
Buying, on the other hand, is a long-term equity-building strategy that gives you control over your costs and your spending. Yes, buying involves up-front costs, but that equates to a direct investment in your business that pays off over time. In the ediscovery realm, the equity that you build is institutional knowledge about your company and its ESI as well as the institutional capacity and bandwidth to deal with investigations and matters as they arise. Outsourcing impedes your business from ever learning, in depth, what sort of data it generates, where that data lives, or what that data can teach you about how your business operates.

Everything that you do as a business to better understand your data saves you both time and money, on this matter and on every matter to follow. The better you can quickly categorize and locate data, cull it down to its essentials, and eliminate it after its useful life is expended, the better you can protect your bottom line.

If you’re ready to start investing in your own business instead of sponsoring external vendors or law firms, start calculating the ROI of in-house discovery today.