Indirect and Invisible Organizational Costs: Making Informed Decisions About Litigation and Settlement

When anticipating litigation costs for organizations, lawyers and clients tend to focus on direct litigation costs, while overlooking the impact of process costs. In making an evaluation whether to litigate or settle, we assert that lawyers should account for indirect organizational costs within any cost-benefit analysis. This article reviews organizational literature and empirical studies in order to present a template of three spheres of impact: business opportunity, reputation, and organizational psychology. With greater awareness, organizational lawyers can identify and weigh these costs, with the objective of helping their clients better understand the financial impact of dispute resolutions for the organization.

When the full costs of litigation are clearly projected, lawyers and their clients can more effectively navigate negotiation, mediation, and/or litigation. Transparent conversations empower clients to set realistic goals and make informed decisions that reflect organizational priorities.