Dynamic Risk and Contingency Management
Probabilistic assessment of economic exposure by claim, case, and portfolio, updated with historical data and case evidence.
Dynamic Risk and Contingency Management estimates litigation exposure from the possible outcomes of each claim, the amounts involved, and the available evidence. The assessment follows developments in the case and supports the lawyer’s risk review, portfolio planning, and negotiation decisions.
The solution combines the organization’s history, comparable data from the practice area, and Bayesian analysis to update estimates as relevant information emerges. Results distinguish loss probability, amounts associated with possible outcomes, and the resulting economic estimate.
From percentage policies to scenario assessment
A contingency policy can assign percentages of a claim’s estimated economic amount to categories such as probable, possible, and remote. Dynamic assessment adds analysis of the amounts associated with different outcomes, including dismissal and partial or full success of a claim.
The estimated economic amount (valor previsto) is the claim’s quantified amount before risk weighting. The probabilistic loss estimate considers outcomes and their probabilities. The adopted contingency amount follows the reviewed assessment and the organization’s policy, recording the criterion used.
For example, consider these illustrative scenarios, all at the same reference date:
| Outflow | Probability |
|---|---|
| BRL 0 | 50% |
| BRL 40,000 | 30% |
| BRL 100,000 | 20% |
The weighted average outflow is BRL 32,000: 50% × BRL 0 + 30% × BRL 40,000 + 20% × BRL 100,000. This is a statistical loss estimate; its use for contingency management depends on the assessment and applicable policy. New evidence can change probabilities, amounts, or both.
How the assessment is built
Historical data and comparability
The data brings together claims, issues, amounts, procedural stages, and outcomes, normalized in the Legal Common Data Model. Selection considers practice area, claim type, factual context, and other legally relevant variables.
History includes favorable and unfavorable outcomes. Adverse judgments inform the amounts when a loss occurs; estimating the chance of losing also requires other outcomes. Settlements are identified separately from adjudicated results, and compared amounts use compatible reference dates.
Bayesian updating
Comparable historical data provides an initial reference. Case evidence, such as documents, proof, decisions, and procedural stage, updates the assessment. The analysis connects changes in estimates to the information considered so that the lawyer can examine the reasons.
Data quality and quantity condition the assessment. Gaps, unrepresentative samples, and changes in the legal context are identified for review. Probabilities are compared with observed portfolio outcomes to assess and adjust calibration.
Consolidation by case and portfolio
Claim-level assessments support consolidation across a case and groups of cases. Consolidation considers alternative claims, overlaps, and relationships between outcomes to prevent double counting and present consistent exposure ranges.
When to reassess
Review begins at the lawyer’s initiative or in response to events defined in legal playbooks, including:
- receipt of relevant documents or evidence;
- a defense, expert report, or other material changing the case assumptions;
- a judgment, interim-relief decision, or appellate decision;
- revised economic calculations for the claims;
- periodic portfolio review or preparation of audit information.
Decision Analysis organizes a decision’s effects. When the economic base needs recalculation, calcula.ai prepares the calculations. Calculator updates amounts between reference dates; changes in probabilities arise from risk assessment.
Results and review
The deliverable brings together the claim-level assessment, amounts and scenarios considered, probabilities, exposure ranges, reference date, and principal factors explaining the estimate. History supports comparison of assessments and identification of new information’s effects.
The lawyer examines assumptions, supplements data, and records the review or reasons for an adjustment. Approved results populate Cases records and portfolio analyses under the organization’s assigned responsibilities.
Contingency management and accounting provisions
The statistical estimate, legal risk classification, and accounting provision are related information with distinct criteria. Recognition and measurement of a provision follow the applicable standard and the assessment of the responsible legal and accounting professionals.
Brazil’s CPC 25 requires the best estimate of the outflow and distinguishes measurement of an individual obligation from a large population of items. Classifying a loss as probable does not by itself make the provision equal to 100% of the estimated economic amount; nor does every probability-weighted average automatically determine the amount recognized. See CPC 25, paragraphs 14 and 36–40 (in Portuguese).
This distinction accompanies information used in the Counsel Audit Response Letter, preserving the meaning of the amounts, their reference date, and the responsible professionals’ assessment.
Strategy and pricing
The Adjudication Scenario Simulator explores arguments, evidence, and possible legal outcomes. Generated scenarios provide inputs for analysis; calibrated probabilities require statistical assessment supported by data.
Litigation Portfolio Pricing and Claims Valuation uses risk assessments and calculations to examine negotiation and transaction terms. Dynamic Risk and Contingency Management maintains exposure monitoring throughout the life of the case.