Contract management forms an essential part of any business, no matter the industry or size, so it may surprise you to learn that many businesses struggle to manage their contracts correctly, especially when there is a direct correlation between how successful a business is, and how successfully a business manages their contracts. There is often an onus on the winning of a contract or finding the right supplier, rather than the continued management of a contract lifecycle once the contract has been signed. Not only can this be bad practice for a business’s reputation, but there are financial negatives to unsuccessful contract management. According to the IACCM, the amount of revenue lost annually due to poor contract management is around 9.2%. To reduce the negative impact of sub-standard contract management and to gain the most value out of your contracts, we have ten tips to ensure the successful implementation of contract management in your business or organization.
Create an implementation plan
Before any contract management can move forward from the negotiation and signing stage, it is important to create and develop a contract management implementation plan. This ensures that all parties are fully aware of all the elements and terms involved in the contract and what is required and needs to be delivered in order to have a successful contract lifecycle. This plan must include:-
- Roles and responsibilities
It is imperative that everyone involved in the contract management process understands their roles and responsibilities. Whether that is a contract manager or a dedicated contract management team, steps should be taken to ensure all parties have detailed knowledge of what is required from them at all the key stages.
It is an important part of any contract management to be able to measure and evaluate performance, efficiency, and standards. Therefore, it is useful for businesses to negotiate and set agreed Key performance indicators (KPI’s). These should be extensively used within contract management, but are particularly useful in vendor contracts. By having performance indicators set into the contract, it protects all the parties involved from a future fall in standards and can identify any areas where improvements can be made or help identify any risks. It also ensures fact-based decision making and helps your business gain the most value out of a contract.
Having set timelines that are agreed upon by all the partied involves, allows the person(s) dealing with the continued contract management to have complete control over contracts and particularly helps with end of a contract lifecycle, as unproductive contracts will not be left to auto-renew, and organizations can stay on top of timelines regarding renegotiating contracts and exit strategies.
Depending on the size of a business and it’s extended enterprise, there is a high likelihood that the employees/teams dealing with contract management are not the same department that procured and negotiated the contracts. To have successful contract management, there needs to be steps taken to ensure a thorough handover from the start of the contract lifecycle; the signing of the contracts and the people involved, to the person(s) or team responsible for the continued management of the contract. This includes access to all associated documents and information. This allows for future reference if needed. It is particularly important to communicate any set KPI’s and timelines, so the contract management team can immediately set up notifications for specific events and milestones. This process ensures everyone is kept up to speed with events and creates a smooth transition.
The person(s) involved in contract management should be fully adept at risk management regardless of any other teams or departments. This is due to the possible risks involved in any contract. Although risk management may not technically fall under the remit of contract management, in order to be successful, one of the responsibilities should include the continued risk assessment of third parties, which helps mitigate risks and avoids costly contract disputes for all those involved.
Risk analysis and cost benefit assessments should be part of contract management, so to implement it successfully, there needs to be a comprehensive relationship across departments, which allows the team in charge of CM to work in conjunction with financial and legal teams, which protects the business from the possible negative consequences that may arise from a contract from a financial and legal point of view and help protect it from significant harm.
When you are trying to build relationships with clients and service providers, communication is essential for all parties involved. Information relating to contracts needs to be readily available and communicated easily and effectively with all relevant stakeholders and persons, and a framework for tracking and reporting performance and progress is the best practice when it comes to communication and managing expectations. This allows KPI’s, contract reviews and deadlines to be monitored by all involved, hopefully producing an excellent working relationship with all parties, and helping the contract management process to run as smoothly as possible.
Have good record management
Having a system of record is one of the most important responsibilities a contract management team can have. Keeping a thorough and substantial record of all documents and data attached to a contract can provide an audit trail that mitigates risk and protects the business from any potential litigation. Due to global expansion of businesses today, a substantial part of contract management is safely storing the amount of documentation and information required for each contract. To implement contract management successfully, there needs to be a framework in place to have a successful system of record, such as utilizing contract management software. A main feature of the software is a central repository. Having all your documentation together streamlines the documentation process and provides easy access to data and easy management of documents, contracts, and legal agreements. It also allows for easy growth and scalability of your business and in certain industries. Contract management and the associated administrative processes can be simplified by available software due to advanced search functions and tagging tools. By using metadata to search contracts for key words and clauses, information can be identified quickly and easily, making contract management efficient and optimizing the time and resources of the contract management team.
Regular Auditing & Reporting
Successful contract management does not end with the signing of the contract, or with the process that the contract is stipulated for. It is important to continually audit your contracts and the third-parties involved, for both the success of your business and to reduce the risk of litigation and fines which can have devastating financial consequences. Regular auditing and reviews protect the company from non-compliance and minimizes risk.
By having a framework in place to continually manage your contracts and outcome, either manually or by using automated software, you are less likely to miss the end of contracts, renewals and by using the KPI’s and analysing operational data and workflows, you can have a complete overview of where improvements can be made. This framework is important, as having all your data from processes in one place can help your business plan for future agreements by either predicting any possible third-party risks, or solving issues quickly such as bottlenecks in the system or missed deadlines for example.
Implement Contract Management software
By embracing technology and automation, a business can streamline all the contract procedures and processes and improve their efficiency, therefore improving business revenue. By implementing contract management software, or adapting contract management software to any current framework a business has in place, a business can improve and ensure successful contract management, especially if there are many complex contracts that need to be managed and monitored.
Contract management software provides a consistent and robust automated process and tools for the management of contracts and the associated responsibilities. It can offer a centralized platform for storing documents and data and a framework for standards and control procedures. Automated reporting tracks valuable information and with complete revision history, you can see how contracts have changed over time. Plus, the reporting and auditing features of third means you are always alert to compliance regarding contract terms and provisions, so you can avoid extra fees and expenses.
Having an overview of workflows and reducing the time spent by your employees on the actual management of contracts due to the efficiency of an automated Contract Management system, means that productivity will improve, which in turn will improve business growth and performance. Having access to this complete overview of your contracts allows you to communicate and present changes to contracts and key findings to the employees and stakeholders across the business or organisation and third parties. This can simplify the contract management process, especially with ever changing regulations, and can keep you up-to-date in the fast paced economic market.
By optimizing your contract lifecycle management by using the tools included with the software, you can keep on top of any KPI’s or renewal of contracts, allowing you to assess risk and project long-term revenue. The best way to master contract management is by implementing management software, and by embracing this technology, you have the benefit of being fully prepared for any business expansion and growth in number of vendors.
Due to the modern advancement of currently technology, there really is no reason not to implement contract management software to improve the efficiency of your business and to keep at the top of your game, and if your business expands, you will already have the management software system in place to deal with any expansion of contracts and vendors. Simplifying the contract process with document creation, managing commitments, better resource planning and electronic signatures really can make a difference to your organization, so if you feel this is the right step to help you successfully manage your business contracts, the contact us at Symfact and start your journey towards successful contract management.