The effective management of contracts can mean the difference between success and struggle for any business. In order to thrive - to go from strength to strength – it is vital for an organisation to master contract management best practice and take a truly proactive approach to all Third Party relationships. This focus is the way to unlock the full commercial potential of the business.
Why do we need to manage contracts effectively?
Picture the scene: A business lands a new sale, and word goes out to all necessary teams and departments – Accounts, Procurement, Leadership, Administration, along with all those personnel of different disciplines required to fulfil the contract. This might be manufacturing, IT or design, depending on the nature of the enterprise. Each of those teams and departments has their part to play in the new contract, and each puts its specific processes into motion. These processes will often include the execution of additional contracts with suppliers.
Each of those teams and departments is an individual cog in the larger machine that is tasked with delivering on the obligations agreed with the client. For the contract to be successfully executed and fulfilled, each cog needs to turn at precisely the right time, and at the right speed. If one cog does not operate in concert with the others, the entire machinery begins to malfunction and slow down. Resources must then be diverted to address the problem, and to ensure that smooth operation is resumed.
In this scenario, the machinery of contract management is inefficient and unreliable. The consequence is higher operational costs, and increased risk of conflict in multiple Third Party relationships – with clients, and suppliers. The problematic machinery is a drain on resources and causes delays which, in turn, damages the reputation of the business and negatively impacts revenue. This can be a long-term issue – particularly if the inefficiencies result in legal disputes – and it can be very difficult for the business to recover.
This situation is caused by a lack of effective contract management. Teams and departments are left to take a more scattered, less cohesive approach which leads to resources being consumed by actions needed in response to issues, rather than being used to implement preventative measures and make forward progress. Conversely, where effective contract management is in place, the opposite becomes true: less resources are needed overall, there are either fewer or no delays, the reputation of the business is enhanced and improved, and revenue is increased.
The benefits of effective contract management are not limited to the meeting of obligations of single contracts, however. When entire contract collections are managed effectively, new and previously untapped sales and commercial opportunities can be surfaced and explored. This is made possible by greater efficiency in resource deployment, as well as oversight and with insights generated at a granular level.
How is effective contract management achieved?
Effective contract management starts with the adoption of a Contract Life Cycle approach. By handling each agreement as a whole cycle, from end-to-end, all contract administration and management tasks are organized and categorized into distinct phases – these being initiation, planning, execution, monitoring and closure. This approach allows for simpler and easier estimations of timescales and cost, better resource targeting. It also reduces risk by maintaining a higher degree of control and oversight.
Once a Contract Life Cycle approach has been agreed, this is supported by the implementation of further contract management strategies, specifically aimed at efficacy and efficiency.
The centralization of contract data is key to the success of the Contract Life Cycle approach, and effective contract management in general. In the broadest of terms, gathering all contract materials into a central storage location removes the need to identify and search different contract locations throughout separate departments. This releases vital resources that can be better deployed to other tasks. More specifically, centralization of contract material creates a single, unified data source that can be utilized in a number of ways, including the management of Intellectual Property, business continuity planning, and effective risk management.
Once all contract materials have been centralized, standardization can be achieved. Approved language and clauses can be made available in a library within the central repository, along with tailored document templates. This ensures that there is tighter control over the contracts being negotiated and executed which, in turn, reduces risk. In addition, standardization helps the business adhere to protocols, policies and procedures, along with regulatory requirements at business, national and international levels.
- Access authorization
For truly effective contract management, the business must implement a system that delivers access authorization. It must be clear at all times which personnel are accessing contract materials, and for what purpose. The activity of personnel must also be clear. This type of managed access allows for full transparency and accountability, while keeping all contract material safe and secure. Not only does this help the business meet data security and confidentiality requirements, but it also provides remote access through a browser-based design. Access authorization features are integral to cutting-edge Contract Management Software systems, enabling any authorized person to log in from any web-enabled device in any internet-connected location. This has a significant impact on efficiency levels by reducing timescales, costs and resources. Contracts can be created ‘on-the-go,’ or by personnel working from home, without needing to return to the office, and without needing to distribute multiple copies by post or email. Versioning can be accurately managed, and any attempts at cyber crime can be quickly identified and addressed.
- Electronic signatures
The use of an electronic signature facility reduces contracting timescales and costs by enabling contract authorization and execution remotely. Travel and dispatch time is eliminated, and the carbon footprint of the business is reduced. This recognized digital solution also provides additional business security because electronic signatures include extra verification data, and allows operations to continue, even when the main premises of the enterprise are unavailable. These security measures enhance regulatory compliance, by creating an audit trail relating to each signature on every contract.
- Data tracking and monitoring
The processes involved in tracking contract data are the transformative functions which turn the centralized data repository into a unified data source. It is from here that information can be efficiently surfaced, identified and utilized to monitor the performance of all current contracts, learn lessons from past agreements and make projections about future developments and economic situations. This is achieved by using metadata and data tags, determined by agreed Key Performance Indicators (KPIs). With contracts centralized, it is possible to categorize the documentation according to the needs of the operation and its projects. The business then takes time to understand which data points need to be tracked in order to fully monitor contract performance, and the metadata of each contract is tagged accordingly. Once contracts are tagged, powerful reporting tools can be applied to filter the contract collection as necessary, to any level of granularity.
It is vital to approach the tagging, tracking and monitoring of contract data from a position of consistency and standardization. The system is only as efficient as the reporting function, because it is this set of customizable tools that delivers actionable data. If data tags are inconsistent or not standardized in any way, then any potential gains in time and resources through the data handling phases of the Contract Life Cycle are lost.
The automation of basic contract management and administrative processes is an essential element of efficacy and efficiency. Removing human input from previously manual tasks increases speed and reduces the risk of error, delay or conflict. The benefits are far-reaching and include the shortening of sales cycles, the freeing up of resources, and the increase of revenue as a result. Regulatory compliance is also supported by a high degree of automation, because activity is accurately recorded as audit trails in addition to the reduction of human error across all automated processes. While automation plays a role in everything from document storage and reporting to electronic signatures and access authorization, the biggest deployment of automation involves workflows and reporting.
Automated workflows are fully customizable and ensure that the right task is flagged up to the right person at the right time. This promotes regulatory compliance through audit trails and creates transparency and accountability. Delays are reduced, which increases efficiency and reduces costs, while the reputation of the business is enhanced, delivering long term commercial benefits. Automation in reporting provides the ability to regularly and reliably generate actionable data, tied to specified Key Performance Indicators, using less resources.
- Third Party Risk Management
There is inherent risk in all business and, left unchecked and unaddressed, risk can increase costs, delays and conflict. Third Party relationships – that is, agreements with suppliers and external elements – are significant points of vulnerability in any organisation. A business is only as secure as those businesses with which it trades. Security breaches or project delays within a Third Party can directly impact the efficacy of the business in question. This is why Third Party risk must be monitored and managed. Due diligence is essential.
Contract Management Software platforms, such as Symfact, provide the tools necessary for complete due diligence and risk management measures. In addition to protecting the business by supporting effective contract management in general, Third Party risk management tools enable the business to create comprehensive risk assessments and background checks on both the Third Party operation and the individuals involved with it. Automation within this feature helps to build intelligent questionnaires, which can be applied to any potential partner operation and are designed to highlight potential flashpoints. This facility also provides fraud protection, by surfacing risk factors that would otherwise not be apparent.
Effectiveness through software
Contract Management Software brings all Contract Life Cycle processes into one, streamlined system – increasing visibility and providing all the tools necessary for an effective, end-to-end approach.
- Centralized repository – Contract Management Software platforms, such as that created by Symfact, are built around a centralized repository. Gathering all contract materials into a single storage location is not only at the core of the phased Contract Life Cycle approach, but is also key to ensuring efficacy, efficiency, and security.
- Standardization – A library of standardized language, clauses and templates can be created within the repository, with templates being fully compatible with Microsoft Word. This allows businesses to agree standard operating terms and conditions and speed up the contract initiation and execution stages of the Life Cycle. It also helps to maintain version control, further supporting regulatory compliance and efficiency.
- Security – Centralized storage creates a single route of authorized access, thereby reducing risk and vulnerability to data breaches.
- Browser-based design – The use of a browser-based design, using cloud technology, means that the Contract Management Software supports business continuity as well as environmentally sound operation, data security and greater efficiency overall.
- Business continuity – Authorized personnel can access the system from any web-enabled device, in any internet-connected location around the world. This means contracts can be initiated and executed even when the operation of the main business location is disrupted. The business can still function, even though personnel are scattered, and having to work remotely.
- Environmentally sound operation – Remote access to the system allows for contracts to be initiated and executed using less resources and requiring less travel. This reduces the carbon footprint of the business, as well as reducing costs and timescales.
- Data Security – The browser-based design uses permission-based access. Authorization must be received in order to use the system and, once inside, all activity is logged in automated audit trails. This ensures full accountability and transparency, and helps to maintain version control.
- Automated workflows
While Contract Management Software includes a high degree of automation in terms of basic administrative and management processes, the key element of this feature is the automated workflow tool. This allows the business to maintain full oversight of even the most complex contract collection and organizational structure. The use of interactive dashboards allows a scalable and effective approach to secure collaboration which, in turn, increases efficiency and efficacy within the Contract Life Cycle.
- Customizable reporting
The reporting function of Contract Management Software is the tool that transforms the contract collection into actionable data, enabling comprehensive data analysis at all levels of granularity. This facilitates accurate examination of workflow and contract performance, which mitigates risk while optimizing ROI and maximizing revenue. A high degree of automation also ensures that the system requires less resources to deliver accurate, current information.
Contact Symfact today to discuss how Contract Management Software can help your business manage contracts effectively.