The term ‘CLM Solutions’ is an interesting buzzword in modern business because it alludes to the problematic nature of Contract Lifecycle Management, or CLM. We need a ‘solution’ for our Contract Lifecycle Management, to tackle its complexities and challenges. So, to understand what Contract Lifecyle Management solutions are, we first need to understand why Contract Lifecycle Management poses a problem that needs to be solved in the first place.
What is Contract Lifecycle Management?
Contract Lifecycle Management is the end-to-end process of handling the agreements and contracts accumulated while doing business, using a cyclical approach. This means taking each contract as an individual item with specific progress stages.
- Request – The initial identification of need, or initial order or sale.
- Writing – The process of authoring the contract or agreement, involving the use of approved language featuring the highest possible level of risk management and specificity.
- Negotiation – Sharing the draft contract language with the other party to collaborate on, redline, and agree terms and conditions.
- Approval and signature – Activating the contract, once terms and conditions are agreed, with all stakeholders in agreement and authorized signatures applied.
- Monitoring – Continual assessment of performance for the active duration of the contract, including adjustments to risk assessment and the tracking of key elements.
- Review – Determining the appropriate course of action at the end of the contract period, including the need for renewal or termination.
There has always been a need for Contract Management processes in business and, historically, this has largely been undertaken in a retrospective fashion. Agreements were stored on paper, in filing cabinets, with the task of keeping track of key dates and timelines made more difficult by a relatively disorganized approach. Dealing with contracts in terms of their lifecycle enables a clearer delineation between personnel roles and responsibilities. For example, a carefully planned contract lifecycle allows for a Contract Administrator to concentrate on the request, negotiation and approval stages, before handing over to a Contract Manager, who will deal with the monitoring and review stages.
Why does Contract Lifecycle Management need solutions?
So, if the process of Contract Lifecycle Management makes things more clearly delineated, why is a ‘solution’ necessary? Does the lifecycle approach constitute a solution in and of itself? Applying a cyclical strategy to Contract Management does go some way to solving the specific problem of roles and responsibilities in managing large numbers of agreements, relating to different business areas for different periods of time. The issues associated with Contract Management are more complex than that, however.
When a business is dealing with a sizeable, and increasing, contract collection, the risk of important dates being missed, or mistakes being made increases significantly. It is the impact of such mistakes that pinpoints the ‘problem’ to which a solution is required. Every time something goes wrong – however small – the ripples of that mistake can move throughout the business and can last much longer than the duration of the contract.
- Missed deadlines – Contracts can contain multiple critical deadlines and it is imperative that these are met in a timely fashion. Failure to do so causes problems for both the business and the other party, which has negotiated that deadline for a reason, and has other commercial elements in their own operation linked to that schedule.
- Workflow bottlenecks – The process of tasks being completed throughout the contract lifecycle is referred to as the workflow, and bottlenecks – or blockages – within this process can cause delays within the contract schedule itself. They can result from staffing issues, such as training, or a problem with infrastructure. Failure to spot these workflow bottlenecks at an early stage, or failure to take remedial action in good time, leaves the business vulnerable to legal action. When entering into a contract, Third Parties have a reasonable expectation of obligations and timescales being met and workflow bottlenecks have the potential to disrupt this expectation if they are not rectified quickly and effectively.
- Altered risk levels – During the contract lifecycle, two things are true. Firstly, many issues can be successfully avoided through proper, early risk assessment and Risk Management processes. Secondly, risk levels associated with contracts are constantly subject to change. The risk profile of contracting parties is not static in any sense, because those parties are affected by external factors just as much as the business itself. This means the continual monitoring of risk against the framework of risk appetite and tolerance of the business must be prioritized. Failure to take this into account within Contract Management strategies increases the likelihood of significant vulnerability and disruption.
- Compliance – At the most fundamental level, it is essential for businesses to comply with the terms and conditions of the contracts to which they have agreed and signed. This means compliance with delivery schedules and timeframes, as well as with any other stipulations regarding conduct and security protocols – particularly in relation to Risk Management. A further area of compliance obligations is the requirements of internal and external regulations and legislation. These can differ across industries, regions, territories and jurisdictions, and can severely impact the profitability of the business if not met.
Each potential area for problems or mistakes risks both financial penalty and reputational damage, which constitute lasting repercussions that can reduce revenue and damage the future success of the business. In terms of Risk Management alone, a history of poor or ineffectual Contract Management increases the risk profile of the business by a significant margin, negatively impacting both future and existing Third Party relationships.
What is needed in a Contract Lifecycle Management solution?
With all this in mind, we can begin to see not only what Contract Lifecyle Management solutions are, but also what they need to include to address all potential problems within the Contract Management processes of the business. First and foremost, Contract Lifecycle Management solutions take the form of software packages, because modern business is not only firmly situated within the digital age but is also beginning to embrace the utility of Artificial Intelligence and the commercial benefits that such advances can deliver.
In the broadest of terms, a Contract Lifecycle Management software package should enable collaboration, standardization, and optimization, because each of those three points encompasses tools needed to both prevent the potential problems within Contract Management, and rectify those already evident, to minimize damage caused. To achieve these three things, a digital Contract Lifecycle Management solution needs to feature the following:
Effective collaboration requires access that is straightforward and timely. The use of cloud technology removes the geographical restrictions of on-site computing and allows for Contract Lifecycle Management to be undertaken from any web-enabled device, in any location with an internet connection. This has several benefits.
- Speed – Contract authoring, negotiation and approvals can happen much more quickly, shortening the sales cycle and freeing up resources faster to make more sales. Revenue from contracts is also seen quicker as a direct result of the speed afforded by cloud technology.
- Reduced emissions – The carbon footprint of the business is reduced because travel requirements for contract negotiations and approvals are minimized. The need to transport or courier hard copies of documentation is also removed, reducing resource wastage.
- Business continuity – When personnel are able to work and conduct business remotely, disruption to the operation resulting from factors that preclude the use of the business premises, or travel to the business premises, is prevented. This makes cloud technology a core requirement for modern business continuity plans, as well as for Contract Lifecycle Management
The use of cloud technology means that the Contract Lifecycle Management solution will utilize permission-based access. This feature allows authorized personnel to access the system from anywhere while creating an audit trail of all changes and activity. This allows for better versioning, as well as the optimization of transparency and accountability. Cloud technology also combines with the use of electronic signatures at the approval stage of the contract lifecycle, helping to speed up the contracting process by increasing efficiency.
A digital Contract Lifecycle Management solution provides a centralized repository for all agreements and associated documentation. This delivers numerous benefits:
- Saving time – When a contract collection is not centralized, resources are wasted in the initial stages of any Contract Management task, through the need to find the documentation in question. Storing contracts in a single location means personnel can be confident in finding what is needed.
- Standardization – There are two elements to the standardization of a contract collection, both of which help to streamline Contract Management processes in the first instance, and then the operation as a whole. Firstly, a centralized repository allows the business to standardize categorization, metadata and data tagging. This means that the contract collection becomes a searchable pool of data. Secondly, the centralized repository enables the creation of a template library. This means pre-approved document layouts, language and clauses can be stored in the repository ready for use. This facility makes the authoring, negotiation and approval stages of the Contract Lifecycle faster, and also ensures that a standardized approach is taken to all contracts.
- Data mining – With all documentation stored together as a single data source, it is possible to mine that data to all levels of granularity. Combined with consistent and standardized categorization and data tagging, the contract collection can be used as a powerful tool for research, planning and, crucially, effective due diligence and Risk Management.
Risk Management tools
The effective management of risk is essential to all Contract Lifecycle Management processes. It is the strategy that is most specifically designed to protect the day-to-day operation of the business, as well as its commercial future. Risk Management tools that enable this process include:
- Intelligent questionnaires – In order to identify and classify risk, the business must use intelligent questionnaires, customized and designed to build thorough risk assessments that can be considered against the framework of risk appetite and tolerance.
- Identity management – The authentication and verification of Third Party identities is a significant element of fraud prevention.
- External database links – Access to external databases, including Refinitiv, Dow Jones, Dun & Bradstreet and LexisNexis allows the business to conduct comprehensive background checks on individuals and businesses alike.
The purpose of Risk Management tools within Contract Lifecycle Management software is always to gather, collate and process as much information as possible about business relationships and other parties. This allows the business to make fully informed decisions going forward, to protect its commercial future.
Automation is a vital part of any Contract Lifecycle Management solution because it reduces the need for human input, and therefore reduces risk of errors and delays. Specifically, the automation of workflows means that the most basic part of Contract Management is kept on track by customizable software. The Contract Lifecycle Management software package should ensure that the right task is flagged up to the right person at the right time. This eliminates any workflow bottlenecks that originate from the scheduling area of the process and highlights potential bottlenecks caused by remaining human input in the earliest stages. As such, automated workflows are key to effective Risk Management and to optimizing any commercial operation.
Implementing a solution that creates a centralized single source of data is a highly impactful part of Contract Lifecycle Management, but it is the application of customizable reporting tools that transforms that source of data into a powerful resource. Contract Lifecycle Management solutions must provide reporting facilities that harness the categorization, metadata and data tagging policies of the business and deliver actionable data as a result. The reporting facilities will optimize all areas of the business, allowing for fast and effective remedial action within existing contracts and Third Party relationships as necessary, and ensuring that business planning decisions are based on accurate and up to date information.
Contract Management Software from Symfact incorporates all the necessary features to deliver a powerful Contract Lifecycle Management solution. It is easily integrated with existing systems and is fully customizable. Call today to learn more and to book your free demonstration.