Successful companies are on a constant hunt for ways to bring in additional money. They spend a great deal of time, energy, and resources researching additional avenues through which they can increase their profit.
However, what many companies fail to realize is that there is a simple way to do just that—a way to increase their bottom line, and it is right in front of them. The key to bringing additional money into a company can be found in reworking a part of the company that already exists: contracts.
Oftentimes company contracts are mismanaged which leads to a great deal of issues. Though the management of contracts is seen as important to a company’s success, the depth of that importance is often misunderstood. The contract management process plays a pivotal role in achieving corporate objectives—from delivering revenue to enforcing compliance and mitigating risk.
The challenges in creating contracts that successfully achieve a company’s objectives lie in the legal and business executives’ ability to deliver the most effective customer, supplier and business partner contracts for their enterprise. Ineffective contracts result in contract disputes and a decrease in the bottom line.
According to a study conducted by the Aberdeen Group, 60% of corporate litigations are related to contract disputes. And of that group, 73% indicated “price changes” as the #1 reason behind the contract dispute.
It is likely that a portion of those price changes is a result of disorganized contract management. According to that same Aberdeen Group study, 12 – 15% of an organization’s contracts are lost or unaccounted for.
Contract management software solutions enable your company to structure more profitable contracts, streamline the contracting process, increase visibility and enforce compliance. So how can you ensure that you’re using your contract management software to the best of its ability?
A Deeper Look into Enterprise Contract Management (ECM)
Enterprise Contract Management is crucial to a company's ability to achieve it's business goals. As mentioned above, unstructured contracts lead to a number of issues for a company. Damage to reputation with clients, loss of trust and potentially even loss of the client or customer. The correct use of ECM allows companies to earn back the time, money and resources lost by previously disorganized contracts.
By collecting and organizing information through the use of a variety of tools and strategies, ECM creates,manages, stores, maintains, and shares contract information through its entire lifecycle. A typical ECM lifecycle looks like this:
- Contract is created and then uploaded into the company’s system
- Contract is managed in order to be easily understood and easily accessible to all parties involved
- Contract is properly stored in the company’s infrastructure via a content management system
- Contract is maintained and protected for long-term use
- Contract is shared with all parties involved in order to ensure that information is available to all when needed
The existence of this lifecycle and a company’s utilization of it directly relates to governance, risk and compliance management. With successful ECM, a company will see its vulnerability to data breaches decline on an impressive scale.
Many companies not using ECM see employees circumventing authorized systems. A 2013 survey indicated that more than 25% of organizations see employees unofficially using cloud-based file sharing sites. This greatly increases a company’s risk of a data breach.
Because 59% of the AIIM members surveyed also said they need mobile access to business and contract information, it is crucial for companies to adopt ECM in order to allow their employees the mobile access they require without the susceptibility to hacker attacks.
There are 3 key steps a company should follow in order to create successful ECM.
#1. Project Management
Many organizations still manage their contracting process in a fragmented, manual, and ad-hoc manner, resulting in poor contract visibility, ineffective monitoring and management of contract compliance, and inadequate analysis of contract performance. But with better tools, organizations can turn contracts into collaboration.
From the original analysis of the project requirements, to the design and negotiation of the contract, to the execution of the contract, to the close of the contract, effective project management will save the organization a great deal of money.
The ability of the organization to establish and enforce business rules around the contract process across the enterprise, consistently producing quality, unambiguous, enforceable contracts is crucial.
#2. Change Management
Contracts also need to be able to adapt to constantly changing regulations, alerting parties to new or revised compliance requirements.
An organization’s contract manager must have the skills to work with both internal and external parties to ensure negotiation of contract terms run smoothly and that mutual benefits of such a change are presented to all parties.
Correct documentation of contract changes and the entire contract management process assures that everyone in the company handles contracts in the same way. Specify a work flow, what employee or department is responsible for completing each step in the work flow, and how work flow exceptions are handled.
#3. Risk Management
This step is all about controlling access to your contract repository.
A secure, centrally controlled repository that provides stakeholders with a single point of truth for each individual project and its related contracts is a must for successful ECM. In addition, stakeholders should have rapid access to all associated documents, emails, and discussions during all stages of the contract lifecycle.
The more transparent an organization is about all aspects of the contract, as well as any changes made to the contract, the less likely contract disputes are to happen.
ContractWorks’ secure contract repository allows an organization to store all contacts in one place with unlimited capacity. Additionally, ContractWorks’ allowance of unlimited users makes it easy to involve all parties necessary in the creation and adaptation of contracts. Lastly, this contract repository follows the protocol of strict compliance environments and guarantees safety of your contracts.
The benefits of successful contract management can be seen at levels other than just the finances of the organization. Executives benefit from ECM through incremental buy-in, while employees benefit from their involvement in this aspect of the company. Employees who feel greater ownership of the creation of and changes made to contracts will feel that their ideas are significant and thus, will be more invested in the company’s success.
There are 3 additional areas in which successful ECM brings benefit to an organization.
- Cost Savings: The methods used to acquire goods and services at the best price and under the best terms need to follow a structured process with careful planning and management. Proactively managing renewals for increased revenue and cost savings will require investment from the company. The cost of not doing it can far outweigh the cost of doing it right.
- Legality Issues: Without proper contract management, companies run risks that range from closure due to failures in legal compliance to struggling with high operational costs as a result of poor contract processes. A company with poor contract management is akin to a weakened organization.
- Organizational Benefits: Accelerate cycle times and reduce operational costs by automating creation, review, approval and execution processes. Also take advantage of contract incentives by automatically managing key milestones, ensuring a single point of truth and alignment of knowledge of commitments across the functions in the organization.
Rather than looking outside of the company to increase your bottom line, look within to better contract management. With the implementation of the above ECM processes, your company will see increased organization, security, cost savings, and profit with contract management solutions from ContractWorks. Find out more about what this innovative software can do for your business by contacting our friendly and knowledgeable team today. Or, try it for free and see for yourself.