Encompassing all of your agreements with employees, vendors, suppliers and customers, contracts are arguably one of the most important tools in business today. As legally binding and mutually-agreed-upon roadmaps for guiding all of your business relationships, it’s worth taking a look at your contract management services to ensure that your approach is efficient, helps you to maximize the value you derive from your contracted agreements, and will minimize your risks to the greatest possible degree. There are countless approaches to contract management services: outsourcing, dedicated internal departments, manual processes, dedicated software, and so on. And though these approaches to contract management services can vary tremendously, there are some common ways to improve success. Here are four critical ways to successfully approach contract management services in your organization.
1. Assess existing contract management processes
Despite the importance of effective contract management, many companies have no formal, documented standards for navigating contract-related processes. But without a plan for dealing with every step of the contract management lifecycle – from the planning phase through to renegotiation or termination – companies increase the risk of noncompliance and other problems. The first step to successfully approaching contract management services is to assess what you’re currently doing. This can help to determine whether there are any risky gaps in your processes. Some important questions to ask as part of this assessment include:
- What is the breadth of our current contract portfolio? (If you don’t even know how to locate existing contracts to determine this, that’s your first sign your process needs an overhaul.)
- How are we leveraging our learnings from past contracts to strengthen the terms in new agreements?
- Who is responsible for each task that needs to be performed during a contract’s term? What does each party need to perform their tasks?
- How are we tracking contract performance once agreements are signed?
- What information do we need in order to determine whether a contract should be renewed or terminated? How much time do we need to make this decision?
2. Centralize (but don’t sacrifice access)
One of the main conflicts inherent to contract management is that the people best positioned to manage agreements – contract managers – are not usually the same people who use said contracts within their job functions.
To resolve access issues, sometimes companies unintentionally default to a decentralized approach to contract management with employees handling their own agreements with vendors and customers. This is problematic as employees may not have the tools and processes in place to effectively implement contracts and ensure compliance throughout the contract lifecycle. Needless to say, there are countless ways a lack of tools and knowledge can increase business risks. Furthermore, a decentralized approach to contract management also increases the likelihood of duplicated or similar service agreements and other contracts across departments, or other types of redundancies, rather than implementing a single company-wide contract that could optimize value.
On the flip side, an overly centralized approach can increase challenges in contract implementation and monitoring, if the employees who rely on them cannot access and refer to relevant contracts when they need to.
The best way to satisfy this challenge is to aim for the best of both worlds: centralized processes and contract storage that also offer appropriate visibility and access to the stakeholders of each agreement. Striking such a balance allows businesses to benefit from the expertise and best practices of knowledgeable contract managers while also enabling access to the information relevant employees need to perform their jobs and fulfill contract objectives.
3. Get organized
While decentralization is one factor that can introduce chaos to companies’ approach to contract management, there are numerous other ways approaches to contract management can be disorganized. And the more muddled your approach, the more risk you are introducing to each and every agreement.
From a storage system that allows you to quickly find and refer to contracts you need to structured and reliable methods for staying on top of contract-related milestones, effective organization is one of the most critical hallmarks of successful contract management. While your entire process should help you to maintain this organized approach, this all hinges upon the establishment of a categorized library of all your contracts, which balances the need for centralization and access described above.
4. Invest in the right technology
The right contract management technology can enable and improve all of the critical approaches to contract management services described in this article. But with numerous platforms on the market, you might be wondering which is best for your business needs. This two-phase, eight-point plan can help you to evaluate the options and then implement your software easily and effectively.