How is your legal team currently managing and mitigating business risks related to your contract portfolio?
Are there any blind spots in your contracting process leaving you vulnerable to unexpected and costly auto-renewals? Can you easily identify the roadblocks or bottlenecks in your contract signing process that are preventing your company from recognizing new revenue? Are your vendors delivering as expected according to the agreed-upon terms?
By establishing the right contract management KPIs, you can help your organization improve visibility into your contracts and processes, identify where risks are present, and determine where improvements are needed.
Here are some of the KPIs commonly used to help legal teams evaluate contract management performance and reduce organizational risk.
Variance in Contract Terms from Standard Clauses
This KPI is necessary to gain transparency into your contracts. Track party compliance with terms of all contracts using your contract management software, then set alerts for any variance in terms. It’s important to look for obvious trends that could put your business at risk, such as incomplete execution of the agreement or outdated language that should be updated to remain compliant with current regulations.
Use the information to project the impact of making changes to existing agreements, like updating outdated or noncompliant clauses, and get ahead of any potential complications before they occur.
Number of Agreements Expiring without Existing Renewal Dates
Missing a renewal can come at a great cost to your business, and auto-renewed contracts are legally binding once activated. If not carefully monitored, this can result in missed opportunities to renegotiate terms or to end non-performing relationships.
Set up your contract management software to alert you of upcoming renewal dates, or lack thereof, and use that information to either renew, renegotiate, or terminate existing agreements based on contract performance and value.
Inappropriate Vendor Authorization and Signature Approvals
Corporate agreements must follow and comply with policies and permissions pertaining to authorizations and signature approvals. Proper compliance with the organization’s authorization policies limits the risk of overspending and minimizes potential security breach issues by ensuring strict levels of control over corporate agreements. When paired with a digital signature process, contract management solutions will provide an audit log for these processes, allowing you to gain insight into contract signatures and ensure that proper approval and structure occurred.
Paying careful attention to this metric can help you and your organization avoid potential negative impacts around loss of intellectual property, lawsuits, and failing professional relationships.
Number of Approval Delays
One of the most common issues with the contracting process occurs around delays in the approval process. This KPI will allow you to understand which contract reviewers are consistently causing delays in the process. With this information available, you will be able to take steps to improve the approval process, and ultimately minimize the risk of missed opportunities, which is particularly important for the corporate sales process.
Reducing the number of delays will ultimately improve overall company performance and help your organization reach its revenue goals.
Quality/Percentage of Annual Complaints Resolved
When dealing with any number of agreements, it is inevitable that complaints about the existing terms will be heard. Quality is simpler to calculate in a manufacturing-related contract, where the measure is usually defects per million, and the trend over time highlights improvement (or the lack of improvement). The measure, however, is harder to define with a service contract. One approach is to employ a percentage of valid complaints resolved and time to final resolution.
Use the knowledge gained from this KPI to avoid potential future incidents. You should track the number of complaints received that were resolved without a negative impact on the business. Then look at how they were resolved, and when appropriate, incorporate the resolutions into future terms in order to reduce the risk of similar issues that may arise.
For more on the KPIs that can identify the strengths and weaknesses in your contracting process, download Using KPIs to Measure Contract Management Performance.