An effective contract management strategy is designed to help your organization reap the greatest benefits – and reduce risks such as penalties or lost sales – along the way. But if you’ve ever questioned whether your current strategy, and the contract management software you’re using to support it, are delivering the full benefits you're hoping for, you wouldn’t be alone: according to the International Association of Contract and Commercial Management (IACCM), just one third of sales people believe their organization’s contract management process is effective at maximizing value and minimizing risks.
And it’s not just perception: other IACCM research found that nearly 40 percent of contracts don’t deliver the financial benefits they were intended to.
If you’ve switched to an electronic contract management strategy, you’ve likely already seen benefits such as greater efficiencies and reduced bottlenecks. But with features that can help improve functions throughout the contract management lifecycle, there are numerous ways you can maximize the ROI of your contracting strategy.
How Do You Determine the ROI of Contract Management?
Determining the benefit or ROI of your electronic contract strategy first requires a measurement plan. This means identifying the key performance indicators (KPIs) that will reflect whether your contracting goals are being met and how your contract management strategy is supporting your bottom line. It’s important to have an ongoing plan to measure and review the effectiveness of your contract management processes over time based upon these metrics.
Here are some important KPIs that will reflect the health and effectiveness of your contract management strategy:
- Contracting cycle length – reducing the amount of time it takes to negotiate and fully execute contracts can decrease the risk of negotiation breakdown, lower the investment of people hours and other resources, and bring you to the performance phase of contracting more quickly
- Trend-focused KPIs – examining the performance of contracts by type, customer, vendor and/or geographic location can identify performance trends and help you to determine where, when and how bottlenecks are occurring or extra costs are being incurred within the contracting cycle. On the flip side, positive trends can also help you identify more effective processes that can be applied elsewhere
- Contract performance – understanding how effectively contracted parties are delivering on the terms set out within their agreements can help to ensure you reap the full value of your contracts and inform your future negotiations
Features That Can Improve Your ROI
The key to getting more out of your contract management technology? Understanding how the features and tools your software provides can improve these and other important KPIs at each stage of the contract management life cycle.
Using e-signature tools can reduce both costs and risks associated with contract management. From a cost perspective, organizations that use e-signature tools can save money on paper, printing, couriers and other fees – costs which can add up to a lot, particularly for organizations that manage high volumes of contracts. Factor in the cost of the work required to perform manual tasks, and the savings of using electronic signatures grow even higher.
One of the greatest opportunities for lags in contracting cycle time can also come from coordinating signatures. This can eat up people hours, and resulting delays may increase the risk that a contract never gets signed. Digital signatures can speed up the process, while also providing enhanced security.
Standardization plays an important role in the contract management process because it allows organizations to consistently manage the same types of agreements, both simplifying and expediting contracting. Using company-approved standardized contracts, with set schedules for action items such as periodic reviews and renewal timeframes can prevent employees from having to start from scratch on every new agreement and ensure that contract management does not become overly complex.
Templates make it easy to enforce standards, from ensuring that the appropriate contracts are utilized to setting up key actions within templates so milestones are never missed. Analyzing contract performance by template can also help you to identify various contracting performance trends.
Notifications and reporting tools
A failure to review and evaluate your contracts at appropriate intervals can undermine their effectiveness and leave you in the dark about what’s working and what isn’t. But if various contracting responsibilities are spread out across organizations, it can be difficult to remember who needs to do what and when.
In addition, missed contract milestones can be costly to organizations in numerous ways: a failure to evaluate an agreement that is under-delivering may cause you to miss a termination window, resulting in penalties or even the inability to end an agreement early; if the renewal date takes you by surprise, you may not have enough time to thoroughly review contract performance, meaning you may not have the information you need to negotiate a more favorable agreement the next time around; it may even force you into an undesired auto-renewal.
Using built-in reporting and milestone notification tools can help you to take a more proactive approach to contract management, yielding a better understanding of how contracts are performing (both at individual and higher levels) and ensuring that crucial actions are completed on time.
Furthermore, tools that allow for the easy sharing of reports or that allow you to assign ownership to appropriate individuals can further ensure that everyone has the information they need – and when they need it – to help your organization reap the greatest benefits from its contracts.