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The Value of Analyzing Contracts

    
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Contracts are extremely valuable tools in the business world. Primarily, these legal agreements establish the framework and rules of engagement for any business deal into which your company enters. A detailed contract will describe all of the precise deliverables attached to an agreement, along with fees (and related considerations such as currency caps), timelines, and other requirements.

But while much effort goes into preparing and negotiating agreements, contracts are all too commonly filed away after they have been signed. If they are pulled and reviewed, it’s often to monitor the performance of the business arrangement or because something within the agreement has gone wrong.

This is unfortunate and short-sighted. In addition to providing the framework of the business deal to which it pertains, analyzing contracts can yield useful business insights and lead to better contracts in the future.

Here is how introducing ongoing contract analysis to your contract management processes can help your business – and how you can incorporate this important step within your company’s approach to managing contracts.

What Are the Benefits of Contract Analysis?

Periodic evaluations of business processes and operations are a common exercise, helping teams to understand what is working and what isn’t. Contracts are no exception.

By spending some time evaluating contract performance at the conclusion of an agreement, you can learn a great deal about what worked and what didn’t, and incorporate these learnings into your approach to future contracts, whether or not it’s with the same contracted party. Periodic high-level analysis can also help to reveal overarching trends and issues.

Here are some of the ways contract analysis can provide value for your business:

You Can Avoid Making the Same Mistakes Again (and Again)

How many times in life have you wished for a do-over? Though it would take a time machine to go back and change the past, contract analysis can at least help you avoid the same mistakes moving forward. Whether it’s clauses that were not specific enough to provide the outcome you had intended, inadequate protections against contract breaches or issues such as currency fluctuations, or other problems, incorporating contract analysis within your processes can help you to avoid the same issues that have occurred in the past.

Contract Analysis Can Help You to Identify Outdated Terms that Put You at Risk

There’s a good chance that if you compared your contracts from a decade ago, they would look a lot different than they do today. Laws and compliance regulations change, evolving political and economic factors have likely influenced your international agreements in various ways, pricing models and product specifications change, and so on.

But even if you’re actively making efforts to incorporate updates into your agreements, it’s also not uncommon for old, outdated templates to remain in circulation. Conducting periodic analyses of your contract portfolio can help to identify and weed out contracts that should be made obsolete, helping to ensure you always put your best agreement forward.

Contract Analysis Can Help You Find Solutions to Business Problems

Conducting regular, periodic contract reviews and analysis can help you to identify best practices and creative ways of optimizing all aspects of contracting and contract management. Whether quarterly, on an annual basis, or some other schedule that makes sense based on your business needs, high-level contract analysis that encompasses contracts of a specific type, or that are related to a specific business function or vendor, is important for uncovering performance trends, both good and bad.

Once you have an understanding of how various aspects of your contracts are linked to performance, you can implement solutions to ongoing business problems that can arise over the contract lifecycle, or insights into commonalities that have led to your best-performing agreements.

How to Get Started with Contract Analysis

As a famous sportswear brand slogan goes, the real secret to getting started with contract analysis is to just do it. If you already have a formal contract management process in place, make sure it includes this important step, and make sure that you follow through on both post-mortems and periodic analyses (And if you don’t have a formal process in place, what are you waiting for? Here are some things to think about to get started.)

Technology can also fuel better contract analysis. If you are storing all of your contracts in paper form or on an ad-hoc basis on different servers and drives, it can be difficult to pull the information you need to conduct a thorough analysis. A well-organized contract repository that encompasses your full contract portfolio ensures you will have the necessary documents at your fingertips.

Contract management software can further improve your ability to efficiently analyze contracts and discover actionable insights in numerous ways. For example, custom tagging can help you to quickly pull contracts of a specific type or related to a specific vendor without the manual work of sifting through countless agreements. Similarly, a digital solution that can search for text within agreements can help you to pull contracts that contain specific language or clauses, so that you may analyze these as a group.

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