What is AI and How Will It Impact Contract Management?
Contract Management Software
It seems you hear the words “AI” and “machine learning” everywhere these days. Although the terms AI and machine learning are getting lots of buzz, many people are still confused about what these terms actually mean and their implications for business and legal departments. Before one can begin to understand the potential uses and benefits of AI and machine learning for contract management, it’s important first to have a clear understanding of what the two terms mean.
What is AI?
AI, or artificial intelligence, is a high-level category that refers to the full spectrum of intelligent, computer-driven actions and applications. From voice recognition to automated tasks, AI encompasses the broadest range of machine-based activities. These can be highly specialized – such as self-driving cars or robot investing – or more generalized.
What is machine learning?
Though the term machine learning is often used interchangeably with artificial intelligence, in fact, it actually refers to a subset of AI. Machine learning is one aspect of a larger AI picture and involves teaching a computer - via an algorithm - to understand and identify patterns in certain datasets.
When it comes to contract management, machine learning is an integral part of AI-enabled software, primarily because of its ability to streamline automation and provide legal departments with a faster way to organize contracts and identify their contents. For example, machine learning designed for contract management will analyze an uploaded contract, searching for commonalities like repeated clauses, dates, signatures, parties, etc. Machine learning software can then use the patterns it finds to follow a set of instructions or pre-programmed actions.
How can AI and machine learning improve contract management?
The inefficient management of contracts is a key source of value loss for many businesses. According to the International Association of Contract and Commercial Management, nearly 40 percent of contracts do not deliver their full expected financial benefits, with shortfalls costing almost 10 percent of annual revenues on average. As such, there is a great deal of room to optimize processes and improve contract profitability – and the key to these improvements may lie in artificial intelligence.
The first step to seeing these benefits lies in digitization. While contracts have traditionally existed in paper form, to unlock the benefits of AI and machine learning, businesses must first abandon old record-keeping methods in favor of online digital contract repositories, which allow text within contracts to be searched and digested. While the idea of migrating hundreds or thousands of paper documents sounds overwhelming, setting up an online organizational system may be easier than you think. It is also the most crucial step for getting started.
Though the potential applications of AI for contract management are only beginning to emerge, AI innovations are already helping to improve contract management processes. For example, once an organization uploads its contracts to a contract repository, AI can help with the crucial step of organization and visibility. Traditionally, this type of contract management required manual tagging of each and every contract.
With AI-enabled tools, this labor-intensive task is simplified via automation, making it easier to look within documents and automatically classifying contracts based upon certain criteria, like beginning and end dates, term information, or contracted parties. Finally, once contracts are tagged appropriately, it becomes much easier to implement processes to improve efficiency and reduce risks.
What benefits can contract managers see from AI now?
The potential for AI to improve contract management will continue to grow as technologies emerge and improve. Already, automated tagging features reduce many implementation challenges while also providing the following benefits:
1. Organization and visibility — without the manual work
While text-based searches can help you to look within contracts, the key to a manageable contract repository is having a strong organizational structure. Effective contract organization allows for easy visibility of key information, such as upcoming milestones, while also providing an accurate overview of your full contract portfolio.
2. Minimize compliance risks
While contract management has many important objectives, managing risk may be the most significant. Risk management involves ensuring you and all contracted parties abide by all agreed-upon terms and milestones throughout the contract lifecycle. Of course, identifying the information you need to monitor for each and every contract can be a cumbersome task in and of itself — and if key contract-related dates are unknown or not tracked effectively, there's a good chance a significant deadline or milestone will get missed. Automated tagging reduces the milestone management burden, which in turn reduces compliance-related risks.
Understanding AI and Machine Learning
From voice-controlled smart home technologies to customer service bots, in the last few years, these technologies have gone from buzzwords to reality. And they’re only going to become even more common: according to an annual survey of top technology leaders from around the world, we’re not even close to peak adoption. The annual Harvey Nash/KPMG CIO study reports that only seven percent of businesses have so far made a significant investment in AI technologies, while 17 percent have made a moderate investment. Approximately half of companies say they have only made minimal inroads into AI or are still in the planning stages.
AI and machine learning may be the latest trend in contract management software, but tapping into the true potential of these technological advances requires a clear understanding of what they are and what they can do. Leveraging AI and machine learning in a way that will enhance your legal department requires gaining knowledge of both the benefits and limitations of these tools so that they can be deployed effectively and strategically.
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