The average Fortune 2000 company may be a party to as many as 40,000 active contracts, each one with its own set of authorities, enforcement, and risks. Allowing an ad hoc system of organization and management to develop - instead of a well-planned and methodically initiated strategy - creates unnecessary risk and adversely affect long-term growth.
Organization and Accountability
Keeping track of your contracts, and the length of time needed to create, save and manage your contractual agreements can be overwhelming. That’s why it is so important to introduce organization and accountability into all your processes. One challenge many teams face when beginning a contract risk assessment is a disorganized document storage system. Filing cabinets, emails, google docs, even the cloud – your contracts can be hiding anywhere and everywhere. If you don’t find a suitable means of storing all of your contracts, they can quickly become unmanageable, making it nearly impossible to manage risk and leaving your company vulnerable increases costs, litigation, loss of reputation, and other liabilities.
A Meaningful and Standardized System
So why does contract risk management matter? First, knowing the location and contents of every agreement that impacts your business means nothing critical will be overlooked. Keeping relevant parties aware of all the conditions and deadlines contained in your contracts will allow your organization to capitalize on opportunity and avoid liability. Finally, a truly effective and thorough risk management strategy will save your organization time and money.
Manage: Creating a Compliance Plan
Contract risks present a distinct challenge for your organization. Handled the wrong way, a risk can not only leave your company open to all matter of penalties, it can delay or even stop a deal. An effective contract risk management plan will minimize exposure through proper planning. Once you deploy a comprehensive contract risk management strategy, you can steer clear of potential risks before they become real problems. A truly useful compliance plan will help identify the following:
- What risks exist
- What assets could be affected
- Likelihood of occurrence
- Responsible Mitigators
- Tracking and Monitoring
- Appropriate Response
Prioritize Your Risks
Once you have a solid idea of how the contract risks you have identified could impact your organization, you will want to prioritize those risks based on what needs immediate attention and which can be calendared for review at a future date. Your top risks will be those that rank high in terms of both qualitative and quantitative risk. Dealing with these risks first will allow you to see an immediate ROI on your contract risk management assessment, and provide your team and your company with an incentive to switch from a defensive to offensive contract risk management strategy.
For more information on initiating your own contract risk assessment, download our whitepaper, An Introductory Guide to Contract Risk Assessment. In this ebook, you will gain a better understanding of contract risk - what it is, how to manage it, and the tools available to begin a thorough contract risk assessment. You’ll also see why deploying a more effective contract risk assessment strategy can help you avoid some of the hidden liabilities and expenses (noncompliance, missed deadlines, auto-renewals) that may be lurking in his contracts and show how tools like contract management software can help automate this process. Finally, get insight into how an effective contract risk assessment strategy can provide new opportunities both in terms of increased efficiency and the change to boost revenue through renegotiations, accelerating stalled deals, and more.