Did you know,
- Companies in utilities, aerospace, defense, and food manufacturing have 90% or more of their annual revenues represented in contracts? (Source: Mckinsey)
- Organizations lose 9.2% of their annual revenue due to poor contract management practices? (Source: IACCM)
- Global businesses lose $153 billion per year as missed savings due to ineffective contract management? (Source: Aberdeen Group)
Organizations have realized the need for an efficient contract management process to streamline their contracts. Always on the lookout to tap unlocked savings most organizations have some system to manage their contracts. But are they efficient? Is your contract management system reaping maximum benefits from your contracts? Are you having a namesake contract lifecycle management software that works more like an elementary document management system? Does your contract management follow best practices to optimize your contract management and unlock savings?
It’s time for organizations to understand they need not just any contract management process, but a contract management system that follows best practices to improve efficiency and increase savings.
4 Contract Management Best Practices to Unlock Savings:
Every penny saved is a penny earned. Let’s look at 4 best practices a contract lifecycle management should have to unlock savings.
1. Cultivate a Contract Repository:
Are you able to find your contracts easily? According to an Zycus iContract Survey in 2019, 62% of organizations deal with more than 100 contracts in a month, and 26% deal with more than 500 contracts per month. But 12-15% of contracts are lost or unaccounted for according to Aberdeen. That is a loss or misplacement of 180 – 720 contracts on an average every year.
Most organizations have a contract repository solution in place as it is a basic tool of any contract management software. But is it efficient? Are you still searching for existing contracts? If your contract repository does not have intelligent search options and personalized dashboards for real-time visibility across the contract database, then you are using an earlier generation tool such as a document management system rather than true contract repositories.
A contract repository solution should offer,
- Multiple parameters search and tracking options like Free-Text search and Metadata search.
- Personalized dashboard for a real-time view of the contract to capture actionable data.
- Pre-configured alerts and reminders so that no due date is missed.
- Contracts that can be edited and approved in the contract repository itself without having to share it over email for review.
At Zycus, our CLM system cultivates a contract repository where you can find a contract at any time. Contracts are stored in a centralized location reducing wastage of time in comparing contracts in different locations. Actionable data such as contract values, due dates, etc are at your fingertips to enable better review and negotiation saving time and cost.
2. Standardize Contract processes:
Everyone in the organization is involved in the contracts. Are they all in sync and are you having necessary checkpoints to streamline your contract process? 60% of contracts get automatically renewed due to buyer oversight according to Forbes. Your contract management system should be able to avoid this by standardizing your contract process. Without proper review and checkpoints in your contract lifecycle process, unforeseen oversights could result in financial losses and reputational damage.
For example, A toymaker has to recall 18 million SKUs due to the use of a harmful metal in the paint. Although the legal team is well aware of this regulatory policy, it gets missed while drafting the contract with the paint supplier due to the absence of procedural checkpoints. They also failed to include a clause for indemnification of the toymaker in such scenarios. This leads to multiple lawsuits, a fall in stock prices, and huge reputational damage to the brand image due to a breach of compliance. A scenario every legal operation and contract management function wants to avoid.
A CLM system should standardize the contract process by,
- Capturing stakeholders’ business requirements by having a contract template that is easy to find for every scenario.
- Vetting third-party templates with AI-based contract parsing and clause-level comparison.
- Identifying As-is processes and defining them into To-be processes so that contract approvals are sent to specific stakeholders based on contract value, contract type, etc.
- Keeping all your contracts audit-ready by ensuring all versions from authoring stage are easy to find and view at any point in time.
- Building a culture of compliance accountability by assigning stakeholders to measurable compliance metrics.
Zycus iContract, a cloud-based contract management software powered with AI streamlines your contract processes to increase immunity to business risks, protect against regulatory audits and increase the adoption and adherence of the process by internal stakeholders. Pre-approved contract templates and clauses are adopted to remove inconsistencies in contract language among different contracts in the same category. There is no duplication of effort by multiple stakeholders on the same contract. Important clauses, obligations, and compliance checks are not missed. Approval steps for high-value, critical contracts are highlighted well in advance.
3. Measuring Contract Performance:
How compliant are your contracts? According to Zycus iContract Survey 2019, Most organizations voted most compliant contracts as 2x more important metric than contract authoring cycle time, yet 75% of contracts lack KPIs and TCO reporting according to Mckinsey. Your contract lifecycle management software should not just draft and sign strong contracts, but it should have a robust way to track contract obligations, monitor compliance, and take immediate actions to remedy breaches if any.
For example, A social media platform exposes its user data to its various partners. Even though it has the necessary fair use and privacy clauses in its contract, one of the partners violates these clauses and sells the user data to a political consulting firm. 5 years later, a scandal erupts and the social media platform lost its trust in its users and $150B of market value in just 90 minutes. The absence of a mechanism to track contractual obligations led to this huge loss.
A contract management system should measure contract performance by,
- Associating KPIs with every contract,
- Making every project stakeholder aware of the KPIs for their contract.
- Translating contractual timelines into milestones.
- Alerting stakeholders about milestones in advance.
- Enabling stakeholders to see how contracts are performing at any point in time.
- Initiating remedial actions to bring underperforming contracts to speed.
Zycus iContract, an advanced enterprise contract lifecycle management software makes sure projects don’t exceed timelines initially contracted which is a major concern for many organizations today. It improves customer service by eliminating substandard products or service implementation. It increases revenue by fuller contract utilization and increases savings by leveraging volume discounts. It helps to avoid penalties due to neglected obligations. It also increases the accountability of both internal and external project stakeholders.
4. Track cost of contract management:
Are you able to track the cost of your contract management across processes? 12% of total annual costs are committed to contract management and administrative tasks according to PwC. In the last 6 years, business spend on individual, standard, low-risk, procurement contracts have increased by 38% and are estimated to be at $6,900 on average according to IACCM. This just indicates huge amounts of money are spent on contracts and without an efficient way to track the cost of contract management, we will not be able to assess if we realize the full value of the investment. Organizations today are keener to track the administrative cost per contract across its lifecycle and not just from initiation to sign-off.
Contract management costs can be tracked by,
- Associating TATs with contract review and authoring stages.
- Proportionately assigning supervision of contract database to contract management professionals.
- Assigning yearly targets to reduce losses and penalties incurred due to poor contract management.
- Making the contract management team ROI-driven.
A good practice of contract management is the ability to track the cost of contract management to estimate and justify departmental budgets and report on them. It should make teams more accountable and efficient allowing them to plan resource allocation, new hires, and replacements. Zycus iContract provides data at hand by increasing visibility into leakages and loopholes to know where the saving potential lies. It helps to create a case for operational revamps, process upgrades so that complacency and old ways of doing things do not stall progress.
5. In Conclusion:
A high volume of revenue is committed in contracts. Ensure your organization adopts contract management best practices to unlock savings and improve efficiencies. Choose an advanced CLM system powered with AI and Machine learning that can make your process easier. At Zycus, we provide you with scalable, SaaS-delivered CLM software that leverages artificial intelligence and machine learning. We deliver unrivaled ease of access and ease of adoption in today’s complex and global business landscapes. Our CLM software gives you speed and control throughout your contract lifecycle to enable you to tap unlocked savings. Request for a free demo today.