What Is Contract Data and How Can it Help You Mitigate Risk?
Oct 25th, 2022
If you grew up before the 2010s, you most likely remember having Minesweeper on your computer. Microsoft included it in the standard installs of Windows 3.1 all the way through Windows Vista, a full 20-year span, and it is still popular today, over 30 years after its creation.
If you didn’t use the instructions, you clicked a random box to clear out a patch of safe squares. You clicked another box to reveal a number. You clicked another box to reveal a new patch of safety. You clicked another box…. Game over!
Without the data (and, more importantly, the knowledge to process that data), winning Minesweeper was all about luck. Once you grew frustrated enough to read the instructions, the game became a new test of strategy and logical deduction.
Contract data does the same thing for contract management. Without obtaining and understanding the right kinds of data, risk is just a game of chance. While the stakes are low in a game of Minesweeper, they are anything but in the world of contracts.
Contract data isn’t just an optional enhancement for your company. It’s an essential part of your risk mitigation strategy. This guide will cover how to define contract data, understand the risks of contract management, and how contract data helps to mitigate those risks.
Key Takeaways:
- Contract data is all the data about a contract: personnel, dates, values, obligations, clauses, etc.
- Contracts come with many risks, which include financial, security, legal, and brand risks.
- CLM software can help you leverage contract data to find big-picture insights about your contracts.
- Contract Logix helps you prepare for success by mitigating risk from the start with our data-driven contract management software.
Defining Contract Data
Contract data includes all the data communicated in a contract, including dates, values, signatures, clauses, various language, terms, etc. While contracts exist in a rigid, static format, contract data is available for you to aggregate and analyze to gain insights into your contract activities, like trends, timelines, and personnel.
Understanding Contract Risks
There are at least four major types of contractual risks: financial risk, security risk, legal risk, and brand risk.
- Financial risk is the type of risk most people associate with contracts. After all, businesses exist to provide value, and financial performance is one of the main ways they do that. Contracts are usually financial in nature, and poor contract data management creates several different liabilities for your company, ranging from inconveniences like lost labor to unnecessary revisions to major expenses like a costly breach of contract or unintended automatic renewal.
- Security risk is especially important because it isn’t just your resources on the line but the resources of your counterparties as well. You should store your contracts securely and encrypt them to mitigate the risk of an unauthorized user gaining access to privileged information. A security breach can quickly overflow into other risk areas as a breach can lead to a significant financial loss, trigger severe legal repercussions, and inflict a reputational loss for your brand.
- Legal risk comes in many different shapes and forms. One common way poorly managed contract data can create unnecessary legal risk is through missed deadlines leading to breach of contract. Tracking obligations is essential to staying in compliance with the terms of your contracts, but it isn’t the only legal risk associated with contract data. Legal compliance with requirements like FLSA, FCRA, and OSHA is another significant legal risk that contract data can help mitigate.
- Brand risk or reputational risk comes from the loss of trust that goes along with poor contract management. If you fall out of compliance, don’t take strong enough measures to prevent security breaches, and don’t follow through on your contractual obligations, your reputation will reflect your performance. While brand risk is less tangible than the other types of risk, it’s no less serious—goodwill is a significant asset for your business.
The Big Picture
Humans are good at recognizing patterns, socializing, and finding meaning. While developments in Natural Language Processing (NLP) and image recognition are advancing at light speed, the current reality is that computers aren’t better than humans at the things humans do best: music, conversation, empathy, etc. Rather, technology and computers are better at the things humans do worst: data processing, repetitive tasks, comprehending large sets of numbers, etc.
What does this mean for contract data?
Tasks that normally require tedious human labor, such as combing through contracts to search for instances of specific language, distributing contracts to the appropriate personnel based on their contents, and creating contract templates that include the right clauses for the situation, typically take up large amounts of time and money. By using contract data, however, you can automate these tasks.
Imagine a scenario: your purchasing department realizes that they can’t source a component that you need to manufacture one of your products (a familiar scenario to anyone who works with copper foil products such as PCB.) You need to know which contracts will be affected by this shortage. One option would be to read through every contract one by one, but a better option would be to use contract data to quickly locate every contract that contains specific language.
Another benefit of contract data is that it allows you to track KPIs (Key Performance Indicators) about contract and process performance at a high level. This advantage helps you diagnose inefficiencies and recognize winning strategies (such as which clauses result in more positive outcomes) in the big picture, so you don’t have to spend your time knee-deep in the mud, panning for gold.
Source: Quotesbook.com – Donald Knuth
Prepare for Success
Contract management can be time-consuming and expensive if you make it harder than it needs to be, but technology should make your job easier, not harder! What this means for contract management is that you should digitize your contracts, incorporate template libraries, and manage your contracts within a data-driven system.
In other words: plan for success from the outset by implementing these features as you prepare and create contracts. If you centralize all of your contracts and related data in a digital CLM repository, you can now begin to harness all that data to deliver the insights needed for success.
A digital contract repository, in concert with other key CLM features like clause and template libraries, allows your contract management system to make sense of the contents of your documents, but that is just the tip of the iceberg. When your contract management system includes robust OCR, advanced analytics and metrics, and visual workflow builders, your contract data suddenly springs to life in the hands of a data-driven contract management system like Contract Logix.
Source: https://www.rocketlawyer.com/
Manage your Contract Data the Right Way
This guide has explained contract data, major risks, and how well-maintained contract data can mitigate those risks. By now, you understand why contract data is important, but you may feel overwhelmed at the prospect of managing such an important component of your business.
That’s where Contract Logix can help.
Contract Logix is Contract Management Software specializing in Contract Lifecycle Management, so you can rest assured that your data is working for you, not against you. You never need to miss another deadline, fall out of compliance, or complete redundant revisions on your contracts again when you have the experts in Contract Lifecycle Management on your team.
To learn how Contract Logix can revolutionize your Contract Lifecycle Management, request a free demo today.
Looking for more articles about Contract Management? Check out our previous article “Contract Obligations Checklist – A Master List for Tracking“.
