The Full Scope of Contract Management
Contract management is often thought of as a function that primarily occurs after contracts are executed. But the organizations that are the most successful at maximizing revenues and minimizing costs in their contract portfolios realize that contract management has a larger scope.
Certainly, contract management involves the administration of existing contracts, but it also involves strategy, sales, performance optimization, and customer/supplier relationships. It’s about maximizing value, productivity, and profit through every stage of a contract lifecycle.
Editor’s Note: To learn more, download our whitepaper on contract management best practices.
Creation
The contract management process begins with requests for and authoring of contracts. If contracts are not structured properly or accurately, the unanticipated costs can be substantial, even devastating. Organizations that do the best job managing contract creation rely on contract management software to ensure compliance with corporate and regulatory policies. Contract management software provides them with the capability to develop libraries of pre-approved templates and clauses so that contracts are correctly formulated while eliminating deviations from standard legal language.
This feature has the additional benefit of speeding the contract creation process, an advantage that can be invaluable to salespeople in the field and can help close deals faster.
Negotiation
Contract management systems can give organizations efficient access to and analysis of existing contract data. This data provides business intelligence that enables organizations to establish well-informed positions during negotiations. It can also help increase negotiation efficiency and make the organization more competitive with better visibility into pricing they are willing to pay or accept.
This is a good an example of how effective contract management can benefit customer or supplier relationships. As the National Contract Management Association points out, “a mutually beneficial contract can often be challenging to craft. Buyers want the lowest price, whereas sellers want to maximize it. Both, however, should strive to meet one another’s quality, delivery, and performance expectations.”
With effective contract management, organizations have enough data on historical contract performance to negotiate terms that achieve a “mutually beneficial” contract without getting burned – ultimately leading to long-term relationships that help both parties prosper.
Approval and Closing
Lengthy approvals can sap the efficiency of a contract management program. Delaying approval not only delays the benefits of the contract, it can lead to a contract falling apart.
Again, the solution lies with contract management software, which automatically routes contracts for the necessary approvals and prompts those who need to act. The software also facilitates faster approval and closing by enabling anywhere/anytime communication and by tracking any changes made to contracts, thereby minimizing miscommunication, confusion, and time spent “catching up.”
Monitoring
Once a contract closes, contract management software can simplify and increase the reliability of this stage of the contract in numerous ways. It can make routine clerical tasks easier and more efficient, provide alerts to milestone dates, and flag problems that are developing.
Contract management during this stage also should include the aggregation and analysis of contract performance data. By evaluating contract histories, organizations are better able to create and negotiate profitable contracts.
Takeaway
Ultimately, contract management is a lifecycle. Contracts are created, negotiated, approved, closed, administered, and mined for performance data. That data is used to identify necessary adjustments to the contracting process, and the organization starts the process again, more-prepared than ever to benefit from astute contract management.
Paper-based contract management isn’t sufficient for managing this lifecycle. Organizations that still rely on manual contract management are putting themselves at a competitive disadvantage. As a rapidly increasing number of companies are discovering, software specifically built for contract management is necessary for significant, ongoing improvement of the contracting process.
