Contracts are so much more than negotiations and signatures – they power businesses forward, helping them to manufacture their goods, service clients, lease premises and build franchises. They are the oil with which the modern corporation runs, and yet so many contracts are managed haphazardly, with no rhyme or reason to the process.
But there are many advantages to contract management, and carefully planned processes can reduce the time and effort involved throughout the contract lifecycle. By managing these contracts in a decisive, cohesive and efficient manner, businesses can reap rewards, including more simple negotiations, increased visibility and accountability, better business relationships and lower risk.
How Can Contract Management Impact Operations?
What is contract management exactly? Traditionally, it happens over three phases: the time pre-award, where the need and the offer are clarified; the award phase, where it goes into negotiation; and finally post-award, the time of running the contract and managing its performance up until close or renewal. A lot of time and attention is given to those first two phases, but once that signature goes on the dotted line, a contract can be forgotten about, left to run its course under the assumption all is okay – until it’s not. Great work in the first two phases can be undone by poor contract management, derailing the advantages of contract management.
This is a risky game for any enterprise to play, as failing to check in on a contract at set milestones can result in missed deadlines, missed payments and missed business opportunities. Not only that, without managing the performance of a contract, you will have no way of knowing if the deal was a good one, if its promises are being delivered upon, nor if it’s worth pursuing an extension. Miss the end of a bad contract, and you could be out of pocket and scrambling to find a replacement supplier or customer. Worse still, a poor contract management system can get your company a reputation as being unreliable, which could impact your ability to do business.
Strong contract management, though, can also impact operations in a positive way. The advantages of contract management are clear, and all relate to building a business that has full transparency and visibility of its operations and costs, and that is fully aware of its compliance obligations at every stage.
The Advantages of Contract Management: Simplify the Negotiation Process
When you have a strong contract management system, you have all teams working together toward the same cause. How many times has your sales team been negotiating a discount for a deal only to discover that adds too much pressure to production, or that the deal needs quick compliance sign-off but the overloaded legal team doesn’t have time to check on it until next week?
Setting a contract management system that lays out when and where different teams need to be informed in the pre-award and award phase can lead to a better, clearer post-award phase for everyone involved. All needs are considered before it’s too late, all milestones are attainable and clear, and everyone knows that the terms of the contract can be met.
Not only that, other advantages of contract management include standardized processes and procedures that can help rein in maverick buying and decrease supply risk while increasing spend leverage. A strong contract management system can, then, impact the cost of doing business in a largely positive way.
Increase visibility and accountability through data while managing risk
One of the biggest advantages of contract management is the visibility it brings to your entire operation. By following a contract management system and setting strong governance processes, you have easy access to data so you can make better business projections and have an accurate view of the company’s position. It also means no more missed opportunities, so your business stays busy and productive.
Your contract management system helps you to track obligations, deadlines, performance and payment schedules. This can, in turn, help to realize cost savings as you spot potential issues before they become problems, or help you see elements of a contract that aren’t being used to their full potential. It’s the ability to have full spend visibility that lets you know if you have the best deal and the best suppliers.
The advantages of contract management can be easily forgotten, though, especially once the workday gets busy and there are plenty of plates in the air. If you find yourself looking at contracts in play only when things start to go wrong, you’re not alone; it’s far too common for a contract to be filed away once it’s signed. One of the advantages of contract management is preventing risk long before it gathers momentum.
Strong contract management helps businesses to ensure the value of the contract is properly attained – that there are no palmed-off replacements without a conversation first. It can also help to mitigate the risk of dreaded creep factor – scope creep, cost creep or timeline creep – that can threaten to derail a contract or lessen its overall value.
Improved compliance: one of the biggest advantages of contract management
Contract management can become complex for modern businesses – especially when you’re working across borders, be they national or international. Having multiple contracts in place with suppliers or contractors in different geographies can bring a multitude of compliance requirements. You might have to include contract values in your annual reporting, or you might have to notify regulators that you are transferring money to entities in certain jurisdictions.
These reporting obligations can go astray without a strong contract management system. The risk is that you are left out of compliance in a certain area with no way of knowing – until, that is, you try to sign a new contract or make an acquisition move, and suddenly realize your business is not in good standing. The ability to maintain operations is one of the advantages of contract management.
That’s not the only risk, though; each contract comes with its own compliance needs, and without strong contract management, you could find yourself at odds with your own contract. From request to approval, a contract needs strong performance management to help protect your business.
Perhaps, then, one of the biggest advantages of contract management is the compliance factor, both in terms of legal compliance and compliance with the terms of the contract. In fact, Aberdeen found that compliance management is improved by 55% with a contract management system in place. Of course, corporate governance reporting must be in alignment with contract management.
By only reviewing the contract when it’s time to renew, you risk suffering losses in terms of revenue and reputation. Using a contract management system that is designed for management, businesses have greater insight into their contracts and greater understanding of all obligations.
Blueprint OneWorld is built to make these milestones and insights easier to attain. With Blueprint, you can plot contract milestones into your compliance calendar to help you identify key dates and relevant entities or contracts, or store your contracts in the document folders to build a central repository for all entity-related assets. Learn more about our software and schedule a demo to see how Blueprint OneWorld can help you harness the advantages of contract management and build a more compliant contract management system.