On July 16, 2020, I was lucky enough to co-host a webinar with my colleague Matt Langlois from Gatekeeper. We discussed the importance of Digitizing Your Contract Lifecycle to Recession Proof your Vendor Management Program. One of the key topics we highlighted were Contract Lifecycle Management Best Practices that are core components of an effective program.
In this blog, I have summarized these best practices to highlight the critical activities all companies should include in their Contract Management processes.
These best practices are:
– Automate and Digitize Processes as Much as Possible
– Track and Take Action on Important Contract Dates
– Optimize Spend and Budgets with Strategic, Regular Reporting
– Standardize and Streamline Contract Authoring and Execution
– Conduct Regular Risk and Compliance Reviews
– Understand and Track Key Obligations (KPI’s, SLA’s, Termination Terms, etc.)
– Below are more details on each of these important best practices.
Automate and Digitize Processes as Much as Possible
Many organizations are finally recognizing the importance of digitizing their contracting process by implementing a contract management system (CMS). It is extremely difficult to maintain a full portfolio of contracts in a manual environment.
This was truly highlighted with the onset of the Covid pandemic. All organizations were forced to face the negative business impacts caused by the pandemic across all of their third-party relationships. Those still operating in a manual environment quickly came to realize that not having access to manual files from their remote working locations had no insight into important contract clauses such as force majeure. This put these organizations at unknown risk and created a crisis that organizations with a CMS did not have to face. With a CMS in place, organizations had insight into all of the critical data needed within minutes or hours vs. days or weeks it took organizations in a manual environment.
Track and Take Action on Important Contract Dates
There is no more annoying and unsettling issue to uncover than your organization has had a contract auto-renew without any notice or review of the contract performance before you renewed the agreement.
This is a somewhat common experience in a manual contracting environment as it is left up to human intervention and manual tracking of key termination and renewal terms. With a CMS in place, you will have automated the key dates to notify the appropriate contract stakeholders that expiration and/or renewal date is upcoming and they need to take action.
This allows them to assess the status and performance of the agreement and determine whether you want to renegotiate, renew or let a contract terminate. Not following this approach makes it nearly impossible to maintain your contracted relationships in an effective manner.
Optimize Spend and Budgets with Strategic, Regular Reporting
Budgeting can’t be a “set it and forget it” business activity. For the top performing organizations, maintaining spend and budgetary performance at the contact-level is a well-defined and resourced activity. Having a CMS that integrates with your budgeting and accounting system along with dedicated stakeholders and business processes allows these top performing organizations to manage their budgetary performance at the individual contract and portfolio levels.
With a consistent access to this vital performance data via delivery of automated reporting, you will be able to make proactive decisions and take corrective actions, as needed, to maintain optimal performance and mitigate risks of underperformance with your contracted third-party relationships.
Standardize and Streamline Contract Authoring and Execution
The name of the game when it comes to growth is speed to market. To ensure your organization is positioned to achieve speed to market you need to align you contract authoring and execution process accordingly. First and foremost, digitizing this process is absolutely essential. By implementing a contract management system, you will be able to automate the entire contract authoring and execution process both for your internal and external stakeholders. Without this automation, you will be challenged to support the growth of your organization as you struggle to maintain manual processes.
Conduct Regular Risk and Compliance Reviews
To ensure your organization is proactively monitoring and mitigating the risks associated with your contracts, it is essential that you implement risk and compliance reviews into your process. These reviews will allow you to ensure you have a handle on your current and potential risk exposure based on the terms and conditions in your contracts and current market conditions which may present risk to your organization.
Additionally, you can make sure that the key terms in your contracts meet the compliance standards you and your contracted partners are required to operate within. Make sure you build into your review process the corrective actions and contracting process improvements which may be required to make not only changes to your current contracts but also to your future contracts.
Understand and Track Key Obligations (KPI’s and SLA’s)
As with anything, if you don’t track or measure it how will you know whether you are winning or losing. When it comes to assessing the status of your relationships with the vendors and other third parties you have a contract with, it is essential to establish and measure KPI’s and SLA’s of each agreement.
To ensure you maintain the contracted terms for each relationship and optimize the performance for each contracted relationship, tracking specific service commitments (SLA’s) and other key performance indicators (KPI’s) allows you to maintain full transparency both internally and externally with stakeholders from your vendors. Being fully aligned and having access to critical terms and data from your contracts will produce more successful, productive and less risk in your third-party relationships.
To wrap this up, the goals of Contract Lifecycle Management align very much with many operational best practice’s organizations need to employ. Effective CLM is an imperative function for any organization committed to excellence and success. If you want to explore this in more detail, here is a recording of our webinar Digitizing Contract Management to Recession Proof Your Vendor Management Program. Enjoy!
No matter where you are on your contract lifecycle management journey, here are the contract management services we provide. We are here to help!!