Contract management is the backbone of any legal department, a complex and time-consuming task that can significantly impact a company’s success. To streamline these processes, and ensure continuous improvement, it’s essential to harness the power of metrics.
In this comprehensive guide, we’ll delve into how you can leverage metrics and advanced contract analytics to drive contract management excellence, from conducting a holistic needs assessment to realigning your contract management practices with your business objectives.
Conduct a Holistic Needs Assessment
Before diving into metrics, it is crucial to identify the specific goals of the contract management function. What are you looking to achieve by implementing a contract management solution?
Once you have a clear understanding of your goals, identify key performance indicators (KPIs) that will measure your success.
Some common contract management KPIs include:
- Contract cycle time: The time it takes to negotiate and finalize a contract.
- Contract compliance: The percentage of contracts following your policies and procedures.
- Contract risk: The level of risk associated with your contract portfolio.
- Contract spend: The total amount spent on contracts annually.
These KPIs provide a comprehensive view of your contract management landscape and enable you to target areas for improvement effectively.
Use Metrics to Identify Areas for Improvement
Once you've identified your KPIs, track performance over time. This data-driven approach helps identify areas to improve contract management practices.
For instance, if the contract cycle time is unacceptably long, implement processes to streamline negotiation. Similarly, if you discover you have too many non-compliant contracts, it may be time to provide staff training on policies and procedures.
Set Realistic Goals
While you now have valuable metrics at your disposal, it’s essential to set realistic goals for improvement. Trying to change everything at once can be overwhelming and counterproductive. Instead, focus on one or two high-impact areas first.
Once achieved, you can continue to set new goals and continue enhancing your contract management performance over time. This phased approach ensures sustainable progress and prevents you from spreading your resources too thin.
Communicate Results to Stakeholders
For your contract management initiatives to succeed, it’s crucial to gain buy-in from key stakeholders. Regularly communicate the results of your metric-based improvements to them. Create visually appealing reports and dashboards to make the data accessible and easy to understand.
By sharing the progress made and the positive impact on the organization, you can ensure stakeholders remain engaged and supportive of ongoing changes. Their support is invaluable when implementing necessary adjustments to contract management processes.
Align Contract Management to Business Targets
A contract management solution should go beyond data collection; it empowers you to make informed decisions and align your practices with your business objectives. For example, you can use metrics to track the performance of valuable contracts, assess supplier performance, identify and mitigate contract risk, and even negotiate contracts to achieve cost savings. Data and insights ensure your contract management practices align and contribute to the achievement of your organization’s broader goals.
Examples of Using Metrics
- Reduce contract cycle time: Metrics can identify bottlenecks and efficiencies in your negotiation processes, enabling you to streamline them for quicker contract finalization.
- Improve contract compliance: Metrics can uncover areas of non-compliance with your policies and procedures, prompting staff training to rectify these issues
- Reduce contract risk: Metrics can help identify high-risk contracts and take proactive steps to reduce their potential impact on your organization.
- Reduce contract spend: Metrics can highlight opportunities to renegotiate better prices and consolidate contracts for cost savings.
Business Intelligence with Advanced Contract Analytics
The information contained in contracts can be the key to understanding the success or failure of your business. Unfortunately, many companies have limited ability to analyze that data and make informed decisions based on it. How did a vendor contract impact the bottom line? Were the terms of a sales deal favorable and worth repeating with other customers? Or it could be something simple to track for quarter-end cycles, such as “How many contracts are currently with customers for signature having a total value over $100,000?” This type of insight is invaluable for propelling growth and future strategy but eludes many. And even when companies do have a CLM solution, it likely only includes rudimentary reporting capabilities and requires custom builds for every new report. It doesn’t have to be this way. You don’t need to be a report writer or hire one full-time. In fact, one of the ways progressive companies can set themselves apart is by choosing a CLM solution, like Malbek, with robust yet easy-to-use reporting capabilities.
Beyond just basic reporting, Malbek is equipped with advanced contract analytics. Gartner® has recognized Malbek in the August 2023 Market Guide for Advanced Contract Analytics, which highlights the following key use cases:
- Contract Visibility/Data Extraction: Extract and classify contract data to provide better visibility and reporting on contract metadata and terms and conditions. This is primarily used as a signed contract database and as part of a third-party-generated contract negotiation.
- Automated Contract Review: Review and identify contract clauses that do not meet the standard of acceptance based on the organization’s thresholds. Advanced capabilities include automated redlining and negotiation with a third party.
- Contract Risk Analysis: Identify and score risk at the clause and contract level against a predetermined organizational threshold or market standard. Advanced capabilities include dashboarding and risk remediation recommendations.
- Continuous Improvement: Analyze contract data to inform process improvement, contract templates, and best practices for contracting within the organization.
Incorporating metrics into your contract management strategy is not just about data collection; it’s a powerful tool for driving excellence. A contract management solution equipped with the right metrics empowers you to make data-driven decisions, streamline processes and ensure that your contract management practices consistently align easy for improvement ensures contract management aligns with your organization’s overarching goals. By understanding the risks, you can take your contract management to the next level and maximize its impact on your business success.
* GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.