Are your contracts delivering value for money? Run a contract health check
Published: 2021-08-20 07:01:48

Why is it necessary to monitor the health check of contract management? Undoubtedly, a successful contract should save time and cost while also delivering results. Nevertheless, inconsistencies and loopholes always seem to appear, even after signing the best legally binding document. This issue mostly happens when the objectives and priorities of the customer and the vendor begin to diverge. Even well-drafted contracts can come under strain over time as buyer-provider objectives start to split and contracts don't keep up with the evolving technology and innovation landscape.

Are your contracts delivering value for money?  Do you want to boost the performance of your contracts? Let's get into understanding a contract health check and how it improves the entire contract lifecycle management.

<h1>Elements of contract health check</h1>

A health check enables your organization a holistic view of your contract by providing you with relevant information and insights.

As per Wavestone, there is invariably a 15% to 20% potential to optimize each contract. 

And this optimization can be achieved only when you are aware of the areas that need attention. 

<h2>How are you drafting your contracts?</h2>

It is advisable to use commonly used legally approved templates which saves time and safeguard you from legal risks. Also, get the templates renewed and reviewed by experts every quarter or half-yearly to ensure that the language complies with existing standards and applicable laws if any. Always store your contracts in a secured repository that all concerned parties can access.

<blockquote><b>Aavenir Tip</b>: Clause and template libraries make putting together contracts easier, increasing conformity with approved language, and saving legal review time.</blockquote>

<h2>How robust your contracting processes are?</h2>

If you are stuck with mundane manual processes, you are at higher risk of poor contract management and revenue leakages. 

<blockquote><b>Aavenir Tip</b>: Look way forward to minimize third-party paper as much as possible to make contracting easier, smoother, and faster.</blockquote>

<h2>How smooth are your workflows?</h2>

Digital and AI-enabled workflows can streamline and strengthen your contract management as well as post-signature obligation compliance. From requests to renewals, your process should be automated, smooth, and frictionless. 

<blockquote><b>Aavenir Tip</b>: Contract negotiations, being the most crucial stage, avoid doing it through back and forth emails. Instead, have a system in place that tracks changes across multiple versions and provides a clear real-time picture.</blockquote>

<h2>How fast and optimized is your time-to-signature?</h2>

Usually, contract managers go through multiple versions of the same contract in the contract negotiation stage as they edit and revise the contract as needed. Once all parties agree on the finalized version and terms and conditions, the agreement goes into the signature stage. The signing step sounds like the easiest part of the contract management process, but it isn't unless the right tools are used. Delay in the signature stage poses a risk of delaying the entire contract life cycle process.

<blockquote><b>Aavenir Tip</b>: Opt for a CLM solution that offers eSignature integration which speeds up the process by eliminating the time it takes to meet with the parties in person for signatures.</blockquote>

<h2>Are you able to extract metadata that provides actionable insights?</h2>

Ideally, contracts should be free-text searchable and stored pre- and post-signature in one system of record, from which stakeholders can extract data to recognize revenue and enable forecasting. However, in the practical world, most contacts are stored as static files, usually PDFs. Some are even lying in files and cabinets. So, the critical information like clauses, obligations, renewal dates, terms, etc., is unstructured and cannot is easily searched or tracked. 

<blockquote><b>Aavenir Tip</b>: Consider using <a href="https://aavenir.com/servicenow-contract-management-software/">AI-enabled CLM</a> to unlock the hidden contract data and extract information that provides actionable insights.</blockquote>

<h2>Is your contract analytics giving you the right insights?</h2>

What KPIs to monitor and what metrics to track is often a brainstorming matter. As a general rule of thumb, monitor contract turnaround times, cost per contract, recurring contract revenue, obligation compliance, and ROI on contract management.

<blockquote><b>Aavenir Tip</b>: Embrace customizable intelligent dashboards to monitor different types of metrics and deviation from standard clauses, among many other data points.</blockquote>

<h2>Last but not least - Identify Buyer-Provider Value Gap</h2>

During a contract lifecycle, the gap between buyer's value expectations and vendor's value delivered tends to widen, commencing with underlying suboptimality during the contracting stage, followed by misalignment in execution and value criteria during the evolution stage.