Managing contracts without a streamlined process or a plan is like looking for a needle in the haystack. It lacks visibility, efficiency and is a near impossible task! And with manual processes, there is often no way to monitor past contracts, have a single integrated view for continuous contract visibility or manage risks effectively.
That’s when automated contract management systems come into play. These streamline contracting processes, automate workflows and give a 360-degree view on the go, into all present and past contracts. With process streamlining, it becomes easier to configure milestones and KPIs and track them effectively throughout contract lifecycle.
In this 2-Part series, we will discuss 4 important contract management KPIs that will accelerate the working of Legal as well as Sales operations, reduce contract costs along with turn-around-time and ensure accurate compliance tracking and management of contracts:
4 Important contract management metrics or KPIs
- Reduced Contract Turn Around Time
- Optimized Cost of Contract Management
- Increased pre-award compliance
- Measurable post-award compliance
Out of the above 4 KPIs, we will cover the first two in detail in this blog post.
1. Reduced Contract Turn Around Time
IACCM benchmarking data reveals that the average cycle time from bid to execution for sell-side contracts can extend up to a whopping 21 weeks. These figures are shocking and reveal the urgency of implementing automated, metric driven contracting processes to improve average contract cycle time.
With effective contracting processes and automation, contract turn-around-time from Request intake to Negotiations can come down drastically. For tracking these processes effectively, let’s divide them into:
a. Intake to Best First Draft (BFD) cycle time
- Robotic Process Automation (RPA) enabled advanced Contract Management systems allow request intake from everyday business platforms (MS Outlook, CRMs e.g. Salesforce, External Party Portal, Internal Portal etc.) saving time and effort in logging on to a different platform every time
- Enterprise Contract Management systems make request generation easy and effortless based on simple guided forms – which auto-populate a preapproved template
- Ensures quick responses to the stakeholders by alerting them with timely approval notifications
- Reduces the intake to best first draft cycle time from a few weeks to just a few days
b. Review and Negotiation cycle time
- CLM enables finding all contracts under review in a single customized dashboard which saves time by providing real-time updates and reminders to right stakeholders. This facilitates on-the-go review and negotiation through a mobile app.
- Pre-configured workflows save time by auto-routing documents to the right stakeholders and alerting them through triggers and notifications. These transparent workflows make for better visibility into who the document lies with at any point of the process and increases accountability.
- The CLM software has version control regardless of “track changes” when viewed within the application.
- Digital-signatures like DocuSign enable remote and secure signing of documents.
2. Optimized Cost of Contract Management
Business spend for a standard, low risk procurement contract from draft to signature has increased 38% in six years. Such business spend is estimated to be $6,900 on an average. With such high spends on a single contract, imagine the total contract costs when contracts run in thousands every year!
Goldman Sachs reported that companies using contract management software could reduce annual contract management expenses by 20 to 50%. This figure alone tells us the importance of Contract Management software for increased efficiency and decreased costs through process streamlining.
To track and optimize the cost of contract management, we have divided it further into 4 processes for ease of tracking:
a. RPA to route to Optimal Team
Advanced Contract Management system uses Robotic Process Automation (RPA) to automate request routing to the right desk. This helps in optimum resource utilization and saves costs.
b. Optimize review of 3rd party paper
- Robotic Artificial Intelligence parses external party paper into different sections and clauses. It then rapidly finds, highlights and parses terms, clauses and sections from third party making it quick and easy to compare it to organization’s templates.
- Smart clause library (Default clauses, Alternate clauses, Fallback clauses) gives suggestions and hints to easily align the document with internal clauses and obligations and identifies new or missing clauses.
c. Optimize External Counsel / LPO Cost – Audit / Details
- Contract management Increases self-sufficiency in audit readiness by storing all necessary contract documents at one place.
- Keeping a record of all document versions during review and approval stages ensures accurate data availability at a centralized place and reduces audit time and thus man hours, leading to reduced costs.
d. Track usage of External Counsel and LPO Partners
- Every contract shared with outside partners can be tracked with an advanced CLM in place.
- Check-in times and automatic version management enable increased security, on-time review and faster processes.
- Contract Management solution automatically stores all relevant data to support partner invoices.
These two metrics help measure contract costs and TAT and enable companies to optimize costs and reduce time taken due to inefficient, manual processes. In the next blog post of the series, we will explore the remaining two contract management metrics that will equip companies to measure performance and track compliance throughout contract lifecycle.