Contract managers, contract administration professionals, and corporate legal teams can find it difficult to show clear contract management ROI to executive leadership within their organisations.
This struggle to show value is down to a range of issues with manual contract management systems, lack of communication and misaligned goals. For organisations managing hundreds or thousands of contracts each year, the result is increased costs, decreased revenue, lost time and missed opportunities which can seriously impact their bottom line. We can help you find the right strategy to maximise your contract value.
The trouble with contract management
Contract management professionals put considerable time and effort into effective contract management, but if leadership teams view the contract management process as an administrative cost centre without tangible benefits,trouble accrues. Concepts such as contract compliance, error reduction, and contract process maintenance can fail to correlate to a specific line number within a budget. For contract managers to get the finance, technological and personnel support that they need to improve processes, they need to demonstrate effective ROI.
What is contract management ROI?
Contracts are at the core of almost every business. Contract management ROI means that the people, process and technology integrated into contract management use the organisation’s time and resources to increase revenue, profitability and productivity, while simultaneously decreasing risk and operating costs. Tangible results must exceed the effort put into managing contracts.
What can bigger and better contract management ROI look like?
Say your legal team is spending, on average, 20 hours a week reviewing each of your supplier contracts. Each hour of the legal team’s time equates to around £300. If ten such contracts are reviewed every month, the investment in your legal team is £60k. Multiply that by 12 months and your organisation could be looking at £720K every year just to review supplier contracts. If your contract managers can put people, process, and contract technology in place to cut this cost in half, your organisation could easily save £360K on supplier contract review alone. Just imagine the impact savings of this level could make across hundreds of contracts. This would equate to huge contract management ROI.
Contract management ROI and contract portfolios
To improving contract management ROI, every organisation needs to review their contract portfolio and ensure contract value transparency. You can get started by reviewing the:
- amount of revenue that is contracted
- amount of time spent managing contracts on a weekly, monthly, and annual basis
- number of contracts across the entire portfolio
- average value and total value of all contract types
- number of contracts with insurance obligations
- number of hours the legal team spends reviewing contracts
- number of expired contracts
- number of contracts that will auto-renew
- number of places contracts are stored
- number of people within your organisation that will touch your contracts
- number of people outside your organisation that will touch your contracts potential impact of a sensitive contract data breach.
Increasing contract management ROI with people, process and technology
Contracts can touch many departments across an organisation, so the key to reaching higher levels of ROI is to leverage people, process, and contract management technology collectively. Integrating resources like this can speed up realisation of measurable and impactful organisational goals.
People
When it comes to contract management, ‘people’ must go beyond contract managers and legal teams as contracts can impact multiple departments and lines across the business. Employees need to work with contract managers to help them pull key data points from contract portfolios and to discuss contract management challenges openly. Contract managers should take the lead with contract management ROI by moving from contract management to contract performance management. This strategy can maximise contract financial and operational performance while reducing risk. Leveraging process and technology is the path to get there.
Process and contract management
When it comes to contract management, the ‘process’ must be automated. A manual approach to contract management will decrease ROI with contract process bottlenecks, longer contract cycles, missed opportunities and increased risk. Contract automation leverages workflows, so contracts are routed to the right people for review, approval, negotiation, signing and close-out. ROI is lost when the focus is on pre-award rather than post-award contract management. For ROI, the contract management process must be holistically focused on every stage of the contract management lifecycle.
Technology and contract management
To achieve bigger and faster contract management ROI that’s reliable and predictable, contract management technology is necessary. Contract management software supports the people and process that requires contract automation, workflow intelligence, visibility, transparency, analytics and risk assessment using AI. For contract management ROI to have a measurable impact, end-to-end contract management or contract lifecycle management will support ROI from all buy-side and sell-side contract types.
Leading contract management software supports every stage of the contract lifecycle, helping to ensure nothing falls through the cracks. The chance of human error is eliminated, cycle times are reduced, an audit trail is created, contract tracking, searching and reporting are easy within a secure repository, and contract data is leveraged to continually present clear paths to contract management ROI.
What is contract management software ROI?
This is when your investment in software exceeds the time and financial investment in digital document transformation, contract process optimisation, change management, implementation and training. Finding the right contract management software provider with the experience, customer commitment and advanced technology will be a direct path to the highest ROI, which can result in:
- improved employee productivity, efficiency, and collaboration saving time and money on previously time-consuming and redundant tasks
- reduced risk, increased compliance and fewer missed dates and milestones, fewer penalties and fees
- the elimination of missed renewals, auto-renewals, and unwanted cancellations
- a decrease in contracts from multiple suppliers for duplicate services – when products are involved, procurement/supplier consolidation can take advantage of volume and pricing discounts
- automated workflows, task completion time reductions, and a level of predictability will significantly reduce legal employee costs
- optimised sales operations that show up green on the bottom line as more deals closed faster and more opportunities attained for increased revenue.
Attain measurable ROI with Contract Insight from Four Business Solutions
How can contract professionals ensure their leadership teams appreciate the value that streamlined, effective and efficient contract management bring to the organisation? The solution is Contract Insight®, an award-winning contract management suite that helps organisations get the most value out of their contracts. With the features contract management professionals demand, Contract Insight®offers a scalable platform that grows with your organisation to support completely automated contract lifecycle management.
Four Business Solutions
Four Business Solutions helps small and multi-national organisations enrich the way they work. From supply chain to procurement and contract management, we have decades of experience helping companies forge ahead in the global market. If you’d like a demo of Contract Insight or simply to find out more about what we do, please call John O’Brien at Four Business Solutions on 0800 6250 025.
John O’Brien is the CEO at Four Business Solutions, global business consultants and software integrators providing business processes improvements in Finance, Supply Chain and Operations, across a broad range of industries.