Measurable contract management
Contract Management KPIs
Contract management KPIs should be specific, measurable, attainable, relevant, and timely (SMART). Since industries, processes, and contracts are unique, KPIs will vary, but it’s imperative for contract managers to review their contract lifecycle and develop success metrics aligned with their objectives.
Contract managers face the challenge of overseeing the contract lifecycle from request to renewal, while struggling to show stakeholders the significance of an often complicated and undervalued process.
The goals of reducing risk, increasing productivity, and improving visibility are at the core of effective contract management strategies. However, all too often, the tendency for failure remains high.
Some contracts will fail. Some level of failure or under-performance is accepted as inevitable. Most organisations don’t even know what that level is, although IACCM research has shown that 10-15% is probably ‘normal’ and certain industries or contract types experience levels of 30%+.*
The amount of failure deemed acceptable can deeply impact an organisation. Contract failures negatively impact risk, compliance, and productivity. The key to measuring the success of a contract management program is identifying clear contract management KPIs (key performance indicators).
Contract management KPIs should encompass qualitative and quantitative information around contract value, incidents, monitoring, and renewal.
The most common KPIs used to measure contract management success are contract efficiency, contract effectiveness, and contract risk.
KPI 1 Contract Efficiency – doing the right things
Performance metrics may include contract cycle time, customer, vendor, or geographic trends, contract value assessments, and missed milestones.
KPI 2 Contract Effectiveness – doing things right
Performance metrics may include number of contracts per type, programme, customer or vendor, annualised contract value, the remaining value of terminated contracts, order value variance, and historical legacy contract trends.
KPI 3 Contract Risk – doing things safely
Performance metrics may include standard clause variance, amount of agreements expiring without renewal dates, number of improper signature approvals or vendor authorisations, number of delayed approvals, and disputes resolved.
Contract Management ROI
Contract managers are under increased pressure to deliver contract management ROI with reduced contract related risks, reduced costs, and improved performance. Managers who regularly measure the success of their contracts can proactively readjust their contract management strategy to ensure goal alignment drives critical and positive organisational impact.
Four Business Solutions can help
If your contract management approach isn’t producing the intended value, leading contract management software can streamline how you measure contract management success and can help you hit your KPIs through risk reduction, increased productivity, advanced visibility, and contract monitoring.
If you’d like a free trial to understand how Contract Insight can boost your business, please call me 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 & Operations, across a broad range of industries.