Effective contract management is an essential cornerstone in the modern business operations environment. Contract management facilitates the management process in organizations, which often involves agreements, partnerships, and legal obligations. Contract Management: In these terms, the Good Practice Framework is an invaluable tool for creating, implementing, and controlling contracts.
This framework is simplified as the entire process. At the same time, it sets the industry best practices that the organizations should use to increase operation efficiency, minimize risks, and have more vital collaboration with their stakeholders. This framework will form the basis of discussion in the following paragraphs, highlighting its importance to businesses of any size and industry.
The Imperative for Contract Management
Contract management goes beyond the principle of compliance and avoiding legal problems. Sound financial management starts with contracts. One of the leading benefits is the direct cost of goods sold born out of the negotiated terms aimed at enhancing expenditure optimization and effective resource distribution.
Careful management of contracts allows organizations to find areas where they can make operations regarding efficiency, price cutting, and expenditure reduction.
Besides the cost savings, contract management enhances efficiency, productivity, and the company’s operations. An efficient system ensures a smooth execution of the tasks outlined in the contract, resulting in minimal delay and bottleneck. Such an approach improves the quality of deliverables, leading to a better brand and competitive image for the organization.
Vital Contract Management Best Practices
Many particular best practices tailored towards organizational needs are included in contract management frameworks. High-impact areas to address include
• Templates and playbooks standardized by contract type and risk.
• Legal reviews on a mandatory basis above predefined risk levels
• Onboard new agreements in intake workflows for accurate intake.
• Use of contract automation software
• Contract analysis and monitoring reporting and analytics
• Contract lifecycle management role-based training.
Elements of a framework
Organizations maximize value from their contracts through mature contract management frameworks, which have some essential elements in common. These include:
Cross-Functional Governance
Contracts cover various industries, including legal, purchasing, finance, sales, and operations. By combining governance with executive sponsorship, a multi-lens approach is applied to the cross-business unit’s contract standards, reviews, and knowledge sharing. The cross-functional approach will ensure the contract suits different departments’ needs and goals, giving a more comprehensive view of contracts.
Formal Workflows
Formal workflows include procedures for the entire contract cycle (request intake, drafting, negotiation, approvals, execution, amendments, renewals, terminations, and closeouts) that ensure consistency. The use of formal workflows improves operational efficiency. It provides transparency by outlining a clear path for all parties involved in the contract management process, thus minimizing mistakes and delays.
Oversight Procedures
The procedures for assigning authorities, tracking obligations, SLA monitoring, change control processes, and risk management will help give greater visibility and control regarding operational oversight and strategic decision-making. Oversight processes are necessary for a forward outlook, ensuring that the contractual responsibilities are observed, potential dangers are avoided, and the strategy is congruent with the desired contractual results.
Audit + Improvement Practices
Achieving more and better outcomes in the long run comes at a cost. Therefore, it requires assessing the process maturity, applying KPIs, and performing audits with role-based training skills to incorporate new best practices.
Regular audits and performance reviews establish an ongoing feedback mechanism for continuous improvement; it enables organizations to improve their contract management processes to cater to dynamic changes in business environments and industries.
Centralized Contract Repository
Only one source of truth exists for all active and old contract documentation and data in a readily accessible central repository. Contract management becomes manageable with the use of contract management software. The average Fortune 2000 company has about 20,000 – 40,000 active contracts at any given time, requiring a centralized approach. The centralized repository enables easy retrieval of relevant information in a contract and minimizes chances of error.
Emerging Technology Enablement
Leading organizations start prototype tools with help from maturing cognitive contracting and other AI solutions, aiming for an edge over the competition in agreement analyzing and processing. Emerging technologies can increase productivity in the organization and put such an organization ahead of others regarding innovation within the contract management process.
Getting Started
Start by measuring how well your current contract management processes match the framework presented or other industry models. The priorities in addressing gaps should consider potential value generation and risk mitigation.
For transformation efforts to be practical, senior leadership must have a clear vision and sense of direction. Organizations can drive up adoption both top-down and bottom-up by pairing them with change management and capability-building programs. In this way, contract management rises to become a strategic advantage.
Conclusion
Finally, the framework is about transformation, changing from responsive governance to strategic value creation. However, by embracing its essentials and standard operational procedure, organizations may comfortably maneuver in contract management while sustaining the company’s growth.
Author Bio:
Qurat-ul-Ain Ghazali, aka Annie, is the growth manager at Contractbook and looks after all the organic channels. She has been with tech startups and scaleups for a couple of years with a B2B focus. You can find her socializing, traveling, indulging in extreme sports, and enjoying the local desserts when she is not working.