Contracts contain a wealth of data that can provide valuable insights to determine whether the company’s goals are being met. KPIs for contract management are SMART indicators that your business can leverage to optimize contracting efficiency and establish goals. Their Specific, Measurable, Attainable, Relevant and Time-Bound qualities ensure that the contract is performing efficiently with the desired outcomes. Regardless of the type of contracts and business, KPIs establish performance benchmarks and monitor key outcomes that the contracting approach has been designed to deliver. Here are the six important KPIs that you should consider as part of your contract lifecycle management plan:
6 Contract Management KPIs:
A contract lifecycle varies across types of contracts, industries, contracting party needs, negotiation stalls, etc., however, every organization needs to determine an acceptable time range from contract authoring to sign off stage. This duration can be defined by quickly looking at the data of your executed contracts with the help of a CLM solution. By keeping a track of live contracting stage, you can pinpoint where the improvements need to be made to enhance efficiency.
Verify that the contractually obligated deliverables and outcomes are provided as per mutually agreed dates. Full delivery is irrelevant if completed months after the specified date. Identify the source of delay in approvals by reviewing the facts before shifting the blame to the other end. Implement automated workflows to quicken the approval process and increase accountability. Communicate the reasons causing lengthy delays to the contracting party and try to keep it to a minimum so that contracts stay within budget and scope. Delay in anticipated output will not only cause short term problems but will also interfere with the company’s long-term goals. Supporting documents and all the information regarding deliverables must be stored on an integrated CLM system and communicated periodically in line with contracting parties’ expectations.
Quality and Support
Apart from the timely execution of contract and output, the product/service deliveries should meet quality acceptance criteria like application functionality, number of defects, user interface, etc. Contracting partnerships that add value are those that deliver consistent quality on agreed timelines put on paper.
Keep tabs on milestones and personnel joining, leaving or replacing to meet the performance expectations. Also, see that the contractually agreed SLA requirements are successfully met and if there are any breaches. The related documentation and customer satisfaction ratings must be stored and shared according to the agreed time frame. This will help to assess whether the company’s long-term objectives will be met and if prior adjustments can be made for anticipated issues.
Partnership & Innovation
Senior executives should show up in the steering committee meetings and work on maintaining an effective relationship with all involved parties. The organization should demonstrate the willingness and provide timely response to ad hoc and sourcing requirements without raising Change Requests (CRs) for value addition. Discuss and decide on improvements and innovation in new product/ service development and monitor adherence to accepted recommendations conferred during the meeting.
Governance and Risk
Keep a track of any deviation from the pre-approved clauses and ranges to minimize risk and compliance breaches. To rectify the situation, you can customize automated notifications to the person causing the deviation. Ensure that the contract is fully aligned to the requirements and report on the number of identified compliance breaches. The company needs to ensure that its team understands and adheres to government regulations, contractual compliance requirements and performance management principles.
In the rush to meet a strict client deadline, a contract manager might overlook control measures for proper authorization of contracts which undermines compliance and can throw off budgets. Implements adequate controls for effective risk mitigation related to the project. Also, see that the actions and disputes from the previous review meeting are resolved.
Don’t wait till the end and be proactive in reporting the missed deadlines and taking corrective actions as renewal dates get closer to reduce your client acquisition costs. One way is to automate the renewal date notification alert and creating a pitch for a contract extension.
Cost transparency must be maintained by providing financial proposals and invoices with a detailed breakdown of activities, product quantity, etc. The contractually compliant invoices and supporting documents must be submitted on agreed timings. Every phase of the contracting lifecycle must be cost-effective. Keep a track of the total number, value and scope of contract amendments/ CRs raised since the previous reporting period.
The number and amount of financial penalties applied due to noncompliance to SLAs, deliverable quality and schedule should be monitored. Companies must consistently pay attention that the volume price savings/reductions/discounts are applied to ensure maximum ROI.
Monitoring these KPIs across thousands of contracts manually is not just time-consuming and labour intensive but nearly impossible. To maintain close control over myriad contracts, organizations need to empower contract management scalability with a smart CLM solution. Automating the monitoring of contract data in real-time will help your teams to identify new risks, obligations, and opportunities buried in your contracts. Pre-configured metrics ensure meticulous follow-up and remediation of any discrepancies or risks the company gets exposed to, anytime, anywhere.
Ultria CLM offers unparalleled insights into your contract documents, quickly providing you with relevant information about contract performance and regulatory compliance via a single view customizable dashboard. To learn more about how Ultria can ensure compliance across all your agreements and help you follow the best practices for contract management contact us now.