CAN CONTRACT MANAGEMENT SOFTWARE HELP IN REDUCING RISK IN BUSSINESS?
Contracts serve multiple functions. They are also the DNA of a company and are vital to the success and growth of every type of business. No business can completely eliminate risk from their business, but they can manage it. Risk management is an important concept that mainly aims at identification, assessment, and prioritization of events that may have an adverse impact on an organization. On the same lines, contract risk management refers to identification, assessment and prioritization of such inclusions in a contract and the contract itself to supervise its life cycle in order to identify risks and to mitigate such risks. Contract Lifecycle Management is evolving from an operational record-keeping system to an enterprise-level core system addressing business risk, costs, and the pursuit of revenue maximization. In 2013, Facebook failed to detect a violation of its contractual terms by Cambridge Analytica, and the resulting publicity caused its stock to plunge, erasing $150 billion of market value within 90 minutes of its earnings call. Contract management refers to the business processes that manage the creation, implementation, and evaluation of contracts to maximize business performance and minimize risk. The contract management software enables and facilitates a business to identify such potential for a loss deriving from a contract and also helps in maintaining life cycle of contracts. With help of contract management software, businesses can control what contract language is used across the enterprise, recognize underperforming contracts and see when a contract’s terms are not being met, thus enabling to take informed actions. Enterprise-wide contract management software allows businesses to automatically digitize their contracts and place them in a central, cloud-based repository. This means any contract can be accessed at anytime from anywhere in the world, with proper authentication. With an enterprise-wide contract management platform, contracts cease to be hidden sources of risk and become strategic assets. A good contract risk management strategy will use a contract management software that can configure to the needs of the business and can be therefore customized. According to research conducted by the International Association for Contract & Commercial Management (IACCM), the average company loses about 10% of annual revenue due to poor contract management practices. With the number of contracts only getting larger, there is lot of unpredictability associated with contract creation and management.
Certain risks associated with contract management are listed below:
Visibility and Access Rights
Visibility can be a major blockade in contract creation. Contract visibility allows ones entity to quickly find, retrieve, analyze and track contracts that your company handles or has handled in the past. Despite contracts’ ability to benefit business, many of them still do not have systems that allow them to have adequate contract visibility.
Businesses have the challenge of navigating regulations, requirements, and rules, along with industry expectations and business process changes. Non-compliance can lead to costly fines or breaches of contract that can break trust and damage relationships.
Process Inefficiencies and Inconsistent standards
Lack of consistency across a company’s documents and processes can lead to unpredictable pricing, rogue spend, compliance issues, and much more. Elements such as a template library and Legal visibility are just the first step in solidifying processes. In any organization, there has to be consistent protocols to reduce contract risks. Without proper standards, it is not possible to have a way to carefully track the entire lifecycle, compliance requirements, potential discounts and commitments. If these parts of a contract are missed, targets for compliance records, business relationships and revenue will be negatively impacted.
Practical contract management involves being aware of and mitigating any risks that come along with the process. Ensuring contracts are optimized by implementing a contract lifecycle management platform is the first step in lowering risk and simplifying contracts.
Below listed are some of the benefits and ways in which use of a contract management software can help in reducing risks in business:
Increase Contract Visibility
Unlike paper based contract management systems, storing all files in one centralized, digital repository allows for optimum compliance and extensive reporting. All the latest contract templates and clauses are available to all authorized staff members at anytime from anywhere.
By archiving contracts automatically upon expiration and using alert notifications based on the rules business specify, and can increase renewal awareness. Contract renewal is the lowest hanging fruit for an organization, yet often the most missed opportunity.
Ensure Contract Compliance
A streamlined business process provides contract accountability. From request to approval, every contract is held to compliance standards. Certain Contract management softwares enables tracked changes by user and version control is done for handler of such particular contract. This ensures no critical terms are deleted and that the right people have edited the document accordingly, giving business the control they need over their contracts.
If contracts are not properly protected or cannot reach the right parties, it creates risk of putting ones organization and clients in danger. Good contract management should include a Role-Based Access Control system that determines who gets access to contract data based on geographies, departments, access permissions and users. This system will protect sensitive data from prying eyes or those who would take advantage of it.
An organization must be able to keep track of their portfolio of contracts that are interdependent. Without that monitoring, it will suffer from a reduction of contract visibility. Contract management software enables a flexible interface to view contracts.
With contracts needing to be changed or signed quickly, it is a need of the hour to want to go with a management system that integrates well with one’s phone. Certain Contract Management software system enables user to approve, create, edit or reject contracts from any devices after proper authentication which could be synced and monitored centrally. Such qualities will assist contract management significantly by making it more accessible.
Improves Functional Efficiency
Contract management techniques involve the use of various software or tools that automate the process of managing contracts. By reducing manual efforts, it improves business efficiency and the scope of errors. The personnel can focus on more strategic aspects of contract management like evaluating contract performance, identifying areas for improvement.
Improves spend visibility and minimizes Maverick Spending
Contract management simplifies transactional, and performance tracking. It increases spend visibility and improves the transparency of where exactly your money is going. Maverick spend is one of the critical issues that plague businesses, and higher spend visibility will help to curb undocumented expenditures. By increase spend visibility, contract management can also help identify higher cost savings opportunities for your organization.
Good contract risk management seeks to reduce risk and give businesses better control over their contracts. Certain contract management software are Concord, Icertis, Symfact, PandaDoc, Curate, and ContractSafe to name few. Therefore, above information seeks to establish the ways in which use of Contract Management Software can prove to be useful in reducing business risk in number of ways.