Contracts are the bedrock of modern business. They form the basis of your commercial relationships, outline obligations, and manage risk. A study by DocuSign revealed that businesses spend an average of 8% of a contract’s value managing it manually.
Yet, many organizations simply view their contracts as static documents, stored away after execution. Furthermore, according to Ernst & Young, nearly half of businesses admit they’re in the dark when it comes to a defined process for storing contracts post-execution. What if your contracts weren’t just repositories of legal text, but powerful sources of intelligence?
A robust contract management system (CMS) with built-in analytics offers the key to unlocking this hidden value. It allows you to transform your contract data into actionable insights, driving better decision-making, efficiency gains, and a significant boost to your ROI.
Why Analytics Matters for Contract Management
Traditionally, contract management has been seen as a back-office function focused primarily on storing and organizing contracts. With analytics, it’s elevated to a strategic asset. Here’s why:
Data-Driven Decision Making
Analytics help you make informed decisions based on hard data, not guesswork. You can track key performance indicators (KPIs), identify trends, and compare the performance of different contracts and vendors. Imagine you’re a procurement manager sourcing raw materials for your manufacturing business. Contract analytics reveals that one of your suppliers consistently delivers late, with delays causing disruptions in your production schedule.
Armed with this data, you can choose to renegotiate with that supplier for stricter delivery terms, identify alternative suppliers, or adjust your production planning to mitigate the risk. Without analytics, you might only have anecdotal evidence of the problem, weakening your negotiation position.
Improved Efficiency
Analytics helps streamline processes, reduce errors, and optimize contract turnaround time. You can identify bottlenecks, automate routine tasks, and uncover opportunities for cost reduction. Consider the contract negotiation and approval process. Analytics dashboards can pinpoint the stages where delays most frequently occur.
Perhaps legal review is a consistent bottleneck. Based on this insight, you could automate initial contract drafting with pre-approved templates, implement an e-signature solution, or adjust approval workflows to reduce unnecessary back-and-forth.
Enhanced Risk Management
Contract analytics enables you to proactively identify potential risks. For instance, you can flag upcoming renewals, ensure compliance clauses are met, and anticipate potential disputes before they arise. Contract analytics can help you stay ahead of compliance risks.
For example, your CMS might track changes to regulations relevant to your industry. Analytics tools can then automatically compare existing contracts with updated regulations, highlighting any clauses that need revision. This proactive approach to compliance prevents costly fines and reputational damage.
Maximizing ROI
Analytics helps you track the costs and benefits of contracts over their lifecycle. This allows you to negotiate better deals, optimize spend, and get the most out of your contractual relationships. Let’s say you’re analyzing a service contract for fleet maintenance. Analytics reveals that the cost per breakdown is significantly higher than initially projected.
This data becomes a powerful tool during renegotiation, allowing you to secure more favorable pricing or service level guarantees. Additionally, analytics might show that certain vehicle types have high breakdown rates, informing decisions to replace those vehicles. It’s this holistic view of contract performance that maximizes value over the contract’s term.
Top 10 Key Metrics for Contract Management
An analytics-driven CMS provides you with numerous metrics, here the top 10 to track and optimize:
1. Cycle Times: Measure the time taken to create, negotiate, and execute contracts. Identify bottlenecks hindering swift closure and streamline the process to increase operational speed.
2. Renewal Dates: Automated alerts on upcoming renewals help you avoid unwanted rollovers and give you time to renegotiate terms or explore other options. Proactive renewal management minimizes unintended financial commitments.
3. Compliance Adherence: Track whether your contracts are meeting regulatory or internal compliance thresholds. Implement processes to mitigate risk and ensure adherence to standards.
4. Spend Analysis: Analyze spending patterns, identify areas for cost-cutting, and create more cost-effective contracts. Optimize your procurement spend and get the most value from your contractual investments.
5. Vendor Performance: Track vendor performance on KPIs like timeliness, service quality, and contract compliance. Use data-driven insights to select vendors and drive accountability for fulfilling contractual obligations.
6. Dispute Rates: Monitor the frequency and nature of disputes arising from your contracts. Analytics can help identify patterns, such as common causes of disputes, which may indicate a need for standard clause revisions or additional vendor training.
7. Savings Realization: Measure the actual cost savings or revenue gains achieved through contract initiatives. This helps demonstrate the ROI of your contract management efforts to stakeholders.
8. Approval Workflows: Analyze approval times, hand-offs, and delays within the approval process. Identify bottlenecks and opportunities to increase efficiency through workflow optimization or automation.
9. Milestone Tracking: Monitor the timely completion of key contract milestones, such as deliverables, project timelines, or performance targets. Analyze data to anticipate potential delays and take proactive measures.
10. Contract Utilization: Track whether contracted resources, services, or volume discounts are being fully utilized. Identifying underutilization can enable renegotiation of terms or optimization of procurement practices.
Turning Contract Management Insights into Action
Harnessing contract analytics is not just about data – it’s about extracting actionable insights and making improvements. Here’s how:
Optimize Contract Terms
Use insights to improve standard clauses, refine negotiation strategies, and secure more favorable terms. Imagine your analytics reveal a recurring pattern of disputes with vendors related to vaguely defined service-level agreements (SLAs). Armed with this data, you can tighten your standard SLA clauses with more specific definitions.
You gain leverage in negotiations by using historical performance data to justify the stricter terms. Additionally, analytics might highlight a vendor who consistently exceeds SLAs – creating an opportunity to negotiate more favorable pricing in exchange for long-term commitment.
Enhance Vendor Management
Analyze performance metrics to select the best vendors, strengthen collaborative relationships, and hold vendors accountable. Contract analytics provides a powerful lens on vendor performance. Track metrics such as on-time delivery, quality of services, responsiveness to issues, and contract compliance. These insights allow you to differentiate between top-performing and underperforming vendors.
Rather than relying on subjective impressions, you can drive collaborative discussions with top vendors, exploring opportunities for deeper partnerships or strategic cost-saving initiatives. Conversely, data-backed discussions with low-performing vendors allow you to enforce contractual terms or initiate a search for replacements.
Mitigate Risk
Proactively identify risk-prone contracts, negotiate risk mitigation clauses, and prevent costly disputes. Let’s say your analytics dashboard flags an upcoming auto-renewal of a significant contract containing a “change of control” clause. This clause might trigger costly penalties if your company is acquired. With this foresight, you can proactively negotiate to remove or modify this clause.
Additionally, analytics might reveal that contracts with a specific vendor frequently result in late payments. This knowledge allows you to negotiate for tighter payment terms, reducing your own financial risk exposure.
Continuous Improvement
Analytics fosters a culture of continuous improvement in your contract management processes. Analytics empowers a shift from reactive firefighting to proactive optimization. By regularly reviewing KPIs, you and your team can spot trends early – whether positive or negative.
Perhaps contract approval takes significantly longer in a specific business unit – revealing an opportunity to streamline workflows. Or, analytics might show consistently improving cycle times across the board, validating successful process changes. This data-driven approach to contract management fuels ongoing improvements that benefit your entire organization.
Choosing the Right Contract Management System
Selecting a CMS with advanced analytics capabilities is vital for maximizing ROI. Look for systems providing easy-to-use dashboards, customizable reports, predictive analytics, and seamless integration with your existing business systems. WNS-Vuram’s TrustHall, a cloud-based contract management platform, provides the robust analytics you need alongside best-in-class contract management functionality.
Ready to turn your contracts into a strategic asset? Discover how TrustHall and our data-driven approach to contract management can deliver transformative results for your business. Write to ask-vuram@wns.com
