Contract managers, contract administration professionals, and corporate legal teams struggle to show clear contract management ROI to executive leadership within their organizations. This struggle to show value is not isolated to one contract management challenge, but rather, it is a conglomeration of issues with manual contract management systems, lack of communication, and misaligned goals. For organizations managing hundreds or thousands of contracts each year, the bottom line can be hit from multiple angles from increased costs to decreased revenue to lost time to missed opportunities to increased risk. This article analyzes the root causes of missed ROI and presents a strategy to get the most value out of contracts.
The Problem With Contract Management
Contract management professionals put considerable time and effort into effective contract management, but the problem is that leadership teams tend to view the contract management process as an administrative cost center without tangible benefits. Concepts like contract compliance, error reduction, and contract process maintenance are ideas that fail to correlate to a specific line number within a budget. For contract managers to gain more financial, technological, and human resources to improve contract management processes, contract managers must show the type of ROI executive leadership expects to see.
What is Contract Management ROI?
Contracts are at the core of almost every organization from small business to government entities to Fortune 500 companies. Contract management ROI means that the people, process, and technology integrated into contract management are using the organization’s time and resources effectively to increase revenue, profitability, and productivity, while simultaneously decreasing risk and operating costs. The bottom-line result must be as such that the tangible results exceed the efforts put into managing contracts.
What can bigger contract management ROI look like?
Let’s look at an example where your legal team is spending, on average, 20 hours reviewing each of your vendor contracts. Each hour of the legal team’s time equates to around $300 per hour. Each month the legal team spends 200 hours reviewing ten vendor contracts for a total time valued at $60K in just one month. Multiply $60k by 12 months and your organization could be looking at $720K annually in legal review just for vendor contracts. If contract managers put people, process, and contract technology in place, that could cut this review cost in half and your organization would easily save $360K on vendor contract review alone. Now, imagine the positive impact of this type of savings across hundreds of contract reviews! This scenario would equate to massive contract management ROI!
Contract Management ROI and Contract Portfolios
Improving contract management ROI requires contract managers to review their organization’s contract portfolio to develop contract value transparency. Get started by reviewing the:
- amount of revenue that is contracted.
- amount of time spent managing contracts on a weekly, monthly, and annual basis.
- number of contracts across the entire portfolio.
- average value and total value of all contract types.
- number of contracts with insurance obligations.
- number of hours the legal team spends reviewing contracts.
- number of expired contracts.
- number of contracts that will auto-renew.
- number of places contracts are stored.
- number of people within your organization that will touch your contracts.
- number of people outside your organization that will touch your contracts.
- potential impact of a sensitive contract data breach.
Increasing Contract Management ROI With People, Process, & Technology
Contracts can touch many departments in organizations, so the key to reaching higher levels of ROI is to leverage people, process, and contract management technology collectively. This resource integration can facilitate the quick realization of measurable and impactful organizational goals.
People and Contract Management: When it comes to contract management, “people” must go beyond contract managers and legal teams since contracts can impact multiple departments and lines across the organization. Collaboration and communication are critical to achieving successful contract management ROI. Employees will need to work with contract managers to help them pull key data points from contract portfolios and to discuss contract management challenges openly.
Contract managers will need to take the lead with contract management ROI by shifting away from contract management to contract performance management. This strategy can maximize contract financial and operational performance while reducing risk. Leveraging process and technology is the path to get there.
Process and Contract Management: When it comes to contract management, the “process” must be automated. Manual contract management processes won’t help organizations increase ROI. A manual approach to contract management will decrease ROI with contract process bottlenecks, longer contract cycles, missed opportunities, and increased risk.
Contract automation leverages workflows, so contracts are routed to the right people for review, approval, negotiation, signing, and close-out. ROI is lost when the focus is on pre-award contract management but not on post-award contract management. For ROI, the contract management process must be holistically focused on every stage of the contract management lifecycle.
Technology and Contract Management: To achieve bigger and faster contract management ROI that is reliable and predictable, contract management technology is necessary. Contract management software supports the people and the process that requires contract automation, workflow intelligence, visibility, transparency, analytics, and risk assessment with contract AI.
The reality is that for contract management ROI to have a measurable impact that leadership will appreciate, end-to-end contract management, or contract lifecycle management, is required to get ROI from all buy-side and sell-side contract types. This approach starts with pre-award and leverages the support that technology offers for post-award opportunity realization.
Leading contract management software supports every stage of the contract lifecycle, helping to ensure nothing falls through the cracks. The chance of human error is eliminated, cycle times are reduced, an audit trail is created, contract tracking, searching, and reporting are easy within a secure repository, and contract data is leveraged to continually present clear paths to contract management ROI.
What is Contract Management Software ROI?
Contract management software ROI is when an organization’s investment in the software exceeds the organization’s time and financial investment in digital document transformation, contract process optimization, change management, implementation, and training. Finding the right contract management software provider with the experience, customer commitment, and advanced technology will be the path to the highest ROI, which can look like:
- improved employee productivity, efficiency, and collaboration that show up green on the bottom line with a reduced dollar amount linked to reduced hours on previously time-consuming and redundant tasks.
- reduced risk, increased compliance, and a decrease in missed key dates and milestones that show up green on the bottom line with a reduced dollar amount linked to penalties and fees.
- the elimination of missed renewals, auto-renewals, and unwanted cancellations. This optimization supports proactive renegotiation that can show up green on the bottom line when prices of products and services align with budget expectations and the time needed for amendments are reduced.
- a decrease in contracts from multiple vendors for duplicate services that can show up green on the bottom line when the cost incurred for service redundancy is eliminated. When products are involved, procurement/supplier consolidation can easily be realized to take advantage of volume and pricing discounts.
- automated workflows, task completion time reductions, and a level of predictability that show up green on the bottom line as a significant reduction in legal employee costs.
- optimized sales operations that show up green on the bottom line as more deals closed faster and more opportunities attained for increased revenue.
Ready to achieve higher levels of contract management ROI? Get help making your case for contract management software with this free guide.
Attain Measurable ROI With CobbleStone Software
It may seem that regardless of how much hard work contract managers and legal departments put into managing contracts, the underlying ROI does not realize its ultimate potential or it’s not measurable in a way that executive leadership takes note.
How can contract professionals guide leadership teams so they appreciate the value that streamlined, effective, and efficient contract management bring to the organization? The solution is CobbleStone.
CobbleStone Software’s Contract Insight® is an award-winning contract management suite that helps organizations get the most value out of their contracts. With the features contract management professionals demand, CobbleStone offers a scalable platform that grows with your organization to support completely automated contract lifecycle management.
See CobbleStone in action by requesting a free demo today.