How To Manage The Performance Of A Contract Through CLM

Contract lifecycle management entails efficiently managing the contracting process, from request through negotiation to execution. But CLM does not end with the signing of a legal document. Contract performance, compliance, and risk management are all integral to contract management.  

Organizations can ensure that all parties fulfill their obligations by monitoring contract performance. It helps to achieve desired contractual outcomes. Moreover, it provides a structured approach to attaining value from a legal agreement. As a result, businesses may identify and adopt the best performance techniques and tools. Continue reading to learn more about contract performance and Key Performance Indicators (KPIs). After that, we will discuss how the CLM system enhances the performance of a contract.   

What are contract management KPIs?   

A typical contract lifecycle includes an array of tasks and processes. While managing these activities is challenging, evaluating their performance is nearly impossible. That is why contract managers require clearly defined criteria to measure the negative and positive outcomes of contracting. It helps to facilitate and improve post-execution management of contractual agreements.  

Contract management KPIs are one such quantifiable approach used by enterprises. It enables them to enhance the contracting process and produce favorable results. Contract KPIs are key performance indicators within a contractual agreement to measure its impact. They display the performance of both pre-and post-execution contracting processes. Some of the popular contract management KPIs utilized by organizations include:  

• Contract lifecycle time    

The contract lifecycle process and duration vary according to the organization, contract type, and the number of stakeholders involved. Regardless, businesses should establish a definite lifecycle time for the contracting process. The standard time may differ according to the industry, purpose, or other significant characteristics.

Establishing and monitoring the contract lifecycle time enables organizations to deliver on time. Also, it helps to identify inadequacies and unnecessary delays in the contracting process. CLM offers numerous tools to reduce the contract lifecycle time, such as bulk actions, templates, etc.   

• Contract Milestones   

Businesses go through several milestones before wrapping up a contract. It signifies the efficiency and effectiveness of the contract management system. Missed milestones are not lucrative to efficient contract management.  

Identifying and keeping tabs on contract milestones can optimize the contracting process. Organizations will not have to wait till the end of the contract lifecycle to take proactive actions against delays. A flawless contractual operation perpetuates better relationships, efficiency, and revenue. CLM comes with automated workflows to keep track of significant contract milestones.    

• Contract Value  

Contract value or total contract value (TCV) is the overall revenue generated from a legal agreement during its lifetime. TCV includes recurring returns and charges. The cost of legal services, personnel, and resources are all included in the contract value.    

It empowers organizations to keep track of expenses of sales, marketing, procurement teams, etc. They can negate dispensable expenditures to perpetuate a financially viable contracting process. Moreover, TCV helps to make informed decisions that improve profits in the long run.     

How does CLM enhance the performance of a contract?  

The contract lifecycle management system offers a consistent approach to maintaining the performance of a contract. It enables organizations to streamline contracting processes and monitor key performance indicators. As a result, flaws and inadequacies in the system can be identified and rectified in the initial stages. Here are some of the tools and strategies businesses can employ to manage contract performance using the CLM system:   

• Ensure contract compliance   

Contract compliance refers to the adherence to the legal terms and conditions outlined in a contractual agreement. Whether a sales or employment contract, sticking to the terms means maximum value and performance for the organization. Contract compliance can have a detrimental effect on the survival of an enterprise. Conformity between what was promised and what was delivered has to be maintained for profitable outcomes. 

Compliance is an ongoing procedure that requires continuous monitoring and review. To ensure contract compliance, CLM offers automated workflows, digital repositories, etc. Additionally, businesses might spot chances for further improvement.     

• Prioritizing resources   

As we discussed, the contract value is a prominent key performance indicator. But for businesses, all the contracts they handle do not hold the same value. Hence, it is integral to prioritize legal agreements according to their significance and risk.    

CLM provides tools to hierarchize contracting processes to ensure enhanced contract performance. Thus, contract managers can target high-risk and high-value to gain maximum returns. And contracts with low-risk and low-value ones are on the back burner in the meantime. Consequently, the legal team can better utilize their time.   

• Connecting with stakeholders    

Productively engaging with stakeholders is an excellent method to improve the performance of a contract. Businesses require constant communication with their vendors and customers to develop fruitful relationships. Fortunately, CLM offers a centralized platform for legal and other teams to connect with the stakeholders. Ensure that everyone understands their respective roles, responsibilities, and obligations.   

Moreover, with an overview of the contract process, stakeholders can scope and share areas for improvement. They can uncover opportunities and mitigate risks in the contracting process. And critically assess relationships and interdependencies to get desired results every time. CLM provides a structured system for collaboration for organizations dealing with numerous contracts and entities.    

• Timely renewals    

Strict schedules are integral to contractual obligations. When organizations have endless legal documents to handle, there is bound to be some oversight, leading to delayed reviews and renewals. Missing contract deadlines can severely affect their performance. Organizations will end up with frustrated customers, partners, and vendors. CLM systems come with automated reminders for contract renewals, expiration, etc.   

It empowers businesses to keep track of important dates and deadlines. Organizations can set up alerts for designated personnel in their workflow. As enterprises can customize the message and reminder, there is no scope for the notification to get lost in the process. It empowers companies to regularly monitor, and review contracting processes to mitigate risk and improve performance.    

• Utilize contract history    

CLM offers a centralized location to store all the legal documents. A digital archive means all the executed contracts are easily accessible to the legal and other teams from anywhere, anytime. The organization can utilize the untapped information available through contract repositories to make informed decisions.    

Without access to contract history, organizations are more prone to make hazardous decisions and repeat mistakes. They will lose track of version histories and amendments, leading to confusion and discrepancies. Moreover, a complete overview of the repository empowers businesses to get insight into contract performance.    

• Quick access to contract data   

The legal and other teams spend far too much time tracking down the contract information. Lack of visibility translates to sub-par contract performance. Companies will have a less effective contracting process without quick and effortless access to pertinent contract data. But thanks to OCR (Optical Character Recognition) and AI-empowered CLM systems, businesses can track, manage, and analyze contract-related information within seconds.   

Organizations can utilize contract data like renewal date, deliverable date, schedules, vendor, and customer information to enhance the contracting process. Also, real-time access to contract data reduces errors and inconsistencies in the authoring process. Consequently, equipped with valuable information, the performance of a contract improves considerably.    

• Monitor contract performance   

For any organization, it is critical to evaluate the performance of its contracts using pertinent metrics. Without monitoring tools and complete visibility, it is tough to gauge the success of your contracting process. Businesses will not be able to find drawbacks in their system, and there is no window for improvement.   

Organizations keep track of quality, deadlines, consistency, and compliance to ensure profitability and efficiency. Contract lifecycle management offers tools to measure results and compare contract performance. And businesses can focus on KPIs relevant to their specific industries. It empowers legal and other teams to steer contract management in the right direction to improve efficiency and profitability.   

Bottom line    

Contract performance essentially means that all the parties involved in a legal agreement fulfill their obligations. Organizations must ensure that the contracts are hitting the proper goals if they want positive results. That is why businesses should regularly evaluate contract performance against relevant metrics. It is tough to keep up with the contractual process without quantitative appraisers. Particularly considering that companies have numerous contracts open with different parties at any moment.   

Contract lifecycle management is an efficient system to identify, monitor, and measure the performance of a contract throughout its lifecycle. It offers an array of tools to improve the visibility and measurability of the contracting process. From rich data sources to automated workflows, advanced aids drive value from contractual agreements. It enables legal and other teams to evaluate the success of their contracts based on contract KPIs relevant to their business.    

Request a live demo today to discover how contract lifecycle management can transform your contracting process.  

Continue your exploration of Contract Lifecycle Management with Dock 365 - Contract Expiration or Renewal.