The celebrated management thinker Peter Drucker once quoted, What is measured, can be managed. For efficient management of contracts, measuring its performance is essential. The contract lifecycle management involves handling the data and evaluating its effectiveness. Establishing key performance indicators enable the contract managers to ascertain the performance of contracts over a period. The key performance indicators facilitate in understanding the basic functionality of every feature in the contract management software with which an organization can efficiently measure, manage, and execute contracts.
Organizations need to align the KPI’s with their business, which helps them in setting realistic and feasible goals. The contract management process has different layers, right from contract request to execution of the same. By managing the process efficiently, the managers create a setting, where achieving the objective of every step in the contracting process is mandatory.
The Key Performance Indicators that can improve the productivity of the contract management lifecycle are:
Segregation of Contracts
Organizations deal with a large volume of contracts. From hiring an employee to closing deals, the type and nature of the contract differ with its applicability. A team of experts is required to manage the contracts while tracking its performance throughout its lifecycle. However, to efficiently manage the contracts, segregation of the contract documents and categorization must be practiced. With the help of a sturdy contract management software, the filtering of the contractual documents according to the activity status, contract type, duration, customer, and more is made viable. The total value of a particular division can be determined, which enables the managers to get an insight into the cost involved and other such parameters.
In the same way, the number of contracts that are in the process, the number of contract requests, the customer/vendor contracts, many more sections can be analyzed effectively.
The KPIs come in handy when it concerns risk management. The contracts are legally bound documents with financial implications. To stay abreast of the contract lifecycle, the managers must track it throughout the duration. When an important aspect, such as renewal or cancellation of the contract is missed, it results in a financial loss or creates legal complications for the company. The key performance indicators serve as a benchmark for the contract managers to ensure that every aspect of a contract is duly monitored and measured. The risk of loss is managed effectively through this system.
The Contract Duration
One of the basic points that are covered while drafting a contract is the period of contract execution. The contractual period between a company and its customer/vendor is mutually decided upon and later signed for processing. However, it is not always the case that the period is observed faithfully. Sometimes the contract might get extended way past the chosen date, and other times it might get canceled. It is a good practice to follow the KPIs and track the days during the contract lifecycle. Calculating the duration is one of the basic indicators of measuring the performance of the contract.
Monitoring the Pre-Execution Period
The process of contract management contains several levels of activities. From a contract requesting stage until the execution, there are various intermediary processes that require intensive attention. The key performance indicators enable the managers to create a checklist of items. Every stage up until the execution, such as contract drafting, legal review, negotiation, drawing the finance structure, and more, can be monitored and moderated effectively. With the contract management software tools, the duration of the process from initiation to completion is managed systematically.
Managing the inflow/outflow of the contract requests is one of the top KPIs. Unlike the conventional method, the contract management software offers a viable solution for modern companies to manage their contracts effectively. The dashboard in the software allows the team to stock up the number of inbound and outbound contract requests. Managing the received requests involves understanding the nature of the contract applications and routing it to the concerned head for verification. With the sent requests, the team can analyze why a request is accepted or rejected and improve on the requisition tactics.
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Monitoring the Compliance
Compliance is a fundamental aspect of every contract. Non-compliance can lead to legal and financial predicaments. One of the best practices is to monitor the rate of compliance of the contracts, based on the customer or the type of contracts.
The number of canceled contracts can provide an insight into business strategy in place. Monitoring the number of canceled contracts can help the company in analyzing the process and make necessary changes to reduce the rate of cancellation. With this KPI, the organization has the potential to make positive improvements and alterations, which in the long run prove to be beneficial.
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The remote working era has been productive in terms of contract execution due to the eSignature feature. The number of companies that are opting to execute the contracts through eSignature is rising steadily. With this key performance indicator, the managing team can assess the number of forthcoming customers/vendors, who eSign the documents to execute it immediately. Early execution reflects on the partner’s interest invested with the organization.
Establishing key performance indicators based on the various processes, activities, and factors can increase the overall productivity of the contract management team. Achieving the KPIs is made simple and viable through the latest contract lifecycle management software, where contracts are managed, executed, monitored efficiently.