10 Dos and Don’ts of a Contract Management Strategy
Contracts can make or break a business. But with the right strategy in place, they can become the foundation for success. Discover the dos and don’ts of contract management strategies that let organizations meet their objectives efficiently. By Implementing these strategies, you can seamlessly transform your team’s approach and drive effective outcomes.
What is a Contract Management Strategy?
A contract management strategy is a robust business tool comprising a set of plans and processes that helps firms evaluate each step of their contract management lifecycle closely. The major objective of this strategy is to save time, reduce risks, and increase the efficiency of the procurement processes.
Why is a CLM Strategy Important?
A survey suggests that inefficient contract management can lead to up to 40% loss of the contract’s value. Hence, you must devise a comprehensive contract management strategy to eliminate such risks.
This approach ensures that everything is being conducted in accordance with legal compliance, as minor negligence can lead to unfavorable consequences like penalties or reputational damage. An effective contract management strategy is also important to ensure the project is completed within its timeline.
How to Craft Effective Contract Management Strategies?
A few things that you must implement within your contract management plan include:
1. Establish Clear Objectives
Having realistic expectations from a contract is crucial to streamline the firm’s legal and financial affairs. Here’s why teams should consider this as an integral part of their contract management strategy:
Ensures adequate resourcing – Setting clear goals makes it easier to allocate appropriate resources for managing contracts from the beginning. This applies to anything, including funding, personnel, or other necessary supplies.
Supports continuity – Consistency is an important aspect of an effective contract management strategy. Having a detailed plan helps organizations efficiently continue the CLM, even if there are unpredictable disruptions.
2. Regularly Monitor Contract Performance
The team members should understand their responsibility extends beyond creating a comprehensive contract. It is equally crucial to keep a close eye on its performance concerning the fulfillment of all the obligations and duties.
Additionally, frequent monitoring of the contract can identify any upcoming issues. Early detection helps resolve the problem before it becomes huge enough to pose professional threats.
3. Build a Strong Partnership with Contractors
Conflicts are bound to happen in any work environment, especially due to a difference of opinion. But, this in no way should impact the project’s performance. And to ensure this, you’ll need to enforce a strong relationship with all your contractors.
It is only possible through communication. From the creation of the contract’s framework to its expiration, communication is something that shouldn’t be neglected.
Your team members must discuss all the objectives clearly and also send weekly updates to the client about the project’s progress. Moreover, they are responsible for politely informing the vendor if anything is not up to the mark.
4. Train Employees
Contractual affairs are highly sensitive, but not just from the legal point of view. In fact, your project’s entire success depends on how effectively the CLM is being managed. Hence, as a business owner, you must prioritize informing your employees about the best contract management strategies.
Arranging frequent workshops and seminars can be an excellent approach to achieving this goal. Moreover, you can also provide access to different CLM resources, like videos, guides, etc., to the team members for their effective training.
5. Regularly Update the CLM Strategy
Regular modification of contract management strategies must be taken seriously by firm owners. It helps align business operations with the constantly evolving legal and industrial landscape.
Simply put, the CLM management plan must be updated according to the following:
● Changing market conditions
● Introduction of new regulatory requirements
● Shifts in technology
Here are a few things that you must not do while planning your business’s contract management strategies:
1. Don’t Overlook Risks
It is important to implement the work culture of taking contract risks seriously, irrespective of their intensity and nature. A problem may seem minor initially, but it won’t take much time to transform into a huge barrier for your contractual operations.
Some of the common risks that you must keep a tab on include the following:
● Missing project deadlines or renewing the contracts without cost evaluation can lead to financial risks.
● Breach of contract or failure to comply with regulatory requirements may expose your firm to legal risks.
● If the contract data is shared with any unauthorized third party, there will be increased chances of security risks.
2. Avoid Relying on Manual Processes
Almost 60 to 80% of a business’s operations are governed by contracts. Relying completely on your employees will not only reduce the productivity rate but also increases the chances of errors. That’s why you should incorporate contract management software to streamline the workflow.
Moreover, it also helps with the following:
● Reducing the contract approval time
● Increasing contract visibility by storing all files in a centralized repository
● Keeping track of contract renewal dates
● Complying with all the legal standards
3. Never Delay Contract Approval
The contract should be sent to the vendor for review and approval as soon as it’s created. Delaying it can lead to several consequences which might disturb the entire project. For example, your client may take the delay for your disinterest and move on to other options.
Additionally, if your contract has deadlines, holding it back can lead to a breach of the terms and conditions. This might expose you to legal actions and fines.
4. Don’t Underestimate the Importance of Collaboration
Your relationship with the vendor must not be restricted to the supply of the goods. Instead, there should be an effective collaboration between both parties to avoid any last-minute disputes.
This approach ensures that everyone involved in the contract understands the terms and conditions clearly and knows their role.
Moreover, it helps your firm and vendor have a deeper understanding of each other’s priorities, leading to more productive and mutually beneficial relationships.
5. Never Neglect Data
Every step of a contract’s lifecycle presents valuable data analysis opportunities which must not be neglected. Instead, your team members can leverage it to evaluate the success-driving and obsolete strategies to upgrade the contract management planning strategy accordingly.
You can also take the route of automating data analysis with the help of software. This approach not only saves your time but also guarantees increased efficiency by streamlining the workflow.
Moreover, it provides a detailed overview of the contract’s performance and potential risks, helping you make informed decisions.
Benefits of Implementing an Effective Contract Management Strategy
Effective execution of contract management in any firm can put the foundation of its success. Let’s briefly overview the benefits businesses can enjoy with a comprehensive CLM strategy in place:
Improved efficiency – Streamlining contract management affairs with competent software can save time. Organizations can improve their work efficiency through this as more time can be directed toward fulfilling the contractual objectives.
Risk mitigation – Firms with advanced contract management systems comply more with regulatory requirements. It helps them detect and resolve upcoming risks through strict monitoring and audit trails.
Faster revenue – Through effective contract management, organizations can expedite the contract execution process. It helps them begin the project sooner and achieve the revenue goals quickly.
Contracts are an integral part of a business, and their fulfillment greatly impacts determining its success rate. Hence, every firm must devise an effective contract management strategy to increase efficiency and eliminate risks.
By following the dos and don’ts outlined in this article, you can definitely optimize your contractual processes and achieve greater success in your operations.