What is contract management, and why is it important?
Contract management is the process of managing contract creation, execution, and analysis to maximize operational and financial performance at an organization, all while reducing financial risk. Organizations encounter an ever-increasing amount of pressure to reduce costs and improve company performance. Contract management proves to be a very time-consuming element of business, which facilitates the need for an effective and automated contract management system.
What are the phases of the contract management process?
Contract management can be divided into three phases: In the post-award or “downstream” phase, some organisations have a contract management team, others may require operational managers to include the management of contracts within their role. The Chartered Institute of Procurement & Supply (CIPS) suggests that the requirement for dedicated contract management depends on contract value, contract length, complexity of services and level of risk, although in the initial stages of a contract, the assessment of risk and the implementation of core contract management processes may be appropriate tasks for a dedicated contract manager. CIPS also notes that in some cases the procurement team may have an extended role in maintaining contract management.
Top 3 Steps to Take Now to Improve Contract Management
If your contract management process needs improvement, or if you don’t have a formal process in place at all, these three steps can put you on the fast track to contract management success.
- Conduct an audit of all things contract related before you can start taking steps to solve your biggest contract management problems. You must understand what those problems are. Conduct a contract management audit that includes all the stakeholders, resources, and processes across your organization that impact how your contracts are handled from negotiation and creation to execution and management.
- Develop a formal contract management framework using the findings from your audit. You can now put into place a structured approach to managing your contract portfolio. This framework should address every element of the contract management process and clearly define what should be happening at each stage. The plan should also include things like roles and departments responsible for various contract-related tasks and processes, how contract management performance is measured, and any tools and systems that should be used during the contract management process.
- Use technology to make it easier. Implementing dedicated contract management software can vastly improve your ability to manage your contract portfolio and all your organization’s contract-related deadlines and deliverables. Once your portfolio reaches a certain size or level of complexity, it becomes next to impossible to effectively track and act on every aspect of your contract management process using only manual tools and systems. With the right contract management software, your organization can regain control of your contract portfolio.