Regardless of the size of a business, there are typically numerous contracts that must be handled. Even if a business has an in-house legal team to oversee contracts, the process of contract management often involves large amounts of valuable resources. Based on how efficiently those contracts are handled, resources may or may not be utilized well. Either way can impact a business’s bottom line, significantly impacting a company's profitability. Thus, strategically optimized contract and resource management are essential to achieve contract and business success.  

KPIs and Metrics To Monitor Performance of Contracts

KPIs and metrics offer useful methods for measuring how well a contracting process is proceeding. Contract management performance measures, also known as key performance indicators (KPIs), provide insight into the management of contracts. Not only do KPIs offer a benchmark for viewing the way contract management processes should appear but they also anticipate results. By establishing expectations, business and legal teams can outline the most efficient workflows for contract management.

The following metrics and KPIs should be monitored when gauging the effectiveness of contract performance management:

• Length of contract lifecycle management performance
• Close rates
• Contract value
• Contract risk
• Approval times
• Missed contract milestones

Contract Efficiency

The time between when a legal division receives necessary information and when the team actually creates the first draft of a contract is an important metric for determining contract efficiency. Plus, the time between when attorneys receive feedback and the arrival of the final draft is another critical indicator of contract efficiency. The ultimate goal is to expend minimal business resources while achieving a worthwhile output.

Contract Efficacy

Contract efficacy refers to the results achieved by how a contract was managed. This metric could include the number of contracts fulfilled per customer or contract type. Additionally, contract efficacy could be based on the annualized value of contracts achieved. This metric can actually be quite varied from one business to another but should be based on an indicator that provides a company with the specific value delivered by contracts.

Contract Risk

Contract risk refers to the amount of risk associated with contract management. This metric could be based on varied factors, including delayed approvals, the number of disputes associated with contract management, and the number of contracts that are not renewed.

How to Improve Contract Performance

Contract performance involves meeting assurances that have been made within a contract. In other words, all parties to the contract must successfully do what they have said they were going to do. This usually must occur within a specific timeline. Failure to meet those promises means that the terms of the contract have not been performed. This could result in a breach of contract.

Along with all parties doing what they have said they will do, contract performance also means parties not doing anything they have agreed they will not do.

The following steps can help to improve contract performance.

Having a centralized location to store all contracts

Centralized contract storage makes it easier to ensure contractual obligations are fulfilled. This allows businesses to collect their numerous executed contracts in a central location and track the benchmarks and deadlines of each contract.

Setting up a system that makes it possible to review important contract details quickly also makes it possible to ensure contract-related data is collected accurately. Captured details might include:

• Contract owner
• Contract type
• Contract duration
• Contract value
• Contract renewal deadlines

It can be easy for deadlines in contracts to slip past unnoticed. Thus, setting up effective contract reminders ensures that vital deadlines are not missed, preventing a contract breach.

Go Over Your Current Strategy for Monitoring Contractual Performance

All systems can benefit from a routine review to ensure everything is up to date. Contract performance management is no different.

Refine Your Negotiation Strategy

Your negotiation strategy is an essential element involved in achieving optimal contract performance. One of the best ways to ensure a team is prepared for contract negotiations includes reviewing the performance of previous contracts. What went right? What could be improved?

Contracts naturally vary according to certain terms and content, but experienced legal teams typically utilize many of the same clauses and terms. Consequently, it is reasonable to anticipate that these terms will be more likely negotiated than other terms.

Automate Your Contracting Process

An automated contracting process tool makes it much easier to track negotiable terms. With a contract automation tool in place, legal teams are in a much better position to make more informed decisions regarding which terms other parties are more likely to negotiate and which they are less likely to negotiate. Ultimately, this makes it much easier for companies to achieve the best possible outcome per contract.

Frequently Analyze Performance Reports

Analyzing performance reports frequently can also provide valuable insight into the contract management performance process. Similar to a health checkup, frequent analysis of performance reports offers insight into what is not working well in the contract management process and what could be improved to achieve enhanced results.

If you have questions about vendor performance, then a performance analysis report can provide you with the insight you need to determine how well specific vendors are performing according to contract terms.

Continuously Improve Your Contract Management Workflow with the Right Tools

The right tools offer the opportunity to continuously improve your business’s contract management workflow. Aline provides a full suite of contract management tools to assist businesses with handling everything from initiating contract negotiations to finalizing contracts and everything in between. Our tools apply to companies involved in various industries, including contract performance management.

Aline is pleased to offer various contract performance management tools to help in-house legal teams manage contracts effectively. To learn more, contact us today!