When people think about analytics, they often think of hard numbers being collected, aggregated and then arranged in insightful ways. In Finance & Accounting these can be powerful tools and drive attention and activity within an organization so as to make it smarter and more efficient.
The same can be said of analytics and contract management, but I don’t think there is a lot of awareness of these capabilities. I also believe there may be a misconception that the analytics of contracts are simply the number of contracts signed or total contract value of contracts and termination date reporting. Because of this, people resist using analytics in contract management because they perceive it as too basic and lacking in value. However, I write here to tell you that this is wrong. If you go broader and deeper into the subject, there is much to gain from contract analytics.
Based on what I am seeing in the market, there is a definitive need for these types of reports and intelligence. There is also a growing demand for services to better manage contracts with greater analytical insights across all phases of the contract lifecycle. Allow me to share just two areas where data on contracts could lead to real savings or avoidance of risk.
Recently a client asked me how we could help him transform the types of contracts his teams are signing. My response was to be clear about what is good and what is bad. We may not all be experts in finance, law and operations simultaneously, but we all understand a simple scorecard. A multi-quadrant approach which scores terms or contracts against risk or opportunity can be a powerful tool when there is enough information and a proper dashboard in place. Everyone is competitive in business and everyone wants their deals to be positioned as favorably as possible.
Many companies who do contract management will look at the compliance reporting on their obligations. This is a standard approach and necessary step to at least get to “Good in Class”. But what is more interesting is to track contract performance through the lens of deviation from standard terms.
When a contract or relationship goes poorly there are many variables to explore if you are trying to fix the contract or avoid the mistakes in the future. Delivery and relationship matter, but so do the terms & conditions. We all make compromises to close deals, but are we always doing that in an intelligent, fact-based way or relying upon what we feel?
What if I told you there was a way to reduce the variables and get to facts? Imagine if you are managing buy sell contracts, then this would mean to track the deviation from the business cases for your contracts in portfolio through the filter of deviation from standard templates. As a vendor this allows a company to look at the financial performance against deviations from preferred positions.
By looking at this three dimensionally, you could look at performance, deviation from preferred positions and then see trends and correlations so that as an organization you would know and see where money or opportunity was lost and not just have a “feeling.”
In both of these examples we can take what looks like just written words and make their meaning very clear through analytics. These analytics can then be used to drive behavior and performance.