I was recently speaking with a finance team about the value of proper contract and commercial management. They quickly understood the “seat belt” analogy which is often applied to contract management. If you haven’t heard it, it goes like this:
Contract Management prevents catastrophic loss like a seat belt prevents the loss of life. Most drivers (like contracts) are perfectly fine and won’t suffer any harm. But seat belts (like contract management) prevent those 1 in 100 instances where something really bad could happen. As such, similar to most countries mandating seat belts for all drivers, a proper risk management organization will mandate contract management for all contracts to prevent catastrophic loss.
The above is a tried and true reason to initiate a contract management program which includes document retention, obligation tracking, change order management, etc. But it’s 2015 now. Companies need more than seat belts when it comes to their contracts. They need jet packs.
This is why we suggest to our clients a stack of services and technology which not only prevent that catastrophic loss, but also put a proactive take on contract management. I told my finance friends that I really enjoy loss prevention, but what gets me out of bed is proactive management of contracts. There are a number of ways to quickly save money and increase value in the contracting cycle, namely:
· Pre-Signature Management: Let’s not just use seat belts to stop loss, but create a contract along lines where risk is lower or has been identified earlier. Rulebooks and template creation can get an organization there with less investment than they think.
· Change Order Management: Many change order management systems only do a check against the rates and time. A fully evolved change order management system can have eight checkpoints to verify cost and pricing. Let’s expect more and get more.
· Invoice Validation: Many governance, risk, and compliance (GRC) programs are really just account reconciliation tools. Let’s go broader and deeper in our contracts and see where the value lies.
Needless to say that because I spoke about money my finance friends listened. I think we all value and respect the value of the seat belt, but proactive contract management which turns into commercial management is a more interesting and worthwhile investment. This is why we counsel our clients to take these steps.