Contract Management KPIs - Setting the Right Priorities

Contract Management KPIs - Setting the Right Priorities

11th June 2020

Contract Management KPIs - Setting the Right Priorities

By Sarvarth Misra, Co-founder, and CEO at ContractPodAi 

Implementing a cloud-based contract management system (CMS ) - with a robust AI analytics engine - is a lot like buying a new luxury vehicle and driving it off the lot for the very first time.

Just as you would fill the gas tank or charge the battery of a new vehicle before navigating your favorite streets, your contract management team will load profiled contracts into the repository. Next, they will pull up the analytics function before scrutinizing your library of agreements under a number of contract management key performance indicator (KPI) lenses.

The performance metrics that you use to generate your reports on that first day may not be significant in the long term. If your business is a startup, the number of review cycles that a contract goes through may not matter as much. As businesses mature, however, contract KPIs - like supplier inventory delivery reliability, time to the signature, and compliance adherence - increase in overall importance.

Now, let's explore why KPIs are vital for contract management - and how to prioritize the metrics that are most important to your business.

How Acceptable is Risk to Your Business?

Businesses that are focused on delivering on time-limited or recurring services contracts can fall anywhere on the risk-tolerance spectrum. Large systems integrators may be willing to sign government fixed-price contracts, while most smaller consulting firms tend to look for time and materials agreements. Either way, different types of contracts call for varying levels of risk tolerance and mitigation strategies.

Different types of contracts call for varying levels of risk tolerance and mitigation strategies.

Integrators that enter into and complete fixed-price engagements should analyze the estimated contract scope. And this should be against the time that their consultants actually take to complete a project, not to mention the expenses that they incur.

That way, the next time a consulting firm’s business development team creates a proposal for a similar project, they can add more contingency dollars to it. Or they can lower their estimate if the project was priced too high relative to the requirements. Some integrators may even choose to mitigate risk by bidding on fewer fixed-price projects.

In the scenarios above, KPIs related to project delivery timelines, resource utilization, and acceptable risk should be a high priority for the legal team and operations. On the other hand, a software as a service (SaaS) provider will care more about metrics, such as:

  • Customer churn
  • Renewal dates and rates
  • Time from contract offer to signature
  • Percentage of contracts with customer success, training, or premium support add-ons

A SaaS vendor offering a business application to a global audience will have a different risk tolerance than a government contractor, generally. SaaS risks entail missing performance metrics like uptime or data loss due to a security breach. Typically speaking, identifying how many contracts include penalties for not meeting performance terms is as important as knowing how many contracts were renewed last quarter.

Contract Risk KPIs you should look for include:

  • Number of variances from standard clauses
  • Number of agreements that will expire soon or don’t have a renewal date
  • Number of contracts that don’t have valid approval signatures
  • Unqualified vendor authorizations
  • Legal disputes resolved

 

Can an API Help Your Business Grow, Evolve, or Recover?

When properly “trained” and configured, an AI-powered contracts analytics engine can uncover real-time insights about what is truly happening in your business. Some reports will contain good news, which you can then build upon. Others will be rich with learning opportunities and actionable insights, such as contract approval bottlenecks or decreasing contract margins.

AI algorithms, with minimal pre-programmed bias, are far less tactful colleagues than human contract administration staff. Yet, the statistics they bring to light can help your management team make data-driven decisions to solve problems that you may not have realized even existed.

You may consider these KPIs as contract efficacy metrics, such as average account value, the volume of contracts per customer, and the value of non-renewed contracts.

Want to take corrective action, like increasing productivity, reducing the number of contract revision cycles, or minimizing audit exposures? Well, that generally requires identifying the desired outcome and working back from that goal to discover the best way to meet that objective.

Smart Contract Management Demands SMART KPIs

This may seem like going back in time to your early business school days. But when you are selecting and prioritizing your contract lifecycle management KPIs, make sure that they are SMART:

SMART contract management demands

SMART contract KPIs often relate to performance measures, such as contract cycle time, new account acquisition metrics, geographic market expansion, and contract value assessments.

Is your business struggling to define the KPIs that will give you the best visibility into the performance of your business? Are you seeking a contract management platform that will give you current, reliable insights into SMART KPIs - those that will help your business succeed over the long term?

Why not contact ContractPodAi today for a tailored demonstration?

AUTHOR:

Sarvarth Misra

Sarvarth Misra
Co-founder and CEO
Connect with us on LinkedIn 

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