Six Strategies to Optimize Your ROI for a Contract Management System

Six Strategies to Optimize Your CMS ROI Today
by Sarvarth Misra

If you are anything like other legal leaders who have adopted a contract management system (CMS) for their companies, you will want to optimize your ROI outcome ‘right out of the blocks.’

And you will find that success first comes from extending platform access to all employees, especially those who have substantial responsibilities around contract management. It also helps to integrate contract lifecycle management (CLM) software with the complementary business applications that are currently available.

Naturally, every organization’s circumstances are unique. There is a host of individual factors like annual legal services spend, and the tools and workflows they implement to manage their agreements. Combined with the very nature of their buy-side, sell-side, and operational contracts, these factors determine how long it will take to optimize ROI for a CLM system. They also affect how much ROI companies can harvest over a period of time.

When calculating contract management ROI, specifically, you should look at the total cost of ownership (TCO) of the CLM system. This cost is relative to the strategic gains of deploying the platform throughout your business. This TCO should include:

  • CLM platform licensing subscription costs
  • CLM Implementation and training costs
  • Change management costs

Now, here are six effective strategies to help optimize your ROI, which prove valuable during the building of a business case.

1. Prioritizing Internal Contract Management Efficiencies

Consider for a moment the human hours your finance, procurement, sales, executive, and legal teams spend working on your contracts — from creation to execution. Some of the business efficiencies tied to contract automation are easy to quantify and measure against dollar values. But others are more abstract and, therefore, more difficult to put a dollar, pound, or euro value on immediately.

If you use a savings calculator to tally up the hours employees spend on high-volume, repetitive, contract-related tasks, you may be astounded. The volume of agreements in a repository and the kinds of contract forms are unique to different organizations. However, every contract represents an invaluable relationship that can dictate the success or failure of a business.A contract management application accelerates contract assembly through templates and draws from agreements in your repository.

Simply finding an agreement on a shared drive or other generic document management system can be challenging and impede the productivity of your information workers. A contract management application, though, accelerates contract assembly through templates and draws from pre-approved terms from agreements in your repository. It saves many person hours — or even days — in the contract authoring process.

In particular, AI-powered contract review saves your legal or contract management team from having to completely review every page, paragraph, and detail. A trained virtual contract assistant can learn from your existing contracts and your contracts team, and determine what is acceptable as far as risk, verbiage, and company policy are concerned. It can also apply that learning to catching and mitigating any errors or non-standard terms in contracts.

2. Making Fewer Mistakes and Having More Visibility Through Analytics and Workflows

Working with static contract-tracking spreadsheets or other manual methods can mean missed expiry and renewal dates. Unacceptable service levels and supply orders, which do not meet their promises, may carry significant financial penalties or even cause a breach and termination of an agreement. These errors, in addition to the incorrectly or poorly worded contracts mentioned above, can all be minimized or avoided altogether with intelligent contract management.

If the promise of accelerating contract preparation and review times does not promise enough ROI to justify your CLM investment, the risk of contract breach or cancellation certainly will. If customers notice your business is not living up to your contract terms before you can take the necessary steps to get back on track, it may be too late to recover that relationship and prevent reputational damage.

In essence, a CLM platform has powerful analytics and workflow alerts to notify users of missed contract terms and milestones post-award, and pending expiry dates. This results in agreements that go full-term and higher renewal rates, as well as increased revenues. Or better yet, with such a system, you can offer auto-renewals as part of a multi-year deal and foster long-term business relationships.

3. Thinking About Outside Legal Cost SavingsWhen calculating contract management ROI, you should look at the TCO of the CLM system

A CLM platform, which takes over the “heavy lifting” of reviewing contracts and flagging the risk of violating contract terms, can reduce your spending on outside counsel. And these savings contribute significantly to optimize your CLM ROI overall.

For example, you can issue or sign off on agreements that are thoroughly vetted with the help of AI, based on a defined set of rules. Your corporate legal teams can address and escalate complex anomaly terms. In this scenario, you can minimize the risk of sending out contracts with terms you cannot — or are not prepared to — live up to, and putting yourself in an untenable situation during the contract term. That is because non-standard terms can be prioritized during the negotiation process. And other routine matters can be accepted per your company policies and historically approved terms.

4. Accelerated Negotiation Cycles

Quick contract review and negotiation cycles signal to your negotiating partner that your company is trustworthy and easy to do business within the short and long terms. It communicates that your business is competent and capable of delivering on the terms of agreements. In addition, negotiating contract terms with partners, customers, and suppliers in a secure collaboration space provides added transparency and version control.

Has your company ever lost or passed on a significant contract because of prolonged negotiations, due to complex terms or delays in getting stakeholders to the table? Frictionless, collaborative contract negotiations can get a business relationship off on the right foot and increase the likelihood of its profitability.

5. Integrating CLM Into Your Business App Ecosystem

Have you invested in an ERP or CRM platforms, such as SAP, Oracle, or Salesforce? If that is the case, you should select a CLM system that is readily interoperable with your existing on-premise or SaaS applications. After all, the cost of custom integration or functionality is expensive and risky. What is more, the successful integration of processes — like sales, procurement, HR, and finance — with your contract management platform creates complete, auditable workflows and eliminates redundant administrative work.

6. Improving Contract Management and Mitigating Risk to Optimize ROI

The amount of risk that a CLM platform helps to reduce is challenging to measure but cannot be undervalued. Compliance, legal, and business risks come in many forms. However, the platform helps to standardize contract language and prevent surprises, like an unacceptable term being signed off on in the heat of negotiations.

Is your business is looking for ways to get more out of your contracts — from the data and insights contained within them, or from the relationships they represent? Invest the time to understand the TCO of a CLM platform that will meet your needs. Then, gain an understanding of the benefits of improving contract management processes in your organization. Ask yourself:

  1. How employees, who work with contracts, can be more productive by using a CLM system?
  2. What costs can be reduced by implementing a CLM system (e.g., contract legal reviews, non-compliance penalties, and uncompleted contract terms)?
  3. How better visibility into contract performance data can improve profitability, enhance relationships, and make the most of opportunities like auto-renewals?

At the end of the day, agreements are more than administrative files; rather, they are the most tangible representation of your company’s strategic relationships. Think of them as important relics from your organization’s past — and vital components of its future.

How much ROI you generate, then, really depends on the level of commitment you make to better contract stewardship — and the CLM solution you choose to implement.

Sarvarth Misra

 Sarvarth Misra
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