Effective contract management is essential for ensuring smooth business operations and fostering long-term business relationships. Key Performance Indicators (KPIs) play a pivotal role here by providing insights to enhance contract lifecycle management and achieve business objectives. In this article, we will explore four tips on using KPIs for contract management. Let’s get started!
What are Contract Management KPIs?
Key performance indicators in contract management help businesses evaluate how well they are doing in this area and pinpoint places where they may do better. Some KPIs for contract management are as follows:
- Contract Cycle Time
- Contract Compliance
- Contract Renewal Rate
- Contract Expiry & Renewal Management
- Contract Value
- Contract Turnaround Time
- Contract Approval Time
- Contract Negotiation Time
- Contract Abandonment Rate
- Dispute Resolution Time
- Document Accuracy
- Contract Visibility
- Contract Cost Control
- Contract Vendor Performance
- Contract Satisfaction Score
Why Are Contract Management KPIs Important?Â
Contract management is an essential part of every successful business venture. KPIs are a useful tool for gauging the efficacy of your contract management strategy. These metrics are primarily used to quantify the effectiveness of contract lifecycle management so that organizations can determine whether processes are becoming better or whether they need to be adjusted. Compared to metrics like employee feedback that are inherently subjective, KPIs provide an objective evaluation of performance and allow businesses to pinpoint problem areas with confidence.Â
Additionally, businesses are able to make well-informed decisions by using objective performance data rather than relying on hunches or anecdotal evidence. Hidden costs of lost business opportunities because of delays in passing contracts between departments and parties add up quickly. This is where KPIs like contract turnaround time, approval time, and negotiation time come in exceptionally handy. Besides providing actionable insights on causes of delays and inefficiencies in contract workflows, these KPIs draw attention to potential danger zones like legal non-compliance. With this information readily available, businesses can quickly review their existing processes, remove bottlenecks, mitigate risks, and speed up contract cycles.Â
Understanding the reasons why some counterparties abandoned a contract midway or did not renew is crucial for figuring out what can be done to boost retention rates. To this end, examining the percentage increase or decrease in KPIs such as contract renewal rate and contract abandonment rate from the preceding year, month, or quarter might reveal positive or negative patterns as well as areas for growth.
Having said that, it is important to choose KPIs carefully to make sure they match organizational goals. Here are some suggestions for customizing these KPIs according to your contract workflows.Â
Tips to Use KPIs in Contract Management Effectively
Tip #1: Clearly define your objectives and KPIs.
The first step in using KPIs for contract management is to establish objectives. Determine what you aim to achieve through your contract management efforts. Are you looking to reduce the time it takes for contracts to improve compliance or enhance contract renewal rates? Once your objectives are defined, choose KPIs that align with these goals.
Tip #2: Implement real-time tracking and reporting.
In today’s dynamic business environment, it is crucial to have real-time tracking and reporting for proactive risk management. Fortunately, modern contract management software enables organizations to capture data in real time and generate insights on metrics related to contracts. The intuitive Business Intelligence (BI) dashboards of these softwares provide visual representations of KPIs, which allow you to identify trends, pinpoint bottlenecks, and make informed decisions promptly.
Tip # 3: Choose the right benchmarks.
Contract management KPIs are more than simply a useful tool. As a benchmark for future improvement, they show how well your company is doing in relation to its objectives. But it’s important to build these standards on facts, industry norms, and best practices. Also, constant progress is possible only if your goals are regularly revised. For example, if your contract renewal rate is currently 70%, a good goal to shoot for at the end of the quarter would be 85%.
Tip # 4: Use KPI insights for decision-making.
KPIs for contract lifecycle management are most valuable when used as a decision-making tool. Data analysis is the next logical step after data collection. Examine the metrics for any discernible patterns, trends, or causes for worry. If you’ve seen an extended period of time between contract approvals, for instance, you should try to determine why that’s the case. Is there a delay in getting approvals? Is there a breakdown in dialogue between relevant parties? Use this information to your advantage by making decisions that will streamline your organization’s contract management workflows and boost their performance.
Conclusion
Strategic goal-setting, customized KPIs, real-time monitoring, continuous improvement, and data-driven decision-making are all essential components of effective contract management. These four tips can help businesses of all sizes use KPIs to their full potential, resulting in shortened contract cycles, increased compliance rates, and more successful contract renewals.
Author Bio:
Qurat-ul-Ain Ghazali, aka Annie, is the growth manager at Contractbook and looks after all the organic channels. She has been with tech startups and scaleups for a couple of years with a B2B focus. You can find her socializing, traveling, indulging in extreme sports, and enjoying the local desserts when she is not working.
