Contract Management Definition: Its Objectives, Goals, Functions, and Value

It’s crucial to understand the contract management definition if you want your CLM to be of value. CLM includes having a set of goals to ensure that it’s functioning properly.

Contract Management Definition and How it Serves to Drive Value to Your Business

The Importance of Understanding Contract Management Definition, Functions, Goals, and Objectives

Contract management today is not just a luxury but a necessity. However, there is still a proper way to conduct CLM. If you want it to add value to your business, you should put resources into ensuring that your management process is optimized. An optimized management process is the key to managing risks while saving time and money.

Contract Management definition

Contract management is the process of handling the creation, execution, and monitoring of contracts. The process is intended to maximize the operational and financial performance of agreements while reducing risk. Contract management can be extremely time-consuming, so businesses must take care to find a system that optimizes the process. When the management process is optimized, companies can meet the ever-increasing demand of clients and keep up with their competitors. 

How does contract management add value?

When a contract isn’t handled accordingly, your company could lose thousands of dollars over a simple mistake due to court or damage fees. If you lack the resources to identify risk and compliance issues, your agreements can cause more harm than good. This is where the value of contract management comes into play. An effective contract management process can create powerful business relationships that lead to greater profitability in the long run while reducing the number of mistakes in the process.

What are the objectives of contract management?

Every team should have contract management goals and objectives that help keep them on track with improving the performance of their agreements. CLM will help you drive up the value of your agreements if you take the time to ensure that every process is running smoothly and fixings bottlenecks as needed. 

Some common contract management goals and objectives include:

Consolidate and organize documents

More time and resources are spent tracking vital information in contracts when they’re disorganized and spread across various platforms. Disorganized documents also mean a greater likelihood of risk compliance issues, difficulty tracking performance, and lengthened renegotiation processes. An important goal of contract management is to consolidate all of your company agreements onto a single platform that allows you to access crucial information and monitor their performance quickly. 

Cut contract lifecycle lengths

Drafting is a tedious and time-consuming process. Contracts are often reworked during negotiations and passed around to multiple departments while trying to meet a certain deadline. Contract management helps your team spend less time drafting and approving while maintaining improved workflows and fewer mistakes. 

Streamline the contract workflow

The contract management process is likely to take longer when an agreement passes through many hands during approvals. There is also a higher chance for mistakes and the risk of personnel working on different document versions. CLM helps to streamline complex workflows to create sequential and conditional approvals. You can also optimize approvals by implementing redlining, version control, and automated alerts.

Proactively monitor agreements

Businesses tend to file and forget about their contracts. However, tracking and reporting agreements throughout their lifecycles can reduce risk and allow you to identify underperforming contracts. Efficient CLM ensures that all tasks are completed promptly and all deadlines are met long after the agreement is finalized. 

Maintain a full audit trail

Compliance issues that arise from manual audits lead to costly fines and a hit to your company’s repudiation. Creating audit trails through effective CLM helps you maintain compliance within all of your agreements, allowing you to keep up with the ever-changing regulations and contract laws. 

What are contract management functions?

Contract management is at the heart of every beneficial business agreement. Because it plays such a central role in your business relations, you must ensure that your management process is effective. Otherwise, you could risk damaging your company.

Here are the main contract management functions:

Creation

Contract management begins at the initial request, where a contract’s purpose and parties are initially identified. After that, the contract administrators can author the agreement, write down all of the key components such as terms and obligations, and then send the initial draft over to the other party for approval.

Collaboration

After the initial draft is sent to the recipient, they can either approve it as is or send a counter-offer. Typically both parties will collaborate and negotiate to come up with a deal that best serves the interests of both parties. After that, the contract can be approved and executed once all participants sign off on the finalized document. 

Tracking

CLM doesn’t end once the contract is executed. Throughout the term of an agreement, it must be tracked and monitored to ensure that it’s performing optimally. Performance monitoring helps to ensure that both parties are upholding their end of the deal and that the agreement’s value isn’t decreasing during its early phases. Then, the contract must be audited regularly to ensure that no compliance problems or other issues arise.

Renewal

If both parties are satisfied with the performance of the agreement, they can then opt to renew it. Contract renewals allow you to re-establish a deal with another business without having to go through the entire contract creation process again. During renewal, some terms can be renegotiated to fit any circumstances or business goals that may have changed. It’s critical to ensure that you’re keeping up with your renewal dates as not to miss any opportunities. 

The value of contract management in business

Many organizations fail to realize the benefits of effective contract management until they are faced with the negative consequences of their poor CLM strategies. Contract management is often brushed aside in favor of other tasks that seem more profitable to business owners, but resources must be put into ensuring that your contract management strategy is optimized to avoid severe financial and productivity losses. Not only is streamlined CLM necessary, but it also drives up the value of your company. 

The value and benefits of effective CLM include:

  1. Increasing the profits and reducing the costs of business partnerships
  2. Boosting the overall performance and productivity of your company
  3. Controlling the risk level of your contract portfolio
  4. Reducing the chance of running into legal issues
  5. Ensuring that you and the other parties are compliant with your terms and obligations

Guest article written by: Olga V. Mack CEO of Parley Pro, a modern, collaborative, and intuitive contract lifecycle management (CLM) platform that has pioneered online negotiation technology. https://www.linkedin.com/in/olgamack/

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