Managing contracts effectively involves navigating through a wide range of contracts, each with its own unique set of terms and complexities. And as an in-house legal professional, you face the challenge of ensuring that these contracts deliver value in a timely and cost-effective manner.
To address these challenges and ensure that contracts meet the desired targets, it is essential to regularly measure the success of your contracts against key contract management performance metrics.
Let’s explore the power of contract management performance metrics and discover how they can help you measure success, enhance efficiency, and optimize your contract management processes.
Important contract management performance metrics to track
Contract management metrics provide valuable data points that allow you to assess the efficacy and efficiency of your contract lifecycle management processes, ultimately impacting the bottom line of your organization.
“Most C-suite executives bank on data and hard metrics and not word-of-mouth. When you have certain metrics that shed light on how legal teams have contributed to growing the revenue stream of the company, it becomes easier for the GC to make business cases.”
~ Gitanjali Pinto Faleiro, General Counsel, Company Secretary & CCO at Greenhill & Co.
The Counsel Corner: Navigating the C-Suite As a GC
By leveraging industry-leading contract lifecycle management (CLM) software, you can effectively measure and optimize these contract management performance metrics, paving the way for improved contract outcomes.
Cost metrics serve as an essential component in evaluating the performance of contracts. By comparing actual costs against planned budgets, you can assess whether contracts are delivering value for money.
Contract transactions refer to the number of contractual activities or transactions that take place within a given period.
These activities can include drafting and reviewing contracts, negotiating terms, executing agreements, and managing amendments. Tracking contract transactions is crucial as it provides insights into the volume of contractual work being performed and helps assess the workload and resource allocation required for effective contract management.
Contract expenses encompass the financial costs associated with managing and fulfilling contractual obligations. These expenses may include legal fees, external counsel costs, vendor payments, compliance-related expenses, and any other costs incurred in the process of executing and administering contracts.
You can monitor contract expenses by maintaining a comprehensive record of all financial transactions related to contracts, such as invoices, payments, and other financial documentation associated with contracts.
Total contract budget
The total contract budget represents the approved and allocated funds for all activities associated with a specific contract or a portfolio of contracts. It provides a financial framework within which contract management activities are conducted, ensuring that costs are controlled and resources are utilized efficiently.
You can track the total contract budget by establishing budget tracking mechanisms, such as spreadsheets or contract management software.
Remaining contract budget
The remaining contract budget represents the amount of financial resources that are yet to be utilized or expended for a particular contract. It indicates the funds available for future contract-related activities, such as amendments, extensions, or additional services.
You can monitor the remaining contract budget by comparing the actual expenditures against the initial budgeted amount. This involves regularly reviewing financial records, invoices, and payment documentation to track the expenses incurred during the contract execution.
Percentage of used contract budget
The percentage of used contract budget is calculated by dividing the total amount spent on the contract by the initial budgeted amount and multiplying the result by 100.
Percentage of Used Contract Budget = (Total Amount Spent / Initial Budgeted Amount) * 100
This calculation provides a clear understanding of how much of the allocated budget has been utilized during the contract's execution.
implying efficient resource allocation. Conversely, a lower percentage may suggest underutilization or potential opportunities for cost savings.
Percentage of remaining contract budget
The percentage of remaining contract budget is calculated by dividing the remaining funds for the contract by the initial budgeted amount and multiplying the result by 100.
Percentage of Remaining Contract Budget = (Remaining Funds / Initial Budgeted Amount) * 100
This metric helps in-house legal determine the financial capacity for additional contract requirements, such as amendments, extensions, or unforeseen circumstances.
#2 Timely contract execution
Punctuality in contract management refers to the timely execution and fulfillment of contractual obligations, milestones, and deadlines. It emphasizes the importance of meeting agreed-upon timelines and schedules as outlined in the contract.
“Contrary to what business teams might think, legal teams are usually not the ones delaying the contract process. Most times, they are waiting on other teams and stakeholders for review, inputs, or approvals on certain aspects of the contract. It is critical to track these wait times and exclude them to showcase the actual TAT of the legal team. Setting up a process to reduce these wait times will also help Legal reduce contract closure cycle times.”
~ Diwyata Burbure, Senior Vice President – Legal Tech @SpotDraft
- Process analysis
Assess your contract management processes to identify potential bottlenecks or areas where delays are likely to occur.
- Root cause analysis
If deadlines are consistently missed, conducting a root cause analysis can help identify the underlying issues. This analysis may uncover factors such as inadequate resource allocation, lack of communication, or unrealistic scheduling.
- Continuous improvement
Adopt a culture of continuous improvement to enhance punctuality. This involves implementing feedback loops, conducting post-contract reviews, and implementing lessons learned to refine contract management processes and ensure future deadlines are met more effectively.
Reliability is a critical aspect of contract management that focuses on the ability of both parties involved to fulfill their contractual obligations consistently and dependably. It emphasizes trustworthiness, consistency, and predictability in meeting the terms and conditions of the contract.
- Performance metrics
These metrics may include on-time delivery, quality of work, adherence to agreed-upon timelines, and responsiveness. By evaluating performance against these metrics, you can gauge the reliability of each party involved.
- Past performance and references
Considering the past performance and references of contract parties provides insights into their reliability. You can gather information from previous clients or partners to assess the party’s track record in meeting obligations, fulfilling contracts, and maintaining reliable business relationships.
Also read: 8 Top Contract Management Software Platforms
#4 Monitor the quality of contract performance
Consistent quality in contracts refers to the ability to deliver contract-related products, services, and outcomes that meet or exceed the established quality standards consistently throughout the contract duration. It emphasizes the importance of maintaining a high level of quality in all aspects of contract performance.
- Performance metrics
Defining performance metrics related to quality allows you to measure and track the consistency of contract deliverables. Metrics can include defect rates, customer satisfaction scores, adherence to quality specifications, or feedback from stakeholders.
Identify risks like financial losses, client dissatisfaction, damage to reputation, legal disputes, or project delays.
How does SpotDraft help measure contract management performance?
SpotDraft offers robust analytics capabilities, enabling organizations to measure and assess contract management performance effectively. By harnessing the power of analytics, SpotDraft provides valuable insights into various aspects of contract performance, empowering organizations to make data-driven decisions and optimize their contract management processes.
“SpotDraft’s reporting capability is very valuable for showing data around contract lifecycle, turnaround times, bottlenecks, etc.”
~ Nicolette N., Senior Counsel
#1 Contract performance metrics
You can define and track key contract performance metrics, such as cost, punctuality, reliability, and consistent quality.
With its analytics functionality, SpotDraft aggregates and visualizes data related to these metrics, providing users with a comprehensive overview of how well their contracts are performing.
#2 Data visualization
With its intuitive data visualization techniques, such as charts, graphs, and dashboards, SpotDraft helps present contract management performance metrics clearly. This visual representation of data makes it easier for users to understand and interpret the performance trends and patterns.
#3 Comparative analysis
SpotDraft enables you to perform comparative analysis across different contracts or contract portfolios. By benchmarking contract performance metrics against each other, you can identify patterns, trends, and areas for improvement. This helps in identifying best practices and optimizing contract management processes.
#4 Real-time monitoring
You get real-time monitoring of contract performance metrics and access up-to-date information on cost, punctuality, reliability, and quality, allowing you to take proactive measures to address any deviations or issues that arise during the contract lifecycle.
Measure, monitor, and optimize contract management performance
Utilizing contract management performance metrics such as cost, punctuality, reliability, consistent quality, and more, you can effectively track and evaluate the performance of your contract management process.
These metrics provide valuable insights into the efficiency, effectiveness, and compliance of contract management processes, enabling organizations to make data-driven decisions, optimize resource allocation, and mitigate risks.
With SpotDraft, harnessing the power of data and analytics gets much easier than if you were to do it manually. Want to know more? Request a demo!