Tips for Creating a Strong Contract Governance Model
When businesses don’t govern their agreements properly, they suffer from diminished business relationships, financial losses, and lower productivity. An effective contract governance model ensures that your company benefits from its partnerships by allowing you to achieve your KPIs and business goals. The most efficient way to implement a strong governance strategy is by using an automation platform.
The meaning of contract governance
Contract governance is the steps taken to make sure that the agreed-upon terms between a company and its suppliers are met. The focus of governance is to set goals, foster healthy relationships with vendors to ensure order fulfillment, adhere to compliance requirements, and deliver value to the company and its end-users.
Many steps come together to create an optimal contract management model, for example:
- Communicating clearly and frequently from the beginning of the lifecycle
- Mitigating risk throughout the stages of an agreement
- Regularly reviewing performance, specifically when a contract is approaching renewal or expiration.
Consequences of an inefficient contract governance model
The approach you take to governing your agreement can mean the difference between its failure and its success.
Businesses that fail to implement an effective governance process are likely to have many of their agreements flop. This results in lost productivity, money, and business relationships.
Contract management framework tips
Your governance strategy must ensure that obligations are met, high-quality services are being supplied, and that your partners are compliant with all regulations. If governance is not taken seriously, your business’s reputation, finances, and productivity will take a hit. This is why your business must put in the effort to implement an effective governance method.
Here are some tips to improve your contract management process:
1. Improve the visibility of your contracts to avoid contract ambiguity
Keeping contracts spread across various locations leads to contract ambiguity, which is an inaccurate ideal of an agreement’s performance and risks for things like missed deadlines. Improving visibility includes locating every critical document and tracking all key dates. Smart contract management tools allow you to store your documents in a single repository where everything can be accessed and viewed easily.
2. Define the most important contracts that require contract management the most and set KPIs for them
Once you have all of your agreements consolidated into a repository, it’s essential to identify your business’s most important ones in terms of complexity and value. This will help you determine the level of governance required of each contract and apply your resources where they matter the most. However, it’s important to keep in mind that even your lower-stakes contracts should still have an efficient management process in place.
3. Actively monitor any approvals and changes
An inefficient contract management process means that you’ll end up spending too much effort manually working through complex processes, searching for metadata, and seeking out approvals.
Using contract management software to automate approval control and track changes allows you to create an auditable trail for each agreement. A visible audit trail provides you with a clear overview of escalations, re-negotiated terms, updated files, and all communication between you and your partners.
4. Assess and address any potential risks beforehand
Healthy business relationships are built on strong communication, collaboration, and trust. This means that your business must take risk-assessment measures as a part of its contract governance structure, both prior to agreement and while it’s active.
These measures include practices such as:
- Assessing the suitability of an agreement and the supplier for your company goals
- Storing valid certificates to prove compliance efforts
- Calculating risk scores based on impact and probability
- Frequently reporting potential risks to your team
- Determining the potential risks that need to be prioritized
- Having a plan for the worst-case scenario in the event of a breach
5. Track performance and ensure all obligations are met
Looking beyond the terms of an agreement and creating KPIs ensures that your business obtains greater value from its deals from its governance process. Automation will help streamline the performance monitoring process by allowing your business to analyze data through visualization quickly. Software for contract management governance tracks all historical data such as quality reviews, obligation compliance, and commercial value so that you can govern agreements with accurate information.
Using effective contract management governance to achieve your business goals
When your business adopts an effective contract management governance framework, you will benefit from achieving your contract and business goals and meeting your KPIs. Implementing an intelligent contract management program is the easiest way to devise a governance strategy that will benefit your business. This program will automate the governance process, allowing you to focus on developing strong partnerships and driving value into your company.