The Principles of Contract Lifecycle Management

    The concept of Contract Lifecycle Management frequently features in business discussions for the simple reason that legal agreements are central to the success of commercial enterprise. Contracts are the lifeblood of business, defining and governing relationships between all parties, and facilitating the flow of goods, services, and revenue. Efficacy in the management of these documents can also enhance the profitability of a business by streamlining the process and surfacing new opportunities.

    There is a subtle but important difference between the basic ‘management’ of contracts and Contract Lifecycle Management, however, with the distinction clearly lying in the ‘lifecycle’ element. Businesses have had to ‘manage’ contracts since the concept of legal agreements was first introduced and, historically, this generally involved stacks of paper and complex, manual filing systems. Indeed, any effort directed at dealing with the content of a contract can be categorized as ‘contract management,’ but Contract Lifecycle Management is a process that specifically approaches the legal agreement as a whole, rather than as individual parts. This altogether more holistic approach ensures that streamlining of the contracting process is faster and more effective.

    Four Principles of CLM

    With Contract Lifecycle Management being the most effective approach to the administration of legal agreements in business, it is important to implement a plan that takes into account the most reliable, tried and tested lifecycle management strategies. In that respect, there are four core principles to follow, in order to secure continued future success:

    Centralize 

    The holistic approach of Contract Lifecycle Management is not confined to individual agreements. It is also based in the principle of the entire contract library being one, unified whole. Centralizing all contract documentation transforms the contract collection into a single source of truth, with all of the data contained within it becoming a valuable tool, available for use. A contract collection cannot be streamlined if it is stored in a variety of locations in a range of different ways. Every piece of documentation must be accessible quickly and easily.

    Standardize 

    The global marketplace is inherently risky, but recent years have seen commercial risk grow seemingly exponentially. Risk management is consequently a vital part of every business process in modern trading and the standardization of contract terms and conditions is a significant factor in effective risk mitigation. By using language and clauses that are agreed by the leadership and legal teams of an organization, businesses can negotiate and create contracts from a position of confidence – that the most common risk-inducing elements have been taken into account when drafting the contract. Once the content of the document is standardized, the sales cycle can shorten, releasing personnel to bring in additional deals. Moreover, standardized content enables the standardization of administrative processes, including approval and execution. All of these improvements help to increase the efficiency of the contracting process.

    Automate 

    Automation of basic administrative processes is the fastest, most effective way to streamline any system, including Contract Lifecycle Management. By moving to an entirely digital strategy, reducing the need for human input, and incorporating a high degree of automation, two advantages are gained: speed and risk reduction. Automation can generally perform administrative tasks far quicker than humans can – not least because the system does not rely on humans showing up in the first place. Automation can ensure that these types of task continue without disruption, whether humans are at work, on vacation, or are ill. This also relates to risk reduction, with automation delivering this type of scalability and reliability - helping the business withstand issues created by public health emergencies and extreme weather conditions. Furthermore, the automation of such processes means that the Contract Lifecycle Management strategy of a business is not dependent upon the continued professional development of staff, or the lack of mistakes made as a human error.

    Monitor 

    Having centralized and standardized the contract collection, and having automated significant parts of its administration, the documents can then be monitored at various levels of granularity. Monitoring of the contract collection means analyzing the performance of agreements as individual deals and groups of deals, as well as monitoring for internal compliance. It is the monitoring of the contract collection that determines whether you are receiving the goods and services you should be, at the times expected, and whether you are providing the same. This not only enables decision-making based in data, but also ensures that risk is greatly reduced. This risk management strategy works by minimizing the risk of contractual conflict and dispute and mitigating risk through evidence-based decisions about Third Party relationships.

    Speed and Accuracy

    It is the lifecycle approach that facilitates the speed and accuracy needed for effective Contract Management processes. Regardless of how carefully a business administrates it’s Excel spreadsheets or manual filing system, handling legal agreements in this way does not allow for proactive strategies. Viewing each contract in terms of its whole duration transforms these methods from document management to relationship management, which enables businesses to use contract data as an additional commercial tool, rather than a housekeeping task.

    By increasing the speed at which contracts are created, negotiated, approved and executed, sales cycles are shortened. This results in staff being able to follow up a greater number of sales leads, but it also means that the financial benefits of each individual contract are seen sooner. Reducing the amount of time spent on administration in the early contract lifecycle stages sees each agreement activated more quickly, potentially creating profit earlier.

    By increasing the accuracy of contract creation, execution and monitoring, risk is minimized. This is because Third Party due diligence, drafting and monitoring are all supported by the centralization of contract documentation. Utilizing this data pool as a resource for evidence-based decisions ensures that all authorized personnel have the most up-to-date versions of approved language, and the most current information about Third Parties and potential, further business opportunities.

    How Software Supports the Principles of CLM

    Having established the benefits of the lifecycle approach to the management of business contracts, it becomes clear that a digital solution is the best way to implement an effective Contract Lifecycle Management plan. Contract Lifecycle Management software  is specifically designed to cater to the lifecycle approach, with a range of features that deliver all the advantages that this strategy involves, in a single product.

      • Centralized Repository – The centralized repository is the core of Contract Lifecycle Management software, and it serves multiple purposes. Firstly, it provides the single contract storage location required for effective, long term lifecycle management. Secondly, it incorporates customizable tagging for contract metadata, to facilitate classification of contracts and to transform the collection into a searchable resource. Thirdly, it allows for the creation of a standardized template library, thereby ensuring that all language and clauses are pre-approved and consequently speeding up the process of contract creation, approval and execution.

      • Automated Processes – The Contract Lifecycle Management software incorporates a high degree of automation, which significantly increases efficiency within the system, and the business processes.

      • Audit Trails – The browser-based platform design of the software creates effective data security for the system by enabling collaboration with permission-based access. The additional benefit of this feature is the creation of automated audit trails. By accurately logging all user activity, high levels of accountability and transparency are maintained. This, in turn, supports compliance with both internal and external regulations, as well as compliance with contractual obligations.

      • Workflow – Automated workflows ensure that the right task is flagged up to the right person at the right time. This supports businesses in efforts to guarantee that milestones are met and schedules are maintained throughout the duration of the contract lifecycle. Like automated audit trails, automated workflows are an important factor in compliance – with regulations and contractual requirements.

      • Data Tracking – Automation allows for businesses to track data according to customized Key Performance Indicators. By specifying exactly which data is needed to enhance the profitability of the operation, organizations can closely monitor activity and progress, providing the information needed to make revenue-enhancing decisions.

      • Customized Reporting – The reporting feature of  Contract Lifecycle Management software is the tool that transforms the contract library from a collection of documents into a powerful, unified data source. Every part of the data-set becomes valuable and actionable, with the potential to inform decisions relating to Third Party relationships, new business opportunities, and Intellectual Property. Past performance creates ‘lessons learned,’ while current performance can be monitored and analyzed to all levels of granularity. This supports scalable operation.

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    Dan Townsend
    Dan Townsend
    Dan has been a leading executive across all areas of Contract and Compliance Management applications since 2001 in both Sales and Implementation. Dan has over 30 years management experience in a wide range of business applications such as ERP Implementations, Business Process Reengineering, and Operations Management.

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    Dan Townsend Jul 21, 2022 8:00:00 AM