Contracts are the foundation of any modern business enterprise. They dictate every aspect of key business relationships including pricing, payment terms and expected service levels. Managing these contracts at both the corporate level and the detail level is a daunting task. Companies with strong contracts and Contract Management System are more likely to capture revenue opportunities, have better supplier and vendor relationships, and actively enforce compliance and mitigate risks. Effective contract management delivers straight to the bottom-line. Some of the basic obstacles in contract management are that the contract information is literally spread all over the organization forming “islands of information”, some of the information is lost and the overall visibility is poor if non-existing. But the most challenging problem is perhaps the resistance to change among personnel. Another typical problem is related to project management. As all projects, contract management project can be faced with classic project management problems such as: how to align all the resources at the right time in the right place, how to measure the progress of the project, how to assure successful completion of the project, and finally how to see the results gained by the project. Summarized it is all about commitment, follow-up and rigid project management.
Before getting started with Contract Management Software project there are several considerations to be made. The most important consideration is resource allocation. For a contract management project, as for any project, it is essential to have top management commitment on resources, goals, and schedule. Another important step is the nomination of project manager for contract management. Naturally, the goals and the schedule should be in line with the resources as well as the other way around. Once these basic preparations have been done, the project is set to get started. During the first phase one needs to consider the following tasks: scope of contract management, process definitions, contract manual / handbook, contract templates, software selection (as contract management tool), scanning and storing of contracts, interest groups, responsible persons, the starting point, and the order of progress both organizationally and operationally.
The scope of contract management can be anything from single type of contracts (e.g. production contracts) in one department all the way to full-scale enterprise-wide contract management that covers all the departments, units, companies, contract and contractual/legal information. The wider the scope, the bigger the benefits but the narrower the scope, the easier and faster the project implementation. Selecting the scope, is balancing between getting benefits and choking into the project. That is why it is advisable to start with a limited scope of contracts in a selected (pilot) department and then expand the contract management gradually. When selecting the starting point one should consider different departments and try to find an isolated unit which is however large enough for piloting purpose and that it can allocate resources for the project. Another aspect of selecting the starting point (and expansion path) is what type of contracts will be included. An average enterprise has ten to twenty times as many contracts as it has employees. That means that even small organization has a lot of contracts. This constitutes a problem when setting contract management since all the existing contracts should be mapped somehow. There are different approaches to this issue. The simplest approach is to leave the old contracts out of contract management and to start from this day and forward. The recommended approach is to select which contracts should be included, find the originals and scan them into electronic format. Some software products provide repositories for electronic contracts. This is an issue that should be addressed. Decision should also be made whether it is enough to find the electronic format of the contract and the location of the signed original, or are all signed contracts with signatures scanned into electronic format.
Key goals for a contract management project are to ensure easy access to contract information and to form flexible support for the contract workflow. In order to reach these goals some essential issues to address in a contract management project are: take a holistic process-view, clear definition of phases and processes, clear definition of responsibilities, centralize information but enable de-centralized usage of it, and finally visibility and control over contracts. All this require genuine commitment and discipline in the organization – but also suitable software tool to support automated processes.
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Contract - foundation of modern business