Contract Management KPIs: Measure Efficiency & Success

Are your contract management efforts really working? To make sure your contracts bring the best value, it’s key to know the right KPIs. Choosing the right KPIs is crucial for making your contract processes work well and get good results.

Working with contracts is super important to any business to do things better and see good results.¹ But, it’s tough to show if what we’re doing with contracts is actually making things better or not.¹ Setting up KPIs that connect to what we really want is a good start. These help us measure and make our contract work even better.

### Key Takeaways

– Having the right contract KPIs is vital for businesses. They help check how well our contract work is going and find ways to make it better.
– It’s important to know what we want, set clear KPIs, and be able to measure them. Making sure someone is in charge is key too.
– Using good contract management tools can help a lot. They make it easier to watch our KPIs, think about the data, and make changes as needed.
– Contract KPIs are not just for tracking. They can make our processes work smoother, reduce risks, and show why our contract work really matters.
– Keeping an eye on our KPIs and updating them when needed is smart. This keeps them helpful and focused over time.

The Importance of Contract Management KPIs

Clear Key Performance Indicators (KPIs) are key for successful contract management.¹ They guide us on how to run things better and get good results for the company.¹

Optimizing Processes and Delivering Favorable Outcomes

It’s vital to set up KPIs because linking what we do to outcomes isn’t always easy.² But, with the right KPIs, we can show the impact of our work and improve how we do things.²

Establishing Clear Performance Indicators

Companies need to define what success looks like in contract management.² This might mean signing contracts quickly, making few changes, or reducing risks.² After that, they can create goals that help them see if they are making progress.²

Linking Activities to Positive Outcomes

It’s important to connect what we do in managing contracts to good results.² Good KPIs show the positive changes made by our work.¹ This can show why it’s worth investing in making our contract management better.¹

Defining Desired Outcomes of Contract Management

When we talk about setting contract management KPIs, it’s important to start with goals. These goals might be to sign contracts quickly³, keep changes to a minimum³, reduce business risks³, and get the best value from deals⁴. By knowing what we want, it’s easier to pick the right KPIs to check our progress.

Minimal Time to Signature

The time it takes to handle contracts is a big thing to watch. It can change based on the contract’s value, type, or items being traded.³How fast we approve contracts hugely impacts business deals. It’s key to keep an eye on approval times apart from the whole process’s time.³

Minimal Changes to Agreed Contract Language

Looking at contract risks hints at how often deals stray from the usual terms. If we don’t meet important points in a contract, it can hurt our relationship with clients. This shows why it’s vital to track and meet all the contract’s promises.³

Minimal Avoidable Business Risk

Contract risk can be kept in check by seeing how much contracts change from the original deal. Problems in watching these risks can come from not seeing contracts clearly after they’re signed. This can make monitoring for rule-following and checks hard.³

Best Possible Value from Contract Agreements

Measuring a contract’s worth can be done in many ways, like looking at its total value, yearly value, or the average value across many deals. This helps to understand costs like how much it takes to get a new customer. Each deal might be looked at through values over a year, what value stays after a contract ends, and how much the order varies from the norm.⁴

Setting Meaningful Contract Management KPIs

The first step is defining what results we want from managing contracts. Then, we set Key Performance Indicators (KPIs) that directly connect to these goals.¹ The main contract management KPIs focus on how well contracts work, their effectiveness, and managing risks.¹

Linking KPIs to Specific Outcomes

We need to know where we start and where we want to be for each KPI. This way, we can tell how we’re doing over time.⁵ KPI examples include how long it takes to complete a contract, the time it takes to sign one, how many contracts follow the right rules, and the money saved.⁵

Establishing Baselines and Performance Targets

For measuring how well a contract works, we might look at how long it lasts and its value. For checking its effectiveness, we see things like how many contracts someone manages and changes in their values.¹ To handle risk, we check on things like differences in standard clauses and if contracts took longer to get approved.¹

Regularly Reviewing and Adjusting KPIs

It’s important to keep KPIs up-to-date and change them as we learn more. This makes sure they keep helping us improve.² We should keep an eye on how contracts are prepared, negotiated, and approved to manage them well.²

Ensuring Measurability of Contract Management KPIs

Creating contract management KPIs that work well involves making sure we can measure them. We need to figure out where the data comes from. Also, we check how easy or hard it is to get that data. Then, it’s key to set up good ways to follow and report on this data.²

Identifying Required Data Sources

For contract management KPIs to make sense, businesses first pick out the data they need. They might look into financial systems, specific software, and more. These are where they find the numbers to measure how well they’re handling contracts.¹

Assessing Data Accessibility and Effort

After choosing the data sources, they must check how easy it is to get this information. It’s important that pulling out, putting together, and understanding this data is not a huge task. All this decides if they can keep an eye on their contract management KPIs easily.

This makes sure their contract goals are always within reach.

Establishing Data Tracking and Reporting Mechanisms

To keep contract management KPIs on track, strong tracking and reporting are a must. This could mean combining data from various places, making data collection and analysis automated, and using tools like dashboards. These steps help keep an eye on how well they’re doing.¹

Thinking through all these steps is really important. It helps in making contract management KPIs that businesses can use over time. They can use these to improve how they manage contracts and get good results.²

Assigning Ownership of Contract Management KPIs

It is key to have someone control the contract management KPIs. This makes sure they’re met and reviewed properly. It’s important to name the people or teams responsible for these metrics. They must track, report, and improve contract compliance and management.

When ownership is clear, these numbers are more likely to lead to success. This pushes for the right data to be collected and reviewed regularly. Without this clear link, KPIs might not get the attention they need. This could hurt managing contracts well.

For good ownership, roles should be clearly defined. This includes things like deciding on the KPIs and checking if they need to change. Assign these tasks carefully to get the best from the KPIs.

Key Contract Management KPIs	Description
Contract Risk	A crucial benchmark that monitors and measures every aspect of an agreement to mitigate the risk of financial loss during the contract management process.⁶
Contract Duration	A key indicator that measures the performance of an agreement by tracking the days throughout the contract lifecycle.⁶
Obligation Compliance	Essential to ensure the efficient management of contracts by measuring compliance with obligations and responsibilities outlined in agreements.⁶
Deviation From Standard Clauses	Serves as an indicator that alerts contract managers to increasing contract risks and the need for remedial action in the contract management process.⁶
Order Value Variance (OVV)	Highlights areas for improvement in contract management by showing errors, changes of scope, and conditions associated with agreements, with a variance of over 10% signaling significant issues.⁶

Common Contract Performance Metrics

Businesses use different metrics to gauge contract success. They look at contract risk, managed contract values, and the time it takes to sign a contract.²

Contract Risk

Managing contract risks focuses on handling problems that arise after signing. This might include ensuring companies follow laws, managing changes, and dealing with vendor issues.² A scoring system helps track and assess these risks.²

Value of Contracts Under Active Management

This measures if the right contracts get the most attention. It looks at the percentage of key contracts being managed compared to all key contracts.²

Time to Signature

Efficiency is key in signing contracts quickly. The time from starting a contract to signing it should be as short as possible.² On average, completing these steps can take 20 to 30 days.²

contract management kpis

The top 3 categories for contract management KPIs are focusing on contract efficiency, contract effectiveness, and managing contract risks. These contract management kpis are essential for making contract management work better. They help get good results for companies.

Contract Efficiency KPIs

Contract efficiency KPIs look at things like how long it takes for a contract to be done, time to make deals, and if goals are reached on time. Aberdeen Research shows that making a contract can take 20-30 days on average.² Also, the “Time to Signature” KPI is important. It looks at how long it takes from starting a contract to signing it. This includes setting expectations and checking with tools.

Contract Effectiveness KPIs

Contract effectiveness KPIs check on contract use, yearly contract value, and what past contracts have been like. These measurements help to see how well a company is doing with its contracts.¹ A key measure is the “Value of Contracts Under Active Management.” It looks at the value of the most crucial managed contracts, compared to all important contracts. This tells if the focus is on the right contracts.

Contract Risk Management KPIs

Contract risk management KPIs watch for things like differences in contract terms, promises in contracts that are not kept, and delays in signing contracts. A special KPI, Contract Risk, tracks the potential effects of various risks. This includes risks like breaking regulations, unapproved changes to contracts, and money problems.² Other risk KPIs might show the number of contracts that end without new dates, wrong electronic signature approvals, and agreements about contract terms that are later fixed.¹

Using these 3 areas of contract management kpis, companies can better gauge and improve how they handle contracts. This includes making the contract process more efficient, making sure the contracts work well, and lowering risks connected to managing contracts.

Leveraging Contract Management KPIs for Increased ROI

Using contract management KPIs well can show how valuable software and processes are. This can lead to more ROI.¹ Regularly checking how you’re doing against KPIs lets you change your strategies. This can have a good impact on the whole organization.⁷ KPIs are key for making decisions and planning in contract management.

Choosing the Right Contract Lifecycle Management Solution

Finding a strong Contract Lifecycle Management (CLM) solution with good KPI tracking is important.⁷ You should customize CLM tools to match what your company needs from contract management.¹ CobbleStone Contract Insight® is known for helping track progress, improve performance, and boost ROI. This makes it a top choice in the market.¹ CobbleStone Software is well-known for its easy-to-use and adaptable solutions for different businesses.

Demonstrating the Value of Contract Management Software

⁸ Ineffective contract management can take away up to 9.2% of a company’s profits. For a business making $1 billion a year, this could mean a loss of $9.2 to $18.4 million.⁸ But a good CLM system can save this money. This could add $92 to $184 million to the company’s revenue.

⁸ The cost to a company for a solid CLM system is about $100,000 annually. The return on this investment can be huge, from 91 to 183 times more than the cost.⁸ So, for every dollar spent on CLM technology, the expected gain is between $91 to $183 in revenue.

⁸ Doing contracts manually can slow down work and make errors more likely.

Implementing Key Contract Management KPIs

When adding key¹ contract management KPIs, businesses must think about specific metrics. These include focusing on how much contracts are used, their value, and how many there are.²

Contract Utilization KPIs

Using contract utilization KPIs shows how well contracts are used. This includes to what extent different types of contracts are used for buying.¹ They help understand how well a company is making the most of its contracts.

Qualitative Contract Value Assessments

Evaluating the value of contracts qualitatively means looking at their qualities and performance. This method helps get a full picture of what these contracts really bring.² It adds to the understanding that goes beyond just the numbers.

Contract Volume KPIs

Volume KPIs shed light on how many contracts there are and the types. They also show trends like which customers or places have more contracts.¹ This is key to improving how contracts are used, spotting times to renew, and ensuring obligations are met.

Using a good mix of KPIs, companies can see the complete picture of their contract activity. They can spot areas where they can do better and decide what to change for the good of the business.¹²

Conclusion

Creating and using effective contract management KPIs is vital for businesses to boost their efficiency. This approach helps in measuring and refining the success of managing contracts. Organizations benefit by clearly outlining goals, setting up meaningful KPIs, ensuring they are measurable, and then assigning ownership.

This makes the most of contract management KPIs, improving activities, lowering contract risk, and proving the worth of their work.

The right contract management software and methods play a crucial part. They allow teams to better follow up, analyze, and act on these key performance metrics. Using metrics like contract cycle time, contract volume, and contract value offers deep insights. It shows how efficient and effective contract management is.⁹¹⁰

Constant adjustment and review of contract management KPIs keep them in line with big objectives. This ensures they help in constantly getting better at managing contracts. Ultimately, this approach results in better contract compliance, safer risk handling, and a stronger business performance overall.²