Contracts do more than just dictate business relationships. They are a great source of information on performance, compliance, risks, and so on. Companies with ever-growing portfolios cannot manually sift through hundreds of customer, vendor, or partnership agreements to retrieve contract intelligence.
Contract reporting makes the job easier by gathering, analyzing, and sharing significant data from contractual agreements. Businesses can explore opportunities and reduce contract-related risks by taking the appropriate action if they have the necessary knowledge. Companies are less likely to overlook significant dates, obligations, and payments when the legal team does not have to sift through countless spreadsheets for pertinent information.
Contract reporting involves generating and analyzing reports related to various aspects of the contract management process. It offers a clear and comprehensive view of all contracts in one place, providing stakeholders with transparency into the organization's contractual commitments and obligations. Contract reporting tools available through contract management software are crucial to maximizing the value derived from contractual agreements.
Contract reporting plays a crucial role in managing and optimizing contract-related processes. It’s an efficient tool to reduce risks and establish compliance. It provides stakeholders with valuable insights to make informed decisions, improve contract performance, and enhance overall business efficiency. But the key to effective contract reporting relies on tracking and analyzing the right metrics. What you are keeping an eye on must be essential to your particular requirements and offer concrete recommendations for continuous improvements. Here are the seven essential metrics for contract reporting:
This metric tracks the total contract value, including any amendments or changes over time. The total worth or monetary value of a contract and the total amount of consideration parties have traded for each other during the contract. Thus, the contract value is a sum of all the payments, fees, and other financial commitments specified in the contract. Contrarily, contract revenue is an organization's actual income from fulfilling its obligations under a contract and providing the other party with goods or services. Contract value and revenue reports can help businesses keep track of the profitability of business agreements and relationships.
Compliance metrics can help measure and evaluate the extent to which parties adhere to the contractual terms, conditions, and obligations. Compliance metric ensures that parties fulfill their responsibilities per the agreement and avoid legal repercussions. Depending on their unique needs, businesses can track the extent to which parties meet the agreed-upon deadlines and milestones. They can also assess the quality, timeliness, and specifications of goods and services. Regulatory and industry standards are also crucial factors for business agreements.
There’s always room for improvement in the contract management process. Organizations must monitor contracts throughout their lifecycle to pinpoint critical areas for improvement and bottlenecks. Contract lifecycle time metric measures the time it takes to move a contract from initiation to execution. A shorter cycle time indicates an efficient contract process and can help identify roadblocks. Businesses can assess duration based on contract type, vendors, and even each phase including drafting, review, approval, and execution.
The contract renewal rate is a key metric used to measure the percentage of contracts that are renewed or extended upon their expiration. This metric aids in evaluating the success and satisfaction of current contractual agreements and the capacity to keep clients, partners, or customers for future business. A high contract renewal rate indicates that clients or customers are satisfied with the services or products provided under the contract and are willing to continue the relationship. On the other hand, a low renewal rate might point to underlying problems that require attention.
Tracking and reporting expirations and renewal metrics allow organizations to proactively manage their contracts, avoid potential lapses, and optimize contract renewal decisions. For instance, monitoring expirations enables stakeholders to take a proactive approach, such as initiating negotiations for renewals, preparing termination notices, or considering alternative arrangements. And they have enough time to renegotiate terms and determine whether to continue the existing agreement or explore alternative options.
Contractual risk exposure metrics are quantitative measures used to assess the level of risk associated with specific contractual agreements. These metrics help organizations evaluate the potential impact of risks related to their contracts and make informed decisions to mitigate or manage these risks effectively. Organizations can examine contract execution factors, such as resource constraints, supply chain disruptions, or operational inefficiencies. For contracts with third-party vendors or suppliers, this metric evaluates the risk associated with relying on external parties for critical goods or services.
Contract amendments and changes metrics are key performance indicators (KPIs) used to track and evaluate the frequency, nature, and impact of modifications made to contracts during their lifecycle. These metrics provide insights into how often contracts amendments, the types of changes, and the implications of those changes on contract performance and outcomes. Organizations can keep track of amendment frequency, approval time, impact on contract value, and so on using contract reporting. It provides invaluable insights into contract management practices and flexibility.
These metrics can be visualized through dashboards and reports, allowing stakeholders to quickly grasp the status of contracts, identify trends, and make data-driven decisions. The contract management software Dock 365 offers the ability to customize reporting, which is valuable in adjusting metrics to the unique needs and goals of the organization. Contract reporting becomes a potent tool for improving contract management and lowering risks by making use of these crucial metrics.
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