7 Essential Metrics For Successful Contract Reporting

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.

What is the purpose of contract reporting?

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 summaries: Companies can create concise and thorough outlines of the major provisions of a contract by using contract reporting. These summaries emphasize important clauses, obligations, deadlines, and other relevant information. The legal team can focus on facts and data, thus, making it easier for them to locate specific details. Contract summary reports eliminate the need to go through bulky contractual agreements for every little query or dispute.
  
  
• Contract Performance Assessment: Business relationships and agreements need ongoing oversight to stay profitable. Analyzing the contract performance against predefined metrics and objectives enables organizations to make informed decisions regarding their renewal or termination. Through contract reporting, businesses can generate real-time reports on metrics significant to their needs and industry. It helps identify successful contracts, areas for improvement, and any underperforming contracts that need attention.
  
  
• Financial Analysis: Contract reporting can help businesses gain insights into the financial aspects of contracts and their impact on an organization's bottom line. They can understand the financial implications of a business agreement by tracking revenue generated, expenses incurred, and overall profitability. These can come in handy in assessing the financial health of vendor or supplier agreements and data-driven decisions to maximize profitability and cost-effectiveness. 
  
  
• Risk Assessment: Contract reports, which provide a thorough overview of the contracting procedures, are quite helpful in locating, assessing, and minimizing operational, financial, and legal risks. Organizations can identify and create custom reports based on potential risks and challenges unique to their business. Contract reports assess the extent to which contracts comply with relevant laws, regulations, and industry standards, highlighting any non-compliant clauses or potential legal risks.
  
  
• Obligation Management: Contract reporting helps contract managers to stay on top of contract-related obligations throughout the business relationships to ensure timely fulfillment. They also ensure contracts adhere to relevant laws, regulations, and internal policies. Thus, businesses can monitor the entire lifecycle of contracts, from initiation to renewal or termination. They can create tailored alerts and reports on upcoming contract renewals and expirations to avoid lapses and take necessary actions.
  
  
• Contract Lifecycle Management: Contractual agreements must pass through a series of tasks before the execution stage. When an organization has hundreds of active contracts, some might likely slip through the crack. Contract reports support the continuous advancement of agreements by tracking each stage of the contract lifecycle. They give real-time updates on the status of contract reviews and approvals and offer perceptions of process bottlenecks. Thus, organizations can optimize the entire contract management lifecycle.
  
  
• Audit Trail: Contract reporting assists in keeping track of all contract-related activities and provides a thorough record for internal and external audits. They can track and record any changes or amendments to existing contracts for version control. It ensures accountability as stakeholders can track who made specific changes or updates. And make data-driven decisions during future negotiations and renewals. Audit reports protect companies from unauthorized contract changes and access, preserving data security and integrity.
  
  
• Visualization and dashboards: Contractual agreements are replete with data, making it difficult for contract managers to find pertinent information on time. Contract management software through contract reports presenting contract data in visually appealing dashboards and charts to help stakeholders quickly grasp key insights. Businesses can create custom reports tailored to their specific needs and requirements to avoid information overload and unauthorized access.

What are the essential metrics for effective contract reporting?

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:

1. Contract Value and Revenue

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.

2. Contract Compliance

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.

3. Contract Cycle Time

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.

4. Contract Renewal Rate

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.

5. Contract Expirations and Renewals

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.

6. Contractual Risk Exposure

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.

7. Contract Amendments and Changes

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.