Why do we need Key Performance Indicators?
Merely setting up a contract management system is not enough. One must ensure that it functions in an efficient manner. Setting up Key Performance Indicators is a good way to ensure that goals are met. This yardstick holds good for any type of business. The situation, however, becomes tricky with regard to contracts because they vary from one situation to another. Hence, it often becomes difficult as to which facet of a contract must be monitored. It can be agreed upon, that the most desirable Key Performance Indicators for contracts are those that are “SMART” meaning that they are specific, measurable, achievable results oriented and time constrained.
The KPIs that matter
So, there are six KPIs to evaluate one’s contract management process. They can be summed up as follows:
1.Days of Contract Lifecycle
The number of days for a contract can vary across industries depending on the type of contract, unique client situations etc. However, any enterprise needs to determine an acceptable cycle time from contract initiation to signature across the different divisions of the enterprise. One must make sure to identify trends by type of contract, geographic location, or any other relevant characteristics of your industry.
2.Days in delay of Approvals
With regard to delays in approval, it is important to identify as to why a delay occurs. This can only be done after strictly reviewing the required data.
There may be instances where a client may feel dissatisfied due to the number of milestones that were missed throughout the lifecycle of the contract. The key is to be proactive by keeping tabs on the number of missed milestones thereby ensuring efficient contract management.
4.Deviations from Pre-approved Contract Language
Businesses must ensure that their counsels must stick to pre-approved contract language while drafting a contract. This makes sure that a contract steers clear of any accepted risk.
5.Percentage of Contracts That Don’t Get Renewed
At the end of the day, the objective of any enterprise must be to maintain its client base. This benchmark allows one to find the potential leakage from existing clients. Companies must take stock of all the contracts that expire without a renewal in order to stay ahead of the game.
6.Instances of Improper Execution of Contract
Improper execution of any contract undermines compliance within an enterprise thereby having a detrimental effect on it. Therefore, sufficient methods of control must be established for authorization of a contract.
Hence, it is clear that the above KPIs serve as the pillar of contract management.
Advantages of having Key Performance Indicators
It serves up the following advantages. Namely;
- Identify problems
Having KPIs takes stock of the direction in which company is headed while also identifying roadblocks along the way.
- Cost Savings
Key Performance Indicators helps a business in saving costs by preventing issues rather that attempting to rectify them on their occurrence.
- Convince Potential Clients
KPIs serve as evidence of a company’s commitment and shows clients that they are the foremost priority.
KPIs help a company in taking stock of its strengths and weaknesses thereby serving as a tool for growth and improvement
With due regard to the advantages that it poses, one can conclude that having Key Performance Indicators are integral to an organization.