Visibility of IT Assets Data is key to compliance management, risk and cost reduction. Leaving revenue on the table, failing an audit, paying up penalties – these are the regular happenings in large and small enterprises. These issues can be solved with a little discipline and using tools for contract and compliance analytics. This article is about both ‘Buy Side’ and ‘Sell Side’ contract analytics, but the author believes that ‘Buy Side’ contract analytics is key reducing risks and costs.
Contract Management Management Tools are Key to IT Asset Data Visibility
By Sheshagiri Anegondi (Sheshu)
Organizations often forget that the contracts they execute and manage have a direct impact on their bottom line, an oversight that has proven costly for many. Leaving revenue on the table, settling for less favorable terms and automatically renewing contracts that should expire are the three major causes of negative revenue impact. Are these happening in your organization? Likely, yes.
According to research by Gartner Inc., few companies have true control over their many processes and suffer the costly consequences. Consider these common scenarios: automatically renewing a $10,000,000 contract when you’ve contracted with another vendor for the same service. Making lease payments for property you no longer occupy. Failing an audit through breach of contract and being assessed penalties and fines. These are real corporate scenarios that cost money, but get lost among thousands of other active contracts.
So how does this happen? You have a legal team, a compliance team, business stakeholders and executive buy-in on contracts. But the responsibilities of the legal and compliance departments are many, and time is spent negotiating the best contract possible then moving to the next.
What you don’t have is visibility to the data, documents and tools for proactively managing contracts. You react, you respond … but you can’t always get ahead of the impending issues or identify them before they become issues. How much money was left on the table because you could have negotiated better terms with an existing vendor or replaced them with a more competitively priced one? How many contracts continue to renew without a close look at the terms and an assessment of the business value they provide?
All you really want to know is what you have and what it’s costing your organization in dollars and risk. Which active contracts have early termination penalties? Which active contracts are outside of our corporate standards for risk tolerance? Which active contracts are in place in each of our jurisdictions? Which active contracts include multiple currencies?
That kind of visibility sounds utopian, true, but it’s entirely attainable.
The holy grail of contract visibility
Many organizations assume that gaining the visibility to make these decisions requires robust systems, master data management programs that cost millions, and a small army to stand up and maintain. The reality is much more achievable – although you need to do a bit of homework: What data and reports are often requested to satisfy audit and executive requests? What compliance standards are you required to track and ensure each contract meets or gain approval for an exception? This is your key contract data. You need to store this data in a way that allows you to access it easily as well as get to it in the contract so you can read the supporting details. This needs to happen in minutes, not hours or days.
You also need to know which contracts are up for renewal with enough time to act. Act, not react. Imagine having 90 days to review terms and conditions, seek bids from additional vendors, renegotiate with your current vendor and save your company money. You would improve the bottom line and guarantee that your active agreements are benefiting your organization, not just enduring.
There are additional gains to be made from knowing which contracts have incentives and from where you could be collecting revenue if you knew it was due. You don’t need to join the collections department or chase people down for money, but you do need to know that these incentives exist and ensure that they are being collected by your company. Simply running a report on contracts that include incentives could quickly produce a list of contacts that can be matched to received payments by the finance department.