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Top 15 Contract Management KPIs: A Comprehensive Guide

Ethan
CEO, Portable

In today's dynamic business environment, the ability to streamline contract management and extract maximum value from contracts is essential. One way to optimize the contract management process is by using key performance indicators (KPIs). KPIs serve as valuable metrics in assessing how efficiently and effectively contract management operations run. The introduction of contract management software has made tracking these KPIs easier than ever, providing real-time insights and data points essential for effective contract management.

Why KPIs are Essential in Contract Management

Key performance indicators (KPIs) are metrics used to measure the performance and effectiveness of various business operations. In the realm of contract management, KPIs are essential as they offer an objective lens through which the effectiveness and efficiency of the contract management process can be assessed. By tracking contract management KPIs, stakeholders can identify bottlenecks, streamline workflows, ensure contract compliance, and realize the full value of contracts.

Top 15 Contract Management KPIs

Here are the top 15 contract management KPIs that businesses should monitor:

1. Number of Contracts:

  • Definition: The total number of active and inactive contracts within the organization.
  • Why it matters: Monitoring the volume of contracts helps organizations understand their contractual obligations and aids in contract lifecycle management (CLM).
  • How to collect the data: Use contract management software to maintain a contract repository.
  • Tools: Providers like ContractWorks or Concord offer such capabilities.

2. Contract Value:

  • Definition: The monetary worth of a contract over its lifecycle.
  • Why it matters: Understanding contract value is crucial for procurement, pricing strategies, and risk management.
  • How to collect the data: Extract from contract terms using contract management software.
  • Tools: Icertis or Coupa provide value tracking.

3. Contract Renewals:

  • Definition: The number of contracts renewed within a specific timeframe.
  • Why it matters: Tracking contract renewals aids in understanding the organization's long-term contractual obligations.
  • How to collect the data: Use reminders, e-signatures, and renewal dates functionalities in contract management systems.
  • Tools: Platforms like Agiloft and PandaDoc offer renewal tracking.

4. Contract Risk:

  • Definition: The potential challenges, including non-compliance and terminations, that might arise from contract terms.
  • Why it matters: Risk management is crucial to avoid potential financial and legal pitfalls.
  • How to collect the data: Legal teams and contract review processes should evaluate risks.
  • Tools: Symfact and KONTRAKT help in risk assessment.

5. Contract Performance:

  • Definition: How well the contractual obligations are met.
  • Why it matters: Ensuring contract performance is crucial for maintaining good relationships with providers and stakeholders.
  • How to collect the data: Monitor milestones, contract obligations, and deliverables.
  • Tools: SirionLabs and ContractSafe provide performance tracking.

6. Contract Cycle Time:

  • Definition: The amount of time taken from contract initiation to contract approval.
  • Why it matters: A streamlined contract management process ensures faster deal closures.
  • How to collect the data: Time-tracking features in contract management systems.
  • Tools: Apttus and Juro can monitor cycle times.

7. Annualized Contract Value:

  • Definition: The average yearly monetary worth of a contract.
  • Why it matters: Helps in forecasting and budgeting.
  • How to collect the data: Divide the total contract value by the number of years.
  • Tools: Zycus and Parley Pro are effective for this purpose.

8. Type of Contract:

  • Definition: Categorizing contracts based on their nature, such as procurement, sales, or partnerships.
  • Why it matters: Different contracts have different implications, risks, and opportunities.
  • How to collect the data: Manual categorization or automation in contract management software.
  • Tools: CobbleStone and Gatekeeper offer categorization features.

9. Contract Compliance:

  • Definition: The degree to which contractual obligations are being met.
  • Why it matters: Non-compliance can lead to financial penalties and damage reputation.
  • How to collect the data: Regular contract review and audits.
  • Tools: Contract Logix and Outlaw assist in ensuring compliance.

10. Contract Approval Time:

  • Definition: The duration taken to approve a contract after review.
  • Why it matters: Speedy approvals can lead to faster deal closures.
  • How to collect the data: Track the amount of time from contract submission to final approval.
  • Tools: Tools like DocuSign and Adobe Sign can be integrated into the approval process.

11. Contract Efficiency:

  • Definition: The ratio of successful contract outcomes to the resources invested.
  • Why it matters: Contract efficiency directly impacts the bottom line.
  • How to collect the data: Compare the value of contracts to the resources and time invested.
  • Tools: CLM Matrix and Precisely provide efficiency metrics.

12. Volume of New Contracts:

  • Definition: The number of new contracts signed within a given period.
  • Why it matters: Indicates business growth and potential future obligations.
  • How to collect the data: Count the number of new contracts in the contract repository.
  • Tools: Most CLM software like Contracts365 and SpringCM can track this.

13. Contract Effectiveness:

  • Definition: A measure of the tangible and intangible benefits derived from a contract.
  • Why it matters: Ensures that contracts are beneficial and not just a formality.
  • How to collect the data: Surveys, feedback loops, and performance metrics analysis.
  • Tools: Contract Insight and Trackado provide insights on contract effectiveness.

14. Standard Clauses Usage:

  • Definition: The frequency of usage of pre-defined contractual clauses or templates.
  • Why it matters: Using standard clauses can streamline the contract initiation and review process.
  • How to collect the data: Monitor the usage of templates and standard clauses in the contract management system.
  • Tools: ThoughtRiver and Knowable can help organizations maintain and utilize a library of standard clauses.

15. Contract Termination Rate:

  • Definition: The number of contracts that are terminated before their natural conclusion.
  • Why it matters: High termination rates can indicate contractual issues or misalignments with stakeholders.
  • How to collect the data: Count the number of early terminations in a specific period.
  • Tools: Many CLM software, like Lextree and ConvergePoint, can track terminations.

Concluding Thoughts

Managing contracts is undeniably a complex task that involves multiple stakeholders, from legal teams to procurement departments. With the myriad of data points involved in the process, integrating effective KPIs can help organizations navigate the complexities of contract administration.

Moreover, by using platforms like Portable, businesses can pull data from their contract management-related systems effortlessly, further organizing the KPI reporting process. Such integrations offer a consolidated view, enabling organizations to make informed decisions, identify opportunities, and ultimately drive better contract value.

In essence, for any business serious about optimizing its contract management process, investing in tracking the right KPIs, and leveraging platforms like Portable is the smart choice.