The Top 5 Contract Management Risks and How to Address Them

Introduction

Effective contract management is crucial for operational efficiency and corporate protection in today’s dynamic business climate. Contract administration is crucial, yet many major organisations fail to track contracts, necessary obligations, and renewals. Invisibility can pose serious dangers and financial losses. This article addresses the top five contract management risks and provides practical solutions to help your organisation handle contract management difficulties.

Why can’t huge firms track their contracts, including essential commitments and renewals, while your pizza chain can tell you where it is and when it will arrive?

Contract visibility—the capacity to immediately find, retrieve, analyse, and track contracts throughout the enterprise—is still poor at many major firms.

The typical Fortune 2000 business has 20,000–40,000 current contracts, according to PwC. Contracts were formerly held in desks, file cabinets, shared drives, or email. The contracts cannot be searched for rapid retrieval or extracted for expiries, renewals, and obligations.

Contract risk sources

The scenario poses severe contract risk. Bad things happen when contracts are unstructured data in a hard-to-search repository or on a desk. A manually monitored SOW expired but work was still done on it, costing one technology consulting business $1.5 million in income. Rebates are ignored, and unwanted renewals happen automatically.

Poor contract visibility

Poor contract visibility is one of five major contract management mistakes that may lose firms revenue and money, whether their contracts are buy-side, sell-side, or enterprise-wide.

Other risks include:

Insufficient velocity

Manual contract negotiation, creation, and approval inefficiencies and back-and-forths: Companies lose income due to slow contract turnover.

Uncertain compliance

Inconsistent compliance with internal and supplier standards and risks: Without a comprehensive contract management platform, contracts are routinely put away and forgotten about, making supplier performance tracking difficult.

Lack of standardisation

Silos of contract systems, procedures, formats, and clauses: In organisations without contract standardisation, obsolete or non-compliant terms might affect the firm later.

Enhanced complexity

Complexity of worldwide business, rules, suppliers, and commitments: With the EU’s General Data Protection Regulation taking effect, organisations must be extra careful to include compliance into vendor and customer agreements.

Poorly implemented contracts increase risk. Contract risk identification and management are essential for good judgements. Big companies are mature at assessing contract risks during negotiations but seldom can monitor them afterward.

Conclusion

Contract risk management is crucial to an organization’s financial and operational viability. By tackling poor contract visibility, delayed contract velocity, unclear compliance, lack of standardisation, and growing complexity, firms may reduce losses and improve efficiency. Organisations can better track, analyse, and meet contractual commitments with complete contract management systems and standardised methods. Proactive contract risk management is essential and strategic for long-term success in a continuously changing regulatory and corporate environment.