Risk-based KPI’s — Three KPI’s for Minimizing Contract Risk
In our previous installments, we focused on the tactical and performance based KPI’s to improve contract management effectiveness. In the final installment, we focus on the last three KPI’s to provide your organization with business intelligence to help minimize risk, maintain compliance and improve overall contracting processes.
Minimizing contract risk and maintaining compliance are real-time concerns for many organizations. Do unapproved contract terms make it past the eyes of approvers and into active state? Are the appropriate approval workflows enforced? Are you noticing more and more temptations for “creative contracting” from business units causing your contracts to go rogue? Measuring your contracts against risk-based KPIs is an effective way to ensure your contracts remain in alignment with your internal governance and controls.
- Deviation of Contract Terms from Standard Clauses. When managing hundreds to tens of thousands of contracts, ensuring that all parties involved are complying with the terms and clauses contained in the contract is a priority. Having systems and processes in place will ensure that contracts aren’t going rogue and that inappropriate contractual terms and clauses don’t slip through the cracks.
- Percent of Agreements Expiring without Effective Renewals. As contracts begin to expire, you must know and take action to ensure that contracts are not being auto-renewed, if they are to be re-negotiated or terminated. This is a common form of risk because processes are not put in place so that appropriate actions can be taken. Because contracts are legally binding agreements, once they are auto-renewed, the terms contained within remain legally effective.
- Inappropriate Authorization and Signature Approvals. As contracts move along approval workflows you must know if there is an anomaly or security breach. Appropriate authorization in necessary to maintain compliance.
To take a deeper dive into the “Top 10” list download a copy of our latest whitepaper, “Actionable Analytics: The IT Factor for SMART Contract Lifecycle Management.”