4 Ways to Measure Contract Creation Efficiency
Legal departments are increasingly tasked with improving their organization’s efficiency in creating contracts. In the past, it would have been difficult to collect data that will reveal where there are inefficiencies and develop a data-backed strategy to address them. Today, Legal departments can now use contract lifecycle management (CLM) software to deploy a more accurate and efficient contract lifecycle measurement and management.
Improving contracting efficiency starts with measuring key performance indicators, which will reveal the weak points you can deal with to make your contracting process faster, more collaborative, and seamless. When you master contract creation, you’ll maximize your resources, impress your contracting parties with how fast you can move, and close more business deals.
Track metrics at each lifecycle
Your contract lifecycle is the process your contracts pass through, from contract request to completion to execution and renewal. While they are distinct, they are intertwined. An efficient contracting process requires contracts to move fluidly from one stage to another. Inefficiency in one stage can destroy the gains made elsewhere.
Better insight into inefficiencies. To discover all your organization’s contracting inefficiencies, you must track your process at all lifecycle stages. Sometimes you can wrongly assume your organization’s contracting weakness. However, tracking all the lifecycle stages will reveal precisely which department or lifecycle stage is holding you back.
Improve process efficiency. Knowing the weak spot in your contracting process will help you implement the right strategies to improve efficiency. Making conjectures won’t cut it. Every action you take must be data-backed; otherwise, you could be shooting in the dark. For example, tracking all the lifecycle stages can help you discover the major delay in sending out contracts is because it takes substantial time for Legal’s approval. Because you now have this information, you can make your process more efficient by speeding up the approval process.
Four ways to effectively measure contract creation
Businesses routinely create contracts—from basic Non-disclosure Agreements (NDA) to complex Merger and Acquisitions contracts (M&A). For large organizations, the number of contracts created annually can run into thousands or more. Streamlining contract creation can free up more time and fast-track the contracting process. Track the following metrics to understand your contract creation better.
1. Which department sends the most requests?
All the departments in your organization—Sales, Procurement, Human Resource (HR), etc.—depend on Legal for their contracting needs. These departments use different contracts and contract volumes, and you need to understand each department’s contracting needs.
Tracking contract requests by the department will help you understand the following:
- The department you work with the most. Legal usually has different working relationships with different departments. For instance, sales teams like moving fast and are always eager to close a deal, while Legal wants to take time to vet the contract to ensure all the bases are covered. This mismatch in priority may often create tension between the two departments. When you know the departments you work with the most, you can make an extra effort to collaborate better. Instead of attending to contracts based on when the request came in, you can respond to contracts requests based on the contract value, demand, and turnaround time.
- The contracts they use. Different departments use different contracts. For example, your Sales department will use lots of sales agreements, the Procurement team will use lots of purchase agreements, and HR will use lots of employment contracts and NDAs. When you know the contracts different departments use, you can create templates and standard clauses to avoid creating contracts from scratch each time there is a request.
- The workflows that will improve the way they create contracts. By tracking contract creation, you’ll discover the workflows that will help other departments become more confident with contracts. The more other departments can create contracts with minimal legal input, the more efficient your organization’s contracting process will become. Your Legal department will also have more time to perform other tasks that demand their attention. This has become more crucial as organizations expect their Legal departments to do more with less.
2. Which contract is created the most?
In every organization, some contracts are used more often than others depending on the organization’s business model and operation. For instance, a company offering fitness apps will use lots of Terms and Conditions Agreements, while a company that uses influencer marketing will need many influencer agreements. Various departments will use some contracts more than others. So, it’s a good idea to track both company-wide and by department.
When you know which contracts are created the most, you’ll know where expediting contract creation will have the most effect. For example, if a sales agreement is used 100 times annually and a purchase agreement is used 20 times, fast-tracking sales agreements before purchase agreements will make your organization’s contracting process more efficient.
In standardized contracts, also known as standard form contracts, you’re essentially using the same terms for different transactions. So, you can easily templatize and automate them. Because they are usually high-volume contracts, automating them will save you a ton of time. Also, tracking the contracts created the most will reveal if your organization uses standardized contracts more than personalized contracts or vice versa.
3. How long does contract creation take?
Another metric to track in contract lifecycle measurement is how long it takes to create contracts in your organization. There is no set rule for how long it should take to create contracts because they vary from simple to complex. You want your contract creation to be as swift as possible.
Contracts are the lifeblood of business operations. Before business relationships or business transactions can move forward, they must have contracts. In today’s fast-paced business environment, spinning out contracts fast can be a competitive advantage.
When tracking the length of time contract creation takes, you need to note the contracts that take longer to create than others and whether the duration varies by department. Some contracts take longer to create than others. A simple NDA should be easier to create than a partnership agreement. Tracking the duration will help you see where something is off. For example, when you see that your NDAs are taking too long to create, it indicates something is wrong with your contracting process.
If some departments take longer to create contracts, you want to understand why. Is it because they often use complex contracts? Or does Legal find it difficult to collaborate with the department?
4. How to optimize workflows
Another contract lifecycle measurement is tracking how workflows can be optimized to decrease time spent in contract creation.
Businesses will need to automate their contracts to remain competitive. When you want to automate your contracts, knowing where to start can be confusing. A good area is contracts where automation will have the most significant effect.
The most important reason to automate your business contracts is to save time. Creating a workflow requires some planning, which is why it’s always better to start with high-volume, low-risk contracts.
To know where to start optimizing contract workflows, look for the contracts that are ripe for automation. For example, if your organization deals with high-volume standardized contracts like an NDA, starting there might be a good choice. Standardized contracts typically follow a similar format and will be easy to automate. Starting with them can help you build confidence and experience to tackle more complex contracts.
You should also track how to optimize workflows by departments. What are the contracts that, if automated, will have the most significant effect on that department’s contract management process? The same department in different companies will often have different contract priorities. For instance, in company A, automating sales agreements for the Sales team might be a game-changer, but in company B, it may be automating influencer agreements.
Get valuable insights into your contract creation with Ironclad's process metrics reporting tool
Business decisions are largely data-driven. Everything in business is best understood with data—from measuring the success of a commercial to understanding employee satisfaction. Organizations’ executives use data to understand and measure the success of business operations.
With Ironclad’s Process Metrics Reporting, you can have visibility into your entire contract creation lifecycle, see where your contract creation blocks, and remove the guesswork from any strategy to improve your contract creation process. You can also generate and share the report on metrics tracked by simply clicking a button.
Using spreadsheets to track the contract creation lifecycle can only get you so far. And if you’re dealing with high-volume contracts, it’s not just difficult to keep up; error is inevitable.
However, collecting process metrics on your contract creation is just the first step to improving contracting efficiency. You’ll also need to develop a strategy and ask the right questions. With Ironclad’s Process Metrics Reporting, you can finally have the right answers to the questions you’re asking.
Learn more on how Ironclad’s Process Metrics Reporting can help you improve your legal team’s operation.