Crucial Contract Management Data for Each Lifecycle Stage
Legal departments are under intense pressure to become more accountable and to do more with less. Many organizations expect their legal departments to be more agile in contracting. Today, legal can become more efficient by leveraging contract management data to understand their contracts process and implementing data-backed strategies to maximize resources.
Different contract stages come with different sets of challenges, and it can become confusing to decide what types of contract data you need to track to improve efficiency. It’s always advisable to start tracking a few metrics and then gradually add more. But then, you need to know the metrics and how tracking them can help you become more efficient at contracting.
Contract management data to track at different stages of the contracting process
Analyzing the different stages of the contracting process will give you in-depth insights into your contracting process and help you understand your strengths and weaknesses. There are different contract data to track at different stages.
At this stage, track metrics that’ll help you understand how long it takes to create contracts and how you can shorten the lifecycle.
Request by department. By looking at the number of contracts each department requests, you’ll discover the departments that use contracts the most. With this information, you may set up automation processes to help those departments create their contracts with less input from legal.
Contract acceptance length. How long does it take legal to accept a contract request? Analyzing this can help you discover delay patterns. Are there contracts or contract requests from certain departments that the legal team takes longer to accept? Analyzing contract acceptance duration can help you understand why there are delays and how you can help the legal department increase its efficiency.
Contracts created the most. When you know which contracts are created the most, you can decide if they can be automated. You will save a ton of time when you set up workflows for your organization’s recurring contracts. For example, a Non-Disclosure Agreement (NDA) is a contract that can be easily automated. So, if your organization uses NDA a lot, automating it will be a smart choice.
Contract negotiation is a critical contract lifecycle stage. This is where the bulk of contracting takes place. Parties are keen to maximize their benefits while minimizing obligations and liabilities. This is why negotiation is usually a long-drawn-out process. Important metrics to track are what causes protracted negotiations and how to make the process more collaborative and seamless.
The number of redlines. Redlining slows contract negotiation, and it’s an indicator of how long it takes to complete a contract. The higher the number of redlines, the longer the contract turnaround time.
How long does negotiation take? Contracts often stall in negotiation, especially when there is a lot of redlining involved. Analyze how long your contracts sit at the negotiation stage. If they take longer than you want, you can take steps to identify the bottlenecks and adopt measures to fast-track your negotiation.
Commonly redlined clauses. Contract clauses are not equal. Some, like indemnity clauses, are more contentious than others. Depending on the contracts you use, you can identify often redlined clauses and draft a standard clause that will be less likely to be redlined.
At the approval stage, the goal is to ensure that the legal department properly vets a contract before it’s sent to the contracting party. While this is important, contract approval should be fast-tracked as delays can come at an exorbitant cost. At this stage, track metrics that reveal areas where legal can become more efficient.
The number of automated workflows. There are routine contracts your business enters because it’s standard practice to do so. With automated workflows, you can equip other departments in your organization to create some contracts without the approval of legal. You can periodically check to see the number of automated workflows you currently have and identify those where you can dispense with legal’s approval. When fewer contracts require approval from your legal department, they will have more time to perform more strategic tasks.
How long before approval. A common cause of delay in the contracting process is legal taking substantial time to approve contracts. Many people with diverse opinions usually have to work together to approve contracts, slowing down the process. Mastering your contracts approval process is a surefire way of strengthening your contracting capability.
Duration of workflow completion. Knowing how long it takes from contract request or creation to approval is important contract management data. If there’s an excessive delay before contracts are ready to be sent out, you can try to pinpoint where the crack is and work on fixing it.
All the contractual parties must sign the contract before it can become binding. While contract acceptance is external to your organization, tracking some metrics may reveal steps you can take to increase the acceptance rate.
Number of days until acceptance. How long does it take your contracting parties to accept your contracts? Is it timely, or are there unnecessary delays
Most-used acceptance method. What is the most common way contracting parties accept your contracts? Tracking the most-used acceptance method may show your contracting party’s preferred acceptance method. However, it’s important to note that some methods of contracts acceptance are more suitable for specific contracts. For example, while a clickwrap agreement is the standard way of accepting a website’s Terms and Conditions, it may not be suitable for a partnership agreement.
Number of contracts not accepted. Every contract you send will be accepted in a perfect business world, but this is not the case. Because most business contracts add to your organization’s bottom line one way or the other, contract rejection costs you.
Discovering how much money you’ve missed from lost contract opportunities is data you should track. But more than this, delve deep and find out if there are common reasons your contracts are declined. A contracting party may not accept a contract for various reasons, including:
- Unwillingness to proceed immediately
- Delays in receiving the contract
- Presence of unfavorable terms
Knowing why your contracts are not accepted may help you avoid the mistake in the future. If you discover many contracts are declined because your organization doesn’t send contracts quickly, sending contracts faster can improve your acceptance rate.
The purpose of contracting is so parties will perform their contractual obligations. It’s poor contract management practice to sign a contract and then forget about it until there is a dispute. Some data you need to track at this stage that will help you fulfill your obligations are:
Contract obligation. Your contract obligations are the responsibilities you have towards the other party. Falling to comply with any of the terms of your obligation may make you liable for breach of contract. Contract obligations are usually definite—what you promised to do, the quality standard you must comply with, when you should do it, and how long you will do it. You should track your compliance data.
Contract value. Your total contract value is what a contract is worth after execution. Using contract management data, you can categorize your contracts into low-value contacts and high-value contracts. This can help you manage your contracts better. When you keep track of your contract value, you’ll also be able to identify contracts that are liabilities or not worth the effort.
Expiration. How long do you have to perform a contract, or when is it going to expire? Track contract expiration to know when your contractual obligation will end.
The goal in the analysis stage is to understand the cost of processing contracts. Metrics you’ll track here will help you scrutinize your spending.
Spend to budget. Spend to budget is the percentage of your allocated budget that goes to contract expenses. Contract-related expenses include money spent on outside counsels and technology. Tracking spend to budget will reveal the technologies you spend money on and whether the ROI is justifiable. When you know this, you can strategize how to minimize costs and build a cost-effective legal department.
Spending by contract type. When you track spend by contract type, you’ll find the more costly contracts. You can then work on reducing the cost either by automating it or editing the templates.
Contract cost and workload metric. Contract cost and workload metric is the cost and hours spent in processing a contract. The cost of processing business contracts is rising, and the average cost of processing contracts from start to finish is higher than you may think.
Not every contract needs to be renewed, but when renewing contracts will help your bottom line, they should be approached strategically. Data to track includes:
Renewal date. Tracking when contracts are due for renewal will help you avoid missing contract renewal opportunities and getting roped into a contract that no longer serves you. It’s also good contract management practice to maximize contract renewal opportunities.
Number of contracts renewed. How many of your contracts are typically renewed? A high rate of contract renewals indicates good contract management. A report by Aberdeen Group shows that businesses considered “best-in-class”renew 56% of their contracts yearly, while other businesses renew 25% of their contracts.
Efficiency assessments. Before renewing contracts, answer these important questions—did the other party fulfill their obligations under the contract? What were the challenges you faced in executing the contract? An efficiency assessment will help you decide if renewal is the right call.
Optimize contract management
Tracking contract metrics is not the end but a means to an end. The aim is to use the data to boost legal’s contracting efficiency. There are things you’ll need to do to accomplish that.
1. Note the goal
Every effort to make a legal department more efficient must start with a clear goal. What is your company’s priority with its contracts? What kind of legal team do you need to become to meet that goal? A company may want to achieve a faster turnaround time for its contracts. Another company may see reducing contracting costs as a top priority.
2. Identify the metric you need to track to achieve the goal
When you know your goals, you can focus on actualizing them. The next step is to identify and track the relevant metrics. For example, if the goal is to achieve a faster contract turnaround time, track how much time contract creation, negotiation, and approval takes.
3. Implement reforms based on the metrics
As wonderful as tracking metrics are, they simply give you information that won’t change anything until you act on it. Remember, you have a goal. What can you change in your contracting process to achieve that goal? Make decisions and act on them.
The future of the legal department is data-driven
One of the astounding things contract lifecycle management (CLM) software has achieved is giving businesses visibility into their contract management data. With Ironclad’s CLM, you can easily retrieve your contracts and get answers to questions that would have taken days in seconds.
Other departments have been using data both to measure their results and increase their efficiency. Legal needs to leverage technology to become more data-driven. It’s time to track crucial contract management data and to use them to analyze and accelerate your team’s contracting efficiency.
Ironclad’s CLM is at the forefront, empowering legal departments with the tools they need to be as precise as others.