Developing a Business Case for a Contract Management or other solutions is not always easy. Apttus has performed many projects developing business cases and defining the value of the automation of these processes.

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Business Case for Contract Management

The automation of Contract Management as a function has largely been unaddressed by most organizations. Historically, you only hear about the contract management function when there is an exception or something is broken. Now that profitability, compliance and risk management has reached executive agendas, priorities have changed. In most organizations, the contract is the blueprint for your trading relationship and yet it is not managed in the most optimum way today.

The Aberdeen Group, who has performed a great deal of research around the contract management function, has identified typical problems today and the high value opportunities to improve. From initiating a contract process and negotiating the agreement, to backend terms administration, the opportunities for improvement are large. From a study of over 300 organizations, the data is startling.

Fragmented processes

There are many opportunities to improve these processes. Frequently, the different participants across the contract value chain, follow fundamentally different processes. For instance, if a buyer doesn’t follow the correct procurement or contract process, you will end up with a purchase off contract or a maverick buying episode. This induces financial and supply risk. There are many studies that show more than 20% of purchases of many organizations are completed “off contract”. Other examples of fragmented processes that result to problems are underleveraged spending where you are not gaining the largest benefits from aggregating your suppliers.

On the sales front, missed opportunities because the sales organization did not have access to contracts or couldn’t find them, so were not able to cross sell, renew, or upsell. Sales will frequently pursue unprofitable deals because of a lack of understanding of the contract that is being created and any historical context.

People intensive processes
Across the contract value chain, many participants are involved in the process and the handoffs between these organizations is usually manual. This results in long sourcing cycles, less spend under contract and non competitive negotiations.

On the sales front, long sales cycles, missed opportunities and extended order to cash cycles result from human involvement or errors.

Contract Visibility

Finding contracts is frequently a problem. Providing visibility to people who should know and should be taking actions is even more problematic. This results in poor compliance, inconsistent and risky terms and limited visibility into spend.

On the sales front, lost revenue opportunities, no complete view of the customer and potential SLA and penalties invoked from lack of performance.

Compliance monitoring and management

If there is a lack of visibility into the contract then compliance is compromised – actions such as missed rebates and discounts, overpayments, lost revenue and missed renewals. These financial items drive huge Return on Investment when automating the function.

Ultimately being able to measure your trading partner’s performance is impossible as the benchmark is not clear – the contract and its contents.

If the process is automated, benefits can be very significant. Examples of the types of benefits are portrayed below which is sourced from the Aberdeen Group.