Archive: May, 2016

Risk Management Without Contract Certainty is Dangerous

According to The National Contract Management Association, 81% of members reported that finding their contracts was a major concern. Think about your own experience – have you ever needed to look into the details of a contract and couldn’t find the right agreement?  For a small number of contracts this could be considered sloppy, but for more it’s dangerous and frankly puts your firm at risk of being blindsided at the worst possible moment.

Contracts are one of the most effective tools for managing risk, because they have legal teeth.  Chances are your company is pretty good at drafting and negotiating contracts to protect your interests while still moving business forward, but what happens once the ink has dried?  Do you have an effective system for capturing and storing the information within the contract?  If you’re like most companies there’s a good chance you fall short.  The most progressive firms we see simply store contracts on a central file share and add a spreadsheet with basic metadata.

If your firm is serious about risk management then finding effective ways to manage and deeply understand your contracts is essential.  It means taking a fresh approach to contracts and transforming them from documents into data.  If you’re not managing your contracts properly you’re bound to face some unwanted surprises. Surprises that might cost your firm millions of dollars, or worse, your job! This is why you need a plan in place for when a crisis emerges.

If you think your firm can do a better job at risk and contract management, you’re right!  The first step is to implement a universal data model for all your contracts and then consistently populate that database for every new contract. This uniform and data-centric approach will provide your firm with real-time information about the risks, obligations and exposures your company has to a counterparty. This is just the first step to managing your contract data successfully in order to reduce the risk in your firm.

Here’s an action checklist you can follow to get you started:

  • Review the ways in which contracts are tracked on a company wide basis, and the policies and procedures in place to use that data to hedge against and mitigate risks.
  • Review the status of contracts, including any risk concentrations and interrelationships, as well as the likelihood of occurrence and potential risk.
  • Design contract risk management policies and procedures that are coordinated and function as directed.
  • Implement these strategies in a timely manner.
  • Send a message to management that comprehensive contract management is an integral component of the firm’s strategy and business operations.

To learn new approaches that will provide you with real-time visibility, such as assessing your current situation to track interrelated risks and identifying the steps you need to take for implementing an internal risk management campaign, check out the New Contract Risk Playbook. Its an advanced guide for Corporate Boards and Senior Executives on how they can take an enterprise view on managing their contractual risk, which will improve operational excellence while reducing risk.

9.thumbnailMike Maziarz is Exari’s Chief Marketing Officer. Reach out in the comments or @mikemaziarz.