Contract Lifecycle Management – Common CLM Issues

Contract Lifecycle Management (CLM) refers to the process of systematically managing the creation, execution, performance, and renewal or termination of contracts between parties. It encompasses all stages of a contract’s existence. The primary goal of CLM is to streamline and optimise the contract management process, ensuring that contracts are effectively administered, risks are minimised, and value is maximised throughout the contract’s lifecycle.

An ineffective CLM function can lead to a decline in contract value, heightened risk exposure, and increased costs for organisations due to the overhead of addressing issues and implementing workarounds. These issues can manifest on three distinct levels – Strategic, Operational and Tactical. The diagram below illustrates some of the potential issues that can arise:

At the strategic level, issues are centered on the enterprise and affect the entire organisation. On the other hand, operational and tactical issues typically arise within specific departments or teams. Many operational and tactical issues stem from unaddressed strategic issues, resulting in a cascading effect. Neglecting strategic issues not only impacts efficiency but also exponentially exacerbates inefficiencies at operational and tactical levels.

For instance, consider the consequences of not having a centralised repository for contracts. Without such a repository, inefficiencies arise in locating the contracts, updating and maintaining accurate documentation, accessing contract information as required and being able to view and analyse the whole contract portfolio.

Most organisations don’t have a centralised repository housing essential contract details. Instead, these details are typically scattered across various platforms such as individual laptops, divisional share drives, or generic repositories like SharePoint, often lacking any structured framework, search and analytical capabilities. Additionally, organisations resort to using spreadsheets to track and analyse financial data, and rely on email exchanges between organisational representatives and suppliers for communication purposes and to agree variations that rarely get stored with the contract.

Process inefficiencies represent another source of problems that affect the effectiveness of the CLM function. These inefficiencies often stem from unclear roles and responsibilities, particularly pre and post-contract signatures. Undefined or ambiguous workflows exacerbate the situation, resulting in gaps and overlaps in responsibilities, prolonged approval timelines, and unnecessary rework required to address or execute CLM actions. Clarifying processes across the organisation is crucial to streamlining and enhancing the efficiency of the CLM function.

In another recent EvolveCLM article (Why is CLM so difficult) we discussed the impact of complexity of organisation structures and the involvement of various stakeholders in the end-to-end CLM function. We posed the question of who is responsible for cybersecurity across third party providers. Whilst cybersecurity typically sits within IT, the role of who monitors and addresses the cybersecurity risk of suppliers is not so clear. It could be the cybersecurity team, the risk management team, contract owner or internal audit, or maybe all of these.

Summary

The CLM function within many organisations requires a significant overhaul to effectively define the function and ensure an enterprise-wide approach is taken. This typically entails integrating a cutting-edge CLM technology platform alongside an operating model transformation. The focus should be on digitising and centralising contracts, establishing streamlined workflow processes with clear roles, responsibilities, and accountabilities, implementing robust CLM governance, and laying the groundwork for advanced contract analytics.

For a confidential discussion on how EvolveCLM can help your organisation please Email us on: inquiry@evolveclm.com.au or visit our website at www.evolveclm.com.au.