Contract Lifecycle Management (CLM) is a service delivered through a combination of people (internal and/or external), policies, processes and technology.
Like any other service, CLM is subject to a few old business adages that can be summarised as:
“If you don't measure it, how can you manage or improve it?”
The purpose of measurement in general is either:
- To find out much of something is being produced, maybe in comparison to a specified target amount
- Or to determine if what's being measured is getting better, getting worse or staying the same in comparison to some kind of benchmark or previous measurement.
Regular reporting of the measurement results is vital for detecting early warning signs that show matters are not proceeding within acceptable limits, allowing rapid remedial action.
As an example, many contracts for goods or services contain a Service Level Agreement that shows what measurements are to be made, what targets are expected to be met, and what reporting is required to show actual performance against the targets.
A typical target might specify that:
- 90% of orders will be delivered to the customer within 10 working days of the supplier's receipt of an order
- With all orders fully delivered within 15 working days.
Monetary penalties and/or certain remedial activities may be triggered by the supplier's failure to meet the target.
What to measure
If you're unsure where to start with measurement, don't worry. We have a comprehensive list of CLM KPIs below to get you going.
Many measurements can be set up to help establish if things are going according to plan, to highlight opportunities for improvement and reveal potentially worrying trends, to indicate the size of the CLM workload and determine if the CLM team is sufficiently resourced to manage it, and to show if the effort is paying dividends.
The trick is to decide what's most important to manage in the various CLM processes, then figure out what needs to be measured to allow it to occur.
For example, a target might be to have say 75% of all critical contracts under active management by the CLM team (if you have one) within six months from a designated start date.
Say a contract is considered to be under management if it has been assigned to the CLM team. The measure could be produced simply by reporting the number of critical contracts in existence, the number of critical contracts assigned to the CLM team, and the proportion of assigned critical contracts compared to the number of critical contracts.
Continued growth of the assigned ratio over each reporting period will provide assurance that things are heading in the right direction, and may indicate whether or not the time frame might be achieved.
The measurements below reveal the scale of the contract inventory to be managed, the activity levels of some key elements of the CLM workload and the outcomes where applicable.
Not all of them will be necessary for every organisation. There may be specific measures or factors that your organisation needs to report on such as:
- Targets for certain measures
- Comparisons between measurement periods
- Cumulative year-to-date totals
- Statistics like average, mean or median figures
Do bear in mind though that there is no point in having so many measures to be calculated and reported that the key information is lost, or nobody could be bothered reading the reports.
Some measurements may need to be reported frequently, others less so, and some numbers may need to be rolled-up and reported with accompanying analysis or other commentary.
Review the reports regularly to determine if all the information contained is still pertinent and being used.
Also consider using technology to automate the collection, assembly and analysis of your data. A contract management solution may provide the end-to-end process or may be a starting point to then integrate with any reporting or data visualisation systems you may have in place.
Key tips for effective CLM Measurement
- Few organisations have the time or resources to closely manage every contract. Effort should be focused on the key suppliers and the key contracts for regular reporting, for example those accounting for 80% of the annual spend. This focus allows period-on-period comparisons that might reveal trends that warrant attention
- Non-key contracts of interest can also undergo contract management as and when required
- The contract management plan for all key and selected non-key contracts should identify the nature of the CLM activities required and their timing
- Reporting of measurements can be stratified to show results at various levels. For example, it might be valuable to see separate numbers for key contracts and non-key contracts, or for critical obligations and non-critical obligations, rather than combined numbers.
List of Contract Lifecycle Management Measures
| Measurement | Purpose |
|---|---|
| Benefits Realisation, Value for Money Reviews | Show level of achievement against expectations, to allow recalibration of targets and / or remediation of approaches used |
| Continuous Improvement, Innovation Reviews | Show levels of supplier success in providing improvements and innovation, to allow recalibration of targets and / or remediation of approaches used |
| Contract Changes | Show the volume of contract changes needed, to allow workload planning |
| Contract Events | Show contract event handling workload and completion rates, to allow validation of workload planning and resourcing levels |
| Contract Issues | Show the scale of relationship irritants, to allow application of preventative approaches |
| Contract Management Workload | Show where the contract management effort is occurring, to allow validation of workload planning and resourcing levels |
| Contract Relevance Reviews | Show the scope of impending changes and the number of contracts involved, to allow remediation workload planning |
| Contracts Under Management | Show contract activity levels and the proportion of spend under management, to allow planning for increasing the numbers under management |
| Formal Disputes | Show the scale and causes of serious relationship volatility, to allow application of preventative approaches |
| Invoice Disputes | Show the extent of supplier invoicing difficulties, to allow remediation of underlying causes |
| Obligations Compliance Reviews | Show scope of obligations compliance performance, to allow remediation of underlying issues |
| Regulatory Changes Reviews | Show the scope of impending contract changes needed, to allow remediation workload planning |
| Supplier Benchmark Reviews | Show suppliers' ability and willingness to meet the market, to allow supplier attitudes to be considered in ongoing assessment of supplier desirability |
| Supplier Performance Reviews | Show supplier performance ratings, to allow remediation of underlying issues |
| Suppliers Under Management | Show supplier activity levels and the proportion of spend under management, to allow planning for increasing numbers under management |
| User Satisfaction Surveys – CLM | Show levels of user satisfaction with outcomes of the CLM approach used and scope of the friction areas, to allow remediation of underlying issues |
| User Satisfaction Surveys - Suppliers | Show levels of user satisfaction with suppliers and scope of the friction areas, to allow remediation of underlying issues |
To help you manage and measure your contracts, we've created a free, handy contract management resource containing templates for 17 individual measures. Download them here.
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