How to achieve lean contract management processes

The practice of Contract Lifecycle Management (CLM) is a complex business with many moving parts. Much of it is usually separated into meaningful, mostly self-contained processes.

A process provides a structured approach to completing a standardised set of activities, in sequence, or simultaneously when feasible. It can be done manually but will be more speedy and effective when automation can be used.

Following a defined process can minimise the risk of errors or variability, helping to ensure consistent achievement of desired outcomes.

All processes need to be regularly reviewed and updated as necessary to ensure they remain relevant for current circumstances, and as efficient and effective as possible. The aim is to drive gains in process performance and value delivery, not to achieve process perfection.

One approach for doing so is through application of the principles of lean. This is an approach to maximising value in business practices while minimising waste.

This article discusses how to make contract management processes lean, covering:

• A quick look at lean
• The nature of process waste
• Why processes are important for effective CLM
• Some typical contract management processes
• Common problems with processes
• Metrics + visibility = accountability
• A lean process for achieving lean contract management processes
• The bigger picture of lean CLM
• Speed bumps on the road to lean.

A quick look at lean

The main principles of lean include:

1. Identification and elimination of waste, defined as any activities in business processes that don’t add any value to their purpose or outcomes
2. Improvement of the flow of work by removing bottlenecks and simplifying complexity by making processes smoother, more comprehensible and more efficient
3. Continuous monitoring and optimisation of processes to deal with changes in requirements, desired outcomes and the operating environment
4. Achievement of strong relationships with third-parties to promote collaboration and continuous improvement
5. Involvement of process users in the application of lean principles and practices.

Measurement is an essential component of lean processes. It provides and makes visible the data necessary to identify opportunities for improvement, set goals and track progress, make data-driven decisions, and establish accountabilities for process performance.

Metrics should be a tool, not a target to be blindly chased.

The nature of process waste

A foundational aspect of lean is the elimination of waste from work, the removal of any activity that does not deliver definite value.

The nature of process waste is commonly categorised as follows:

• Defect: any type of error, mistake, or issue that occurs during a process that results in incorrect, stalled or additional work, such as:
• Missing information, incorrect instructions, or outdated procedures
• Not performing as specified or not delivering the expected output
• Unclear messages, incomplete instructions, or misunderstandings due to language barriers

• Inventory: work waiting to be done for some reason, like:
• Backlogs due to lack of awareness or availability of human / technical resources, unclear work priorities, or the sheer amount of work to be done
• Bottlenecks where work is stuck in a process unable to be completed in a timely manner due to resource limitations, inefficient / ineffective workflows, or unforeseen events
• Rework necessary due to original work not being done correctly

• Motion: unnecessary movement of people or materials, such as:
• Manual discovery and search of documents
• Physical exchange of documents
• Preparation of redundant documentation

• Omission: failure to do something within or related to a process, like: 
• Incomplete data capture or provisioning
• Insufficient training or support
• Non-existent planning for the unexpected

• Over-processing: excessive or unnecessary processing that adds time and cost but not value, due to: 
• Superfluous inspection or testing
• Extra processing that contributes nothing to the desired outcomes
• Over-engineering the process with unnecessary complexity

• Over-production: doing more than is needed or desired, such as: 
• Collecting irrelevant or unnecessary operational or measurement data
• Creating output that is neither needed nor of any value
• Making allowance for situations that cannot occur

• Skills: not using the right people for the job, such as:
• Asking the Legal team to check supplier service delivery performance
• Not involving the IT team in evaluation of process automation software
• Requiring junior contract managers to review complex contracts

• Waiting: the delay caused by any inability to start or complete a process, due to:
• Failures in the technologies or infrastructure used
• Requirement for backlogged work to be completed first
• Unavailability of the necessary people.

Why processes are important for effective CLM

Processes provide a structured approach to managing contracts from creation to termination, and sometimes post-termination.

Without defined and widely adopted processes in place, it is easy for important activities to be missed or misused. This can lead to potential errors or omissions that could impact a contract's success or increase the risk to the organisation in any number of ways.

Effective CLM is achieved when the processes used enable the delivery of:

1. Accountability, by setting visible, unambiguous roles and responsibilities for each process participant
2. Collaboration, by encouraging communication between process stakeholders, ensuring that everyone is aligned and working towards a common goal
3. Compliance, by creating awareness of, and ensuring attention to, contractual, legal and regulatory obligations
4. Continuous improvement, by allowing process stakeholders to identify areas for improvement, then propose and implement the necessary changes
5. Efficiency, by reducing the time, cost and resources required to manage contracts
6. Risk mitigation, by identifying potential risks and implementing mitigation strategies
7. Scalability, by ensuring through measurement that processes are able to comfortably deal with non-stop growth in the number of contracts to be managed
8. Standardisation, by limiting freedom of choice in the processing activities and methods determined necessary for efficient and effective CLM
9. Visibility, by revealing the level of progress through the process, performance against any expectations, and identification of the currently responsible party.

Some typical contract management processes

As a general rule of thumb, the greater the maturity of an organisation’s CLM practices, the more processes it will use to manage its contract inventory, and the more effective it will be in doing so.

Contract management processes have varying usage levels. Some might only be used depending on which stage in its lifecycle a contract is at. Others might only be triggered by the occurrence of some event, like reaching a milestone date or the value of some contract attribute exceeding a certain limit.

A sample of processes that are typically used includes:

1. Request for Proposal (RFP): initiating and managing the RFP process
2. Contract negotiation: negotiating contract terms and conditions
3. Contract approval and execution: approving contracts, obtaining signatures from all parties involved, and storing all relevant contract documents in a secure centralised repository
4. Contract start-up: preparing for use and ongoing management of a new contract
5. Supplier onboarding: collecting and assessing all the information needed about a new supplier, and preparing internal systems for managing supplier transactions
6. Contract monitoring: checking compliance with contract terms and obligations, legal restrictions and regulatory requirements, and tracking contract milestone dates
7. Contract amendment: requesting and agreeing variations to contracts, and adjusting contracts as agreed
8. Contract risk management: identifying, mitigating and managing internal and external risks associated with contracts and third-parties
9. Contract issue and dispute resolution: using agreed methods for reporting, escalating and resolving issues and disputes
10. Third-party performance management: evaluating third-party performance against agreed standards, addressing any issues found, and ensuring delivery of agreed consequences for performance shortfalls
11. Contract renewal: checking the need for and desirability of contract continuation, establishing any changes to requirements or contract terms, signing a new contract
12. Contract termination: transitioning out of a contract, including any agreed disengagement activities.

Common issues with processes

Whether completely manual, totally automated or a mixture of both, processes and their expected outcomes can be affected by a range of issues.

These can produce consequences for the people either involved in operating those processes or depending on their outcomes. The organisation itself could be exposed to some level of unconsidered risk as a result.

Process issues can arise due to shortfalls or deficits in the following areas:

• Accountability: especially with high staff turnover as uncertainty about who is responsible for certain tasks or decisions can easily lead to confusion, delay and errors
• Agility: processes can rely on automation methods or IT systems that prove inflexible and unable to adapt to changing business needs. There may be no plans to update the offending technologies, or plans with neither priority nor budget allocated
• Attention: entropy, the drift from order to disorder, can lead to a reduction in quality of a process over time. Paying attention to processes, keeping them fit for purpose, efficient and effective, needs to be regularly scheduled
• Automation: manual process activities are time-consuming, error-prone and open to interpretation. Manual measurement of such activities can be the same, and also invisible to varying degrees
• Direction: without a policy in place to express the need for a set of processes to control a business function like CLM, it can be difficult to formulate the needed process landscape. Given the risks associated with poorly managed contracts, laissez-faire is not an option
• Governance: regular checking of the availability and adequacy of process documentation and training, the level of usage of and compliance with process, and value delivered against expectations are key to highlighting process issues
• Ownership: it’s not unknown for no-one to be available to justify the purpose, activities and outcomes of a long-used process. The resulting fear, uncertainty and doubt about any knock-on effects of discontinuing use of such an orphan process commonly leads to its continued use indefinitely
• Relevance: entire processes, but more commonly just certain process steps, can continue to be performed when no longer relevant or needed. This can happen when the intended recipients of the outcomes are no longer interested in those outcomes but don’t know who to advise to get things changed
• Speed: laborious, dense, complicated and convoluted processes, particularly those performed manually and requiring considerable validation of outcomes, can result in significant delays and loss of productivity and morale
• Standardisation: process participants can be left, perhaps even determined, to make their own decisions about how a process action might be performed locally. Inconsistent approaches can produce outcomes at odds with more general global expectations, leading to confusion, errors and possibly unexpected risk
• Training: the activities that need to be performed in a process might only be obvious to the well-experienced. Mistakes can be easily made by participants who are not properly trained or even advised about their responsibilities in processes, leading to errors and inefficiencies
• Transparency: people can be aware of their own process responsibilities, but not have visibility into the status of a process prior to their responsibilities being triggered, leading to frustration and delays.

Metrics + visibility = accountability

Properly implemented, lean principles should not only drive the desired kind of individual and organisational behaviour, but also establish accountability for that behaviour.

Metrics are the measurements collected in each process to gauge the performance of the people responsible for undertaking its various steps. Each measurement should be compared against a relevant benchmark to produce a performance rating.

Making those metrics and ratings visible to each participant, both during a step and at its conclusion, provides them with feedback about their performance. This might be in terms of duration or volumes, comparison against established expectations and so on.

Such visibility allows participants to understand their strengths and weaknesses and identify areas that need improvement.

It can increase their motivation and confidence towards doing contract management well. It also encourages them to take ownership of their responsibilities and be held accountable.

Finally, visibility is critical to stakeholders with accountabilities contingent on the final outcomes of a completed process. With the right technologies in place, they can track the progress of the matter of interest. Actions might then be taken to give that progress a nudge via escalation.

Care is needed with accountability at the process step level though.

The metrics can show that performance is outside of expected parameters, but generally not the reason for it. Many situations not influenced in any way by the actions or inactions of the person responsible for a process step can affect their ability to complete it.

Shoot first then ask questions later is not a good way to win friends and influence people.

A lean process for achieving lean contract management processes

The leaning process itself should be as lean as possible, with the following steps:

1. Establish the scope: determine the purposes of the leaning exercise, such as minimising inefficiencies and rework, reducing costs and process cycle time, or increasing productivity and process adoption, and prioritise those purposes. Identify the people who should be involved
2. Map known processes: identify every process currently in use, and define their individual goals and objectives. Map any process-to-process flow and each standalone process used in each CLM stage
3. Diagram each process: prepare a simple start-to-finish flow diagram for each process, showing their individual steps. Any existing documentation can provide some details, but may well be outdated. Discussions with process participants will be needed to establish what is actually being done. Establish diagramming standards, such as vertically aligning the steps that will be performed sequentially, and horizontally aligning those able to be performed concurrently
4. Document each process: for each process, specify the following details for each of its steps in their operating sequence:
1. Process step name/ID: the unique name or ID given to the step to facilitate easy identification
2. Description: a clear and concise outline of the step to ensure that everyone involved in the process understands it and its purpose
3. Conditionality: a specification of any rules that determine whether or not the step is required to be run at the relevant point in the process
4. Concurrence: a specification of any rules that determine if the step is allowed to be run concurrently with other steps, and if so, which ones
5. Inputs: all inputs required for the step, including the source of the input, its format, and any specific requirements or constraints that apply
6. Outputs: all outputs produced by the step, including formats, destinations, and any quality control requirements
7. Hand-off: a specification of any rules that determine if the step is allowed to continue to the next step
8. Roles and responsibilities: the roles or teams responsible for performing the step, and their individual responsibilities
9. Resources: all resources required to execute the step, including equipment, software, and materials
10. Procedures: detailed procedures for performing the step, including any safety, quality control or regulatory requirements
11. Metrics: any relevant metrics or key performance indicators (KPIs) associated with the step, such as current process duration and expected average or maximum duration, including their purpose and how they will be measured, tracked, and reported
12. Risks and mitigations: any potential risks associated with the step, with details of any mitigation strategies or controls set up to eliminate or minimise such risks
13. Dependencies: any dependencies on or relationships with other steps or activities that could impact the overall process
14. Known issues: details of direct and indirect issues encountered in the operation of the step, including technology constraints and fragile elements. Determine if the step is actually needed, being bypassed by use of independent localised versions, or completely ignored. Identify when people are the problem, stating how and why
15. Improvement plans: details of any existing plans and expected implementation dates for improving the step, say with the use of new technologies
5. Identify waste: analyse each process to identify any waste at the process level, in individual steps or isolated activities within steps
6. Optimise each process: where possible and practical, eliminate any identified waste, simplify what needs to be done, and automate whatever makes sense, not just everything in sight. Consider how resilience against failures can be achieved. Ensure retained and new metrics are relevant. Prepare guidance for how to best use each process if it might be necessary to do certain things in different ways when different circumstances apply
7. Implement each optimised process: maintain the currency of all operational documentation applicable to the processes. Ensure relevant notification about changes to processes is issued, with details of where the documentation can be found. Schedule and roll out any necessary training, particularly following the adoption of new technologies that might have radically changed any processes. Periodically check to ensure that the processes are followed consistently. Review the process’s measurements to ensure that the desired effects of leaning it are being achieved
8. Continuously improve each process: ensure that process usage and performance metrics are widely reported, centrally monitored and assessed, and used to drive continuous improvement. Request and respond to feedback from everybody with responsibilities for the processes or the performance of their associated activities. Check for any concerns with people who depend on the process outcomes, like contract owners and users of the products and services delivered by contracts.

The bigger picture of lean CLM

The entire focus of lean shouldn’t be directed solely at the individual contract management processes. The overall CLM function itself needs to operate in a lean and efficient manner.

This means looking at if, how and how well its individual lean processes interact with each other. Identifying any redundancies or inefficiencies that may exist at that level allows for optimisation of the overall process flow in CLM.

The planned introduction of contract lifecycle management software and various other technologies into the CLM function should trigger the sort of high-level holistic process review needed to capitalise on all the optimisation opportunities that will become available.

It might be possible to not only eliminate some low-level processes or activities, but also to do some desirable things better or for the first time.

Speed bumps on the road to lean

Adopting lean principles for contract management processes can be a far from smooth or quick ride. The reasons for this can include:

• • • • Workload: it’s likely to be more typical than not that organisations of all sizes and longevities have a growing contract inventory that they struggle to manage as well as they’d like to. Given this situation, it’s more than likely that all the people who would be involved in leaning their contract management processes have a day job that typically takes, well, all day, and possibly then some. Consequently, they may have limited ability to prioritise improvement over the normal day-to-day. When-we-can will often really mean never, despite best intentions
      • Resistance to change: comfort with the way things have been done for a long time, fear of the unknown, a lack of visible management support and a perception of insufficient justification for change can make it difficult to get commitment to making change
      • Lack of management support: usually evident through no-to-low priority or budget, if upstairs isn’t visibly backing it, participation will likely be limited
      • Poor change management: change can be traumatic at so many levels, requiring inclusivity, listening, collaboration, openness, planning and agility. Any weaknesses in such areas can severely affect acceptance and adoption of change
      •  Inadequate training or experience: staff involved in leaning the contract management processes may have had limited exposure to process design and improvement techniques, lack understanding of how technology can be used to accelerate processes, or worse, have low awareness of how CLM itself works
      • Silo mentality: islands in the stream, rabid autonomy, not-invented-here and turf warfare, aided and abetted by lack of communication, collaboration and visible management support, can stop process improvement in its tracks
      • Impossibility of standardisation: for a geographically dispersed organisation, there may be too many local regulatory and business practice differences than can be readily or effectively accommodated in a particular process.

Wrap-up

Just like a house and garden, contract management processes can slowly deteriorate through a lack of attention. That may not be deliberate because the arrival rate of new contracts can focus attention on implementing them to release value at the expense of looking at the efficacy of the processes for dealing with them.

Circumstances have probably changed considerably since the time the processes were first implemented or last updated.

That can make what might have been acceptable with the volumes of work existing at the time unlikely to be so today. Irrespective of the causes, it’s a risky business to let things go for too long without attention.

By adopting lean practices, organisations can become more agile in the face of change and more resilient in the face of uncertainty.

This can help them to respond more quickly and effectively to changing circumstances, identify new opportunities for improvement, and stay focused on delivering value internally and externally.

Lean’s notion of continuous improvement doesn’t imply 24 x 7 attention. It doesn’t need to be dedicated attention that takes unaffordable time away from other work. It just means being mindful that things are changing all the time, and keeping a watch for consequences that can pop up anywhere that might provide opportunities for improvement.

Dusty Springfield once sang ‘Little by little by little by little by little’. This is a viable approach to use for achieving lean contract management processes, because it’s not a once and done job.

Once the current status of these processes has been revealed, making them lean can be paced using prioritisation to deal with the low-hanging fruit first to get quick wins, going by urgency of need for improvement, or capitalising on the availability of useful new technology. Whatever makes sense at the time, as long as it gets done.

If you would like more information about leaning your contract management processes and your CLM function, or how Gatekeeper can assist with that activity, then contact us today.