Contract Risk Management – Part 2

Part-1 of the blog series on Contract Risk Management talked about the risks inherently associated with the most common contract management platforms used today. Today’s blog post will address the types of contract risks that most organizations are predisposed to and the benefits Automation would bring.

Contract Risk, as a term, generates curiosity and worry. After a lengthy and tedious process of a contract being created, approved, and signed by the concerned parties, you arrive at making the best use of what you have on hand. There might be some terms or clauses in the agreement that are in your favor and some that are not.

The types of risks faced by most organizations fall into one of the following four categories –

  1. Financial – Poorly negotiated and managed contracts lead to unfavorable payment, pricing, and indemnification terms
  2. Legal – Non-fulfilment of contractual obligations and non-enforcement of specific clauses can open a company to unanticipated law suits
  3. Operational – Improper enforcement of contracts results in badly prioritized processes and workflows
  4. Regulatory – Not following the latest regulatory compliance can lead to fines, lost customers, and damaged reputation

To derive maximum benefits from a contract, one must monitor it closely throughout its lifecycle by identifying the risks posed by the contract and include terms and conditions to protect oneself from any impending threat of monetary loss.

Automation drives mitigation of contract risks. A competent Contract Lifecycle Management (CLM) solution should ideally have a ‘solution’ to all your problems. There are various ways in which a CLM tool can effortlessly ease your worries and help you get a good night’s sleep by ensuring that you sign the most favorable contract and by handling all the eventualities at a later stage.

A CLM system that can keep up with the speed and style of a business will ensure that one is properly addressing:

  • Process integrity
  • Process efficiencies
  • Risk management
  • Compliance
  • Cost optimization
  • Management of profitable relationships

The upcoming parts in this series will explore the best practices to proactively manage common contractual risks. Stay tuned!

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Author Stuti Mehrotra

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