Managing and monitoring contracts is critically important to the success of any business, yet many companies are still using manual processes, increasing the risk of contract disputes. And with 20% of litigation stemming from contract disputes no wonder it’s one of the biggest problems facing GCs today.
It is estimated that 9.2% of a firm’s annual revenue is lost due to unmanaged contracts. This doesn’t just apply to small companies, even some of the most established businesses are working without a contract strategy.
Applying risk and audit techniques to increase visibility
We believe the answer is to change approach and consider applying a risk and compliance based assessment to your contract portfolio. While you usually deal with all your contracts and treat them all the same, a new approach can help you to prioritise: you can segment contracts based on the risk assessment and understand which contracts give you the insight needed. By identifying the highest risk contracts, the size of the task drops drastically to more manageable levels.
Your legal team needs a methodology that can be moulded to varying circumstances based upon international auditing techniques and statistical analysis. What does this practically mean and what are the key steps in the process?
1. Map your risk
The first step is to break down risk into the key elements. Risk is not analogous. As an example, there may be operational, financial and litigation risks in a contract; these are not equally likely to occur nor are they equal in terms of “impact” should the risk become reality.
2. Consider impact
Likewise, the body of contracts have differing impacts on a business, so it's helpful to break these down into categories..
3. Overlay risk and impact
You can then quantify the risk using the weighted risk factors and contract value. This then gives you an objective measure of how to prioritize the contracts from a risk perspective.
4. Make an informed decision
Using this technique, you can then decide how many legacy contracts you wish to on-board and more importantly, understand why.
Read a quick snapshot of how you can apply tried and tested techniques in the executive summary of Exigent’s latest white paper. The Contract Folder: Hidden Value or Ticking Bomb? Executive summary]
For a more in-depth analysis and to understand how to organize your legacy contracts to discover the value hidden in them, download our white paper “The Contract Folder: Hidden Value or Ticking Bomb?”
You can also watch a recording of our webinar “The Contract Folder: Hidden Value or Ticking Bomb?” for a thorough discussion that reveals insights and strategies for dealing with legacy contracts.
This new paper considers the issues facing legal teams today to combat the lack of true risk awareness and accessing the hidden value in contracts.