The Reality of Contract Analysis: 3 Big Mistakes That Banking Organizations Make

Posted 25 October 2019 11:46 AM by Fahad Muhammad
The Reality of Contract Analysis: 3 Big Mistakes That Banking Organizations Make

The Reality of Contract Analysis: 3 Big Mistakes That Banking Organizations Make

Financial services, and the banking industry itself, couldn’t function—perhaps even exist—without contracts. They govern every interaction and the movement of every dollar, defining who’s doing what, with whom, and under what conditions. And that makes contract analysis vital to a bank’s ability to manage its processes, find efficiencies, and mitigate risk.

Done well, contract analysis enables banks to:

  • Accelerate the procurement process and generate business intelligence that improves vendor selection, creates workflow efficiencies, and fast-tracks client onboarding.
  • Manage business risk by identifying contract documents—regardless of location or format—and gaining insight into the data that lies within.
  • Protect sensitive client data (including PII) and comply with regulations like GDPR, CCPA, and others.

To realize the full value of these benefits, banks need to take a strategic approach to contract analytics and implement a robust solution. Fundamental mistakes in the thought process behind contract analytics—and in its execution—prevent enterprises from experiencing gains in data privacy, process improvement, and risk mitigation.

Read on to learn the three crucial errors that derail contract analysis and how to avoid making them.

Mistake #1: Not Leveraging Contracts as Strategic Assets

Reality Check: A contract is not just another document, and contract management shouldn’t be treated as just another admin task.

Forward-thinking financial service firms treat contracts as a strategic asset and mine the data within their agreements to extract business value.

Contract analysis can reduce exposure to risk by extracting key details like SLA conditions, variable pricing, and expiration dates and terms. Analytics can also identify which language, terms, and clauses are most effective, and which ones impede the closing of deals.

When treated as a strategic asset, a bank’s contracts can alert the organization to better pricing opportunities, renewal windows, and potential discounts. What was previously seen as an administrative chore is now a means to drive down costs and accelerate processes.

Mistake #2: Lack of Accessibility & Visibility Across all Contracts

Reality Check: Most banking enterprises have decades of paper agreements spread across multiple fileshares and repositories.

Even recent contracts may have only been scanned into image files and still aren’t machine searchable, let alone properly archived. To gain the full benefit of contract analysis, all unstructured agreements need to be located and converted to searchable formats, so that important values can be extracted.

Without access to all contracts, and a solid understanding of what lies within, an organization can’t protect itself against any data privacy or regulatory compliance risks they may contain. One Fortune 500 company found itself in just such a situation—put under gun by regulators to either analyze the terms of over 500,000 client contracts and create a Recovery and Resolution Plan, or face severe penalties.

Mistake #3: Lack of a Consistent, Unified Approach to Contract Management

Reality Check: When contract management is fragmented, it costs both parties involved in the agreement.

Too often companies make the mistake of improperly analyzing and managing their contracts—particularly enterprises with multiple regions and business lines.

An automated contract analytics process provides easy visibility into the enterprise’s contract management—identifying areas for process, policy, and safety improvements. Quicker agreement approvals and procurement cycles can be achieved once best practices are identified and enforced, and only then can contract management deliver strategic value.

Getting Contract Analysis Right

Critical mistakes in strategy and implementation can be mitigated by applying an automated process for finding, classifying, and analyzing all contract documents.

The process involves:

  • Contract Discovery: Locate contracts of all file types across repositories and fileshares. Convert contract documents into a standardized, searchable format. Identify and eliminate duplicate data.
  • Classification: Define contract types and tag relevant attributes. Organize content by type in a defined location, where it can be accessed for future contract analytics.
  • Extraction: Extract terms and clauses so they can be analyzed, even if contracts have evolved from different formats and boilerplates over time.
  • Ongoing Analysis: Leverage contract analytics regularly to extract value from new agreements.

Takeaways

Contract analysis can significantly enhance banks’ ability to protect client data, improve procurement, and mitigate risk—but only if contracts are treated as strategic assets. Best practices around contract management need to be developed and enforced. And, to fully capitalize on the value of their contracts, banks must ensure proper accessibility, classification, and analysis of the data within.

Download the whitepaper to read how a leading financial services organization leveraged contract analytics to minimize the disruption and resources required to meet compliance mandates.

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