Beyond Business Risk: 2 Little-Known Benefits of Automated Contract Analysis

February 4, 2020

3 minute read


Contract Analytics

Manual contract analysis is a colossal chore. Leafing through thousands or millions of contract documents poses a significant operational challenge that could take many months or years to complete, if at all. The adoption of automated contract analysis represents an important time-saving shift for organizations looking to efficiently manage contractual risk. Beyond rooting out and remediating risk, however, there are additional payoffs.

Identifying risk within contracts is essential for meeting compliance mandates, but organizations mustn’t overlook the additional insights that contract analysis can surface. To improve decision-making and enhance contract performance, contract analytics must be treated as more than just a risk-management tool.

Read on for two overlooked benefits of automated contract analysis.

1. Improved Contract Performance

Because contract analysis tools are capable of learning specific terms, products, and language to optimize accuracy, automated contract analysis can dramatically increase the performance of contracts.

Take, for example, the case of a company that has built up a large repository of purchase agreements containing several wording variations in important clauses. The right contract analysis software would enable the organization to automatically search all contracts, determine which ones contain a certain clause, and highlight changes in wording.

This process is an efficient—almost-instant—method of identifying the contracts that contain clauses with optimal wording (those that have proven to enhance contract performance). More importantly, it flags the contracts that need to be revised.

Automated contract analysis can improve performance and results, and not just after the term of a contract has expired. Contract analytics positively affects results as soon as contract parameters like financial metrics, date milestones, and other KPIs have been established.

Companies can compare these metrics with the data in financial reporting systems, project-management tools, and analytics platforms, and then perform analysis. This ongoing evaluation gives answers to important questions like: Are quality metrics being achieved? Is the initiative on schedule, and is it on budget? Just-in-time adjustments can be made before it’s too late to affect performance.

2. Enhanced Contract Profitability

The efficiency and profitability lost through improper contract analysis cannot be understated. Any profits gained through painstaking negotiations can be swiftly squandered if contracts aren’t managed properly or proactively.

“When organizations do not effectively manage their contracts, it can leave them exposed to unnecessary costs such as contract leakage, increases in maverick spend, paying additional costs that negatively impact their bottom line, and can even damage their relationship with suppliers.”1

On the flipside, the insights gained from robust automated contract analysis have the power to transform companies by providing a dynamic, real-time view of contract profitability. This process can yield a granular measurement of the profitability of each individual contract, enabling course corrections to be made as the initiative unfolds. Or it can create an aggregated picture of the overall profitability of all contracts, and therefore the business itself.

Comparing contract data such as parties, terms, conditions, and dates at the start of a project or business relationship with the actual transactional data enables real-time measurement of profitability. Doing so automatically and across all contracts gives an organization greater insight and control to make more immediate course-correcting actions that would not have been practical—or even possible—in the past.

The Final Verdict

Contract analysis software provides critical capabilities and benefits beyond the basics of risk mitigation. Automated analysis extracts important contract terms that enables monitoring and reporting of contract performance and profitability. The access, insights, and control that contract analytics offers enables companies to harness the true value of their contracts—turning them into valuable strategic assets.

Next in the Series

To learn more about choosing the right contract analysis solution, read Scott Mackey’s comparison of three different types of contract analytics technologies.

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