As a strategy, small businesses must consider contract management software or just the processes yet in their basic operations whether as a project management or as an operations management move. Contract management software can lead to better vendor leverage via effective economies-of-scale negotiations or better liquidity via closely monitored sales-to-revenue-to-cash management.
For instance, a $5 million annual spend can easily mean 5% or $250,000 worth of successfully negotiated rebates or discounts. Likewise, on-time payment collections of revenue from completed project deliverables will mean lesser financing costs and adequate cash-on-hand to fund other projects.
Consequently, adapting to a contract management strategy for the first time will require very specific project management considerations. Hence, here are the basics of operations in contract management, with or without the software, from a project management perspective.
Contract Management Scope
Every business deals with a contract. Employment contracts, vendor contracts, business loans, partnership agreements, sales contracts and client contracts are some of the contracts that every business big or small will have to deal with.
Like most great things, especially the complex ones, these are better started via baby steps– break down a complex idea into smaller, and hence, easily manageable bits to ensure better chances at success at the least cost.
From these baby steps, it is much easier to scale up and roll out a comprehensive project to maximize the benefits of contract management. For instance, a real estate company that rents out 200 houses in one city and has a contract management system in place will have better management capability to scale up to 1,000 houses in three cities.
Notably, not all contract management software or contract software will cover the same scope. Some contract software will cover just the legal templates for employment contracts while enterprise contract management software can cover the loans and mortgage agreements of millions of global bank customers in several countries with different rules, regulations and laws.
Geographical Deployment Classification
- Local - Single Branch Deployments
- Local - Multiple Branch Deployments
- Global Supply - Single Branch Deployments
- Global Supply - Multiple Branch Deployments
- Global Operations
From a deployment perspective, consider the above geographical scenarios. A single-town or single-city small business will usually have local contract management requirements. Employees are hired locally, supplies are bought locally, service providers are engaged locally and, of course, sales are made locally. In the same light, certain contract management software will also have the same limited scope.
As the operations become more geographically dispersed, contract management becomes more complex. Some supplies and service providers will have a local and global mix. Of course, multi-city, multi-state, or multi-country operations will have various regulatory and legal requirements. Rules and regulations and most significantly, laws and jurisprudence will be different from one country to another or even from one state to another.
Here, it is not only the contract management software that scales up in complexity but also the contract management processes. Hence, small businesses should discern the right time when to use local contract software or when to scale up to enterprise contract management software.
Operations Management of Data by Workflow Classification
- Contract archives
- Transition contracts
- Active contracts
From a workflow perspective, contract management would cover contract archives, transition contracts and active or live contracts. A loyal vendor or customer might have many contracts consisting of a mixture of fulfilled/completed/closed contracts; new contracts under negotiations which result into several drafts; and executed contracts that have ongoing deliverables that need to be completed.
Roll over contracts are also possible as some contracts might have automatic renewal provisions.
Finance Management Classification
- Client Contracts - Revenue Management
- Vendor and Personnel Contracts - Cash Burn Management
- Finance and Partnership Contracts - Leverage and Cash Flow Management
From a financial perspective, contract management will have the above considerations.
Client contracts bring in money. Hence, some small businesses may opt to prioritize this aspect first for better management of the sales-revenue-cash process, most especially in project companies that are highly dependent on the completion of certain deliverables by stages before sales are finally converted into cash. Several contract software applications are available to address this scope.
For small businesses with liquidity problems or high operating expenses, vendor or personnel contracts might be a good initial focus for better cost management. Likewise, more sophisticated operations will need to consider global sourcing, regional sourcing and local sourcing for better negotiation leverage. Note that a 90-day payment term is like a bank loan without interest when such terms are successfully negotiated.
For small businesses focused on managing growth, finance and partnership contracts could turn out to be good jumping boards to have a contract management system in place as these contracts are lesser in volume compared to client or vendor and personnel contracts.
When all of these finance-management-contracts are to be addressed simultaneously, then enterprise contract management software applications should be considered.
Paper and Digital Contracts Management
Another contract management perspective is on how to manage paper and electronic contracts. Paper contracts need to be scanned, indexed and classified so these could be available and visible on any authorized computer. Likewise, electronic documents such as contract templates or purchase orders will need version control, review and monitoring as well as authorized retrieval.
Contract Compliance
Contract compliance is also a key operations management concern for small businesses to facilitate a faster sales-revenue-cash conversion process for better liquidity. Moreover, contract compliance is also important in geographically dispersed businesses with local management discretion for greater control on maverick spending or better audit of payments for services not yet rendered or project deliverables that are not yet completed.
Basics of Operations in the Project Management of Contract Management
The key perspectives described above are the basic concepts of operations that are necessary for understanding and implementing a contract management software, process or strategy through sound project management considerations.
Related Readings:
- Contract Administration in Project Management – Concepts
- Project Finance Cash Burn Tracking & Project Expense Scheduling
- Project Management Office Administration in Project Companies
Melvin Tandoc - Melvin currently works for the project management software company that makes 2-plan Desktop and 2-plan Team.
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