Contract Management KPIs can set you up for Success
You need to monitor these 3 Key Performance Indicators (KPIs) for your Contract Management process. The contract management process is essential to any business, especially for procurement teams. We must monitor our Contract Management Performance regularly to ensure everything runs smoothly. Knowing your average time to approve or execute a contract and having benchmarks in place for what constitutes a "good" performance is essential.
This way, if something goes awry with your organisation's ability to manage contracts effectively. For example, if you're seeing an increase in approval times), you can address the issue before it becomes unmanageable. Doing this can prevent adverse events, such as poor feedback from your colleagues that contracts take too long.
Average Time To Approve Contract
The average time to approve a contract indicates how well your contract management process is working. It's important to constantly monitor this metric and use it to inform necessary improvements. Tracking this metric over time allows you to see where you are improving and where you need more work.
To improve the average time it takes for your contracts to be approved:
Ensure all forms are filled out correctly and timely before they are submitted.
Have a contract triage phase as part of your contract review and management process.
Utilise Procurement and Contract Technology, which captures this data in one place.
Ensure you have agile processes linked to all of your contract management activities.
Create clear approval structures that are easy to implement with Procurement and Contract Tech.
Average Time To Execute Contract
This is the time it takes to sign a contract with a supplier. It can be measured in days, weeks, months, or years. It would be best if you also calculated the average time to execute contracts for different types of suppliers. For example:
contracts with small suppliers are signed at an average of 3 days
contracts with medium-sized suppliers are signed at an average of 6 weeks
contracts with large suppliers are signed at an average of 2 months
You could look at the stats depending on the segmentation of your supplier, the category and the spend. I would look at a combination of all of these.
This takes into account the entirety of the process before the signature. Therefore, you should further break down this review into each phase of your contract review and signature process.
Compliance Percentage
Compliance percentage is the most important KPI to track for contract management. It's a measure of how well you are managing your contracts within the legal framework set out by your company.
For example, you may have a contracts playbook that indicates the positions you need to achieve. You want to highlight how compliant you are to these standard positions as an indicator of your compliance.
Once you understand how your organisation is performing, it becomes easier to adjust processes that need fine-tuning and improve performance across the board.
In Summary of these Contract Management KPIs
Now that you've got an idea of three key KPIs you should be monitoring to measure the performance of your contract management team, it's time to dive in and put them into practice. Remember to keep these metrics fun and engaging for everyone involved—especially if you want people on board with doing what it takes for them to hit those goals.
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