Over 80% of all business-to-business transactions are contractual in nature and as such contracts form the foundation of any organisation. In a recent international survey, it was reported that 71% of organisations had no formal process in place to report on contractual risk within the organisation and listed contractual risk as a major area of concern.
In the same survey it was reported that 33% of companies surveyed stored their contracts in multiple locations and that up to 10% of their agreements were lost. The distributed decision-making process within multi-national and large enterprises further exacerbates the problem, exposing the organisation to financial, legal and operational risk that is not visible.
"If one considers that contracts are the foundation of modern business then managing the risk contained in these agreements should form a key component of an overall risk management strategy," says Tony Maddison of Realyst Software.
By profiling contractual risk across the five key areas of risk - namely financial, legal, operational, HR and strategic risk - the organisation is able to report on and manage this risk as part of an overall risk management process.
Take for example contracts that are subject to exchange rate fluctuations. Should the exchange rate fluctuate wildly as in the recent past, the impact on the business could be significant. By applying a rating on the contract and automated alerting should the exchange rate fluctuate between boundaries, management is now able to take remedial action to limit the impact on the business.
The first step in managing the risk contained in contracts is to gain control over the contract management processes within the business. As contracts are paper-based and often reside in multiple locations across the business, the ability to proactively manage the risk within these contracts is severely impeded. Management is unable to make informed decisions as there is limited visibility into the contract base and as such the potential for high risk contracting is heightened.
"A formalised contracting process will provide visibility to the entire organisation including procurement, finance, legal and senior management," says Maddison. This enables the business to make informed decisions and to proactively manage the risks contained in contracts.
By centralising and automating the contract management processes within the business, Realyst is able to provide significant savings and improved management information to the business.
Realyst Software is the leading provider of contract lifecycle management and contract risk management solutions in SA.
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