Contracts are the foundation of every business and as such are the most effective method of quantifying the value of customer and supplier relationships. A typical due diligence process undertaken to value a company always looks at the contract base to help determine its value. On the JSE alone, the top 100 companies have an average of 10 000 to 20 000 contracts within their organisation scattered across many departments including sales, procurement, legal and operational entities.
The majority of these contracts, being paper-based, are generally stored in filing cabinets across multiple locations and are seldom managed or reviewed. Each of these contracts binds the organisation to a legal agreement that has the potential for risk and financial expense that is rarely quantified.
If this is such a powerful platform upon which a company can be valued, it makes perfect sense that the executive board and company shareholders should manage and report on the state of all contracts on a regular basis.
Through analysing this information correctly, one is able to manage issues such as:
* The risks associated with all the contracts
* Contingent liability
* BEE and SMME ratings
This is vital since executive boards are now under closer scrutiny than ever before through the publishing of governance reports such as King II and Sarbanes-Oxley.
Good corporate governance advises that a company keeps a clear understanding of all risk elements, and that should areas of high risk exist these should be made visible to all stakeholders.
"The measurement and management of contractual risk and the implementation of good process that supports all contracts through their lifecycle is a strong foundation upon which to improve corporate governance," commented Tony Maddison, a Director of Realyst. "According to a report from Goldman Sachs on `Contract Life Cycle Management` centralising contractual information and proactively managing all aspects of contract business has realised hard and soft returns of up to 0.4% on revenue."
An Enterprise Contract Management solution will assist in centralising all contractual information right across a business and ensure that correct processes and procedures are implemented to proactively manage them since there are several issues with manual contract management that need to be addressed. Examples of these include:
* Visibility. A recent survey by the Aberdeen group has shown that 70% of organisations have reported that 10% of their contracts are lost. Contract information lies fragmented across the organisation and important information is not effectively communicated to the contract stakeholders.
* Lack of process. Inefficient approval processes and lack of mandate management lead to maverick off-contract spend and increased risk.
* Ownership and accountability. A single person or role within the organisation does not own most corporate agreements. These responsibilities tend to be shared, but the lack of visibility of this contractual information makes it difficult for each role-player to assume and act upon their obligations.
* Proactive management. A reactive response to contractual events such as renewals, escalations, rebate qualifications and terminations can attract enormous costs and risk.
It is not uncommon for 2% to 3% of a company`s service-related supplier contracts to annually renew, even though the committed service is no longer required.
"Realyst is an experienced contract management solution provider," concluded Maddison. "We can provide both the software and the expertise to work with organisations in this critical area of their business."
For further information, please contact Tony Maddison: telephone +27 11 463-5311, fax +27 11 463-7179, e-mail tmaddison@realyst.com
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Realyst was established in 1998 and is the leading provider of enterprise contract management solutions in southern Africa. Realyst provides the technology solutions as well as consulting services spanning the implementation of best practice contract management methodologies and processes, education and training. Realyst offers gain share engagements designed to optimise the organisations contractual relationships and to deliver quantifiable savings using the Realyst processes and supporting technologies.
The services offered by Realyst include business process mapping, programme and project management, business consulting and where required, full business process outsourcing.
Realyst has developed and markets two software applications, Premises Manager and Contract Manager.
Premises Manager, launched in 1998, is a premises management system designed for the users of property and has achieved significant success in the retail sector.
Contract Manager, launched in 2002, is designed to facilitate the management of contractual relationships across the enterprise.
The Realyst user base includes several large corporate organisations including Altron, Discovery Health, Foschini, Johnnic, Multichoice, Nike, Primedia and Woolworths.
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