The huge focus being placed on governance, risk and compliance is staggering and organisations are struggling in varying degrees with its implementation. They are having difficulty fully realising the benefits, meeting the needs of stakeholders, and measuring costs.
Why? Businesses have been actively addressing governance, risk and compliance issues from the first day they opened their doors. The processes and information necessary to address governance and risk requirements already exist, it always has. It`s all managed in your contracts!
A contract is the one document that clearly describes the relationship between the company and the third-party. It describes how the money is going to flow, what the deliverables are and how they are measured. It is used extensively to manage and mitigate risk in these relationships, in fact risk mitigation is one of the key functions of a contract - limited liability clauses to reduce exposures, payment terms and penalties to reduce credit risk, clauses to adhere to legislative and governance requirements and service levels to address operational risks.
The compliance processes to manage contracts are typically in place and governed by delegations of authority as well.
Why then are organisations struggling with the concepts of governance, risk and compliance? Why are they battling to implement it and why does it cost so much?
The reasons are quite simple - contracts are not managed. The pre-contract, tender, negotiation and finalisation processes within organisations receive a high level of focus and attention. Weeks or months are spent on this exercise to ensure the interests of the organisation are protected and that all the risks are mitigated. Finally a win-win agreement is reached, the handshake occurs and the document is signed. Then everything falls flat.
The contract is placed in a cupboard and hidden from the organisation and will only be looked at again if something goes wrong. As a result the very risks that the company believes are controlled are not, they`re hidden and lying dormant somewhere in the organisation.
Implementing contract risk management processes and technologies has a significant impact on the governance, risk and compliance requirements of business. A central repository to provide visibility, automated processes and workflow and risk assessments at a contract level provides 80% of the information and processes necessary to comply with King II and Sarbanes-Oxley. Implementing best practice contract risk management will deliver the following returns - improve compliance processes by 55%, reduce operating costs and increase revenues, cut contract approval times by half, reduce administrative costs by 30% and enforce standards to mitigate risks, ensure appropriate approvals and enforce policies.
If governance, risk and compliance are high on your agenda, then look into your contracts. Get organised - it`s that simple!
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