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Contract Management – Organization Benchmarks

April 19, 2012

IACCM has a wealth of data on contract management process and organizational performance. I continue to be surprised by how few contract groups – whether buy-side, sell-side or legal – actually seek to measure their relative performance. In many cases, I know that they do not have base-line data, yet in some areas they clearly do – for example, the headcount or the budget; and in others they certainly should be aiming to develop data – for example, cycle times or where time is spent.

This week, I ran a webinar in which we provided information on many of the measures we have taken and also illustrated the use of benchmarks through three recent case studies. The audience was far smaller than I would have expected for such an important topic (if I were running a contract management group today, i would certainly want this data at my fingertips in order to respond to management questions about our performance and value; I would also be working hard to be sure that i could demonstrate top quartile performance relative to competition). However, there were a few excellent questions. One of these asked whether there was a direct correlation between cycle time and cost – specifically, do groups with better cycle times typically also cost less?

The answer to this question turns out to be no. There is no immediate correlation between cycle time and cost.

Some groups with low cycle times have achieved this through well-designed process and high levels of automation. These obviously tend to reflect in lower costs. However, others appear to be achieving faster turn-around through higher levels of resource (reflected in lower average number of contracts per head) and these of course operate at higher cost.

There is a third group, where low costs are being achieved through high levels of delegation. This approach varies in its impact on cycle times. If delegation is accompanied by investment in templates and guidance, it can benefit cycle time without adversely impacting claims and disputes. But if the delegation was not accompanied by these investments, it often extends cycle times and/or results in higher frequency of claims and disputes.

My hope is that the contracts and commercial community will soon wake up to the importance and benefits of benchmarking. Today, far too many requests are the result of top-down pressure and represent a belated attempt to justify headcount – or in some cases, far more fundamental questions over whether the function is needed at all.

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