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Contract Management and the CFO

November 13, 2012

Today I am chairing a CFO conference in Geneva. My interest in doing this (apart from my own background in Finance) is to continue efforts in raising CFO awareness of the important contribution that improved contract and commercial management can bring to bottom line results.

In listening to the various presentations and discussion forums, I am struck by the similarity of many of the lead topics with those at contract management events. For example, one head of Audit and Risk highlighted the need for Finance to look beyond cost and budget, to focus instead on value. He gave an excellent example, where a project came in on budget, yet was delayed by 3 days at a cost to the business of $1 million. Another conversation revolved around the importance of considering risk holistically; it revolved around the point that a concentration on risk mitigation tends to undermine potential results, especially when driven by specialists who may be unable to see the wider chances for off-sets or alternatives.

Another topical theme is that of cost reduction. Finance is also under scrutiny and needing to find ways to reduce its cost of operations. Within this, it must determine how to deliver the right balance of operational activity, reporting and strategic support. The challenge is familiar and indeed the approach to analysis is similar to that which should be going on within any contracts / commercial / legal function. However, in listening to presentations, it strikes me that many of these functions are far behind Finance in their reengineering efforts and their understanding of value delivery. Often, we appear stuck in the low-value operational mode and have yet to grasp the importance of turning transactional data into substantive management reporting and ultimately a strategic contribution. Finance is one of the leading functions when it comes to the outsourcing of its work, or creation of shared service units. Now they are focused on ‘Finance Competency Centers’. No wonder there is growing impatience on the part of many CFOs about the unreformed nature of the contracting process and resources.

So while I believe there is an important message that we can deliver to CFOs, I also appreciate that we must learn from them when it comes to putting our organizational house in order. Perhaps they would be more inclined to hear our calls for greater commercial awareness if they felt we had grasped the principles of added value in our own service delivery.

I will expand on this topic in a future blog where I lay out some of the analysis used by Finance which I think those in contract management could be using in our own organizational and process design.

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