Contract Management – more on our “building the business case” paper

Here’s another extract from our new briefing paper, written in conjunction with BravoSolution and titled, “Contract Management - making the business case for investment”.  It’s aimed at helping managers put together a compelling business case for investment in contract management, whether that investment is represented by additional or better resource, training, tools or other solutions.

This is the first of three linked papers covering the topic, with the next two coming shortly.  We’ve featured a couple of excerpts here to whet your appetite – but do download the paper here, free on registration.

In this brief extract, we cover what we perceive to be the fundamental benefits, aims and in a sense the heart of contract management – management of risk and opportunity. That suggests those two areas should form the key content for the business case – investment will help you manage the risk better, and deliver the opportunities inherent in any significant contract. Anyway, here’s today’s excerpt from the paper:

Laying out the benefits

We will look in more detail at this vital element of the business case in our two subsequent papers. But we believe that contract management is fundamentally about managing value, and the two key elements of that are opportunity and risk.

Opportunity relates to the additional benefits and value that good contract management can obtain from the supplier, over and above what is specified in the contract.

Risk relates to those issues that can arise if you don't get what is specified in the contract - or indeed, you do get that but other circumstances mean that risk emerges, perhaps from external factors. Risk includes commercial risks, risk of supplier failure, of non-delivery, quality issues and so on, reputational risk caused by the supplier, or fundamental risk to the customer's business. We will explore these and more in a subsequent paper.

Effective contract management will address both opportunity and risk. It is often easier to find examples of risk to use in the business case, but in most major contracts, there will be elements of opportunity as well. However, it is often difficult to translate both risk and opportunity into hard business case numbers - that is one of the reasons why contract management often isn't given the priority it deserves. That means we do have to work hard in the business case to translate possibilities into quantified numbers, which requires some use of probability and risk assessments - more on that in future papers too.

But "stories" have their place too. If you know you will need to write a business case anytime in the future, it is worth storing up the "war stories" of what poor contract management has cost the organisation ("that supplier going bust and failing to deliver meant we lost a major customer last year") or indeed where benefits have arisen ("our supplier came up with the idea of new type of packing case that saved us £75K a year").

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