What Is Contract Lifecycle Management? - Definition
Contract lifecycle management (CLM) is the management of an organization’s contracts from initiation through execution, performance, and renewal/expiry.
Understanding Contract Lifecycle Management
Contract Lifecycle Management(CLM) refers to the management of contracts to maximize business performance and minimize risk throughout the contract lifecycle. However, the scope of performance maximization and risk minimization is limited in manual contract management.
According to Gartner, “CLM is evolving from an operational record-keeping system, primarily used for legal audit purposes, to an enterprise-level core system addressing business risk, costs, and the pursuit of revenue maximization.”
Steps for Contract Lifecycle Management
Effective and proactive contract lifecycle management is achieved through the use of contract lifecycle management software. While each of these steps is vital in contract lifecycle management, some steps have traditionally gotten more attention than others.
More recently, with the rise of tools like artificial intelligence and machine learning, post-execution contract management has gained more attention as a way to accelerate, protect and optimize businesses.
Let’s look more closely at each step of contract lifecycle management, and how contract lifecycle management software can improve the process.
1. Template Authoring
Simplifying an organization’s template library can greatly improve contract risk management and accelerate contract turnaround with template selection rules and the Icertis platform’s comprehensive template lifecycle management capabilities.
Smart template authoring allows designated users to pull library clauses into the document, enter custom text, tag metadata in the document, and tag other data such as exhibits and annexures. Rules ensure that any new templates go through an approval process before becoming available for contract creation.
2. Contract Creation
Extensive rules engines offered by contract lifecycle management software enable the dynamic creation of contracts from templates and clauses. Contract content is assembled automatically using any criteria associated with the contract, such as region, products, services or price terms. Rules-based authoring capabilities greatly improve the scalability and agility of contracting operations while also enforcing appropriate process controls.
By empowering business users to create contracts in self-service mode, organizations can achieve faster time to revenue, improve cycle times and significantly reduce legal operating expenses.
3. Contract Review
Contracts should help a company achieve its commercial objectives, not hinder them. Through intelligent, automated contract review companies can achieve the full potential of negotiated contracts through better enforcement of commercial terms. Contract lifecycle management software captures commercial terms of products and services, prices, discounts, rebates, and incentives in a structured form, integrates that data with enterprise systems, and helps enforce terms. Workflows ensure a review process to assess compliance before posting to financial systems for settlement.
4. Contract Approval
Effective contract approval begins with leveraging all the data associated with a contract using rule-based workflow definitions. Best-of-breed contract lifecycle management software automatically assembles workflows and orchestrates the approval process, with support for sequential and parallel approvals. Workflows are changed dynamically based on negotiation updates to ensure governance. Business users can easily manage the intuitive rules, definitions, and updates, and they can also intervene manually to influence a workflow with ad hoc steps.
5. Contract Execution
Contract execution has become highly digitized and mobile. Recently, an NFL quarterback executed a $10 million contract from his phone while sitting in a fast-food parking lot! Contract lifecycle management software should feature out-of-box integrations of electronic-signature platforms like Adobe Sign. These secure integrations help orchestrate the signature process based on user-defined workflows, while seamlessly updating the document and data back to the central repository after execution. Manual-signature workflows should also be supported, using QR codes to validate incoming signed documents.
6. Contract Performance
As noted above, post-execution contract administration has long been beyond the purview of digital solutions. This is because the contract language is difficult for computers to parse, leaving it to human managers to carry out contract actions.
However, this is no longer the case. Today contract lifecycle management software users can gain valuable performance insights on all areas of contracts from legal, finance, sales, and procurement. Contract lifecycle management software includes a full-featured analytics module that enables insights on data such as cycle times, deviations, savings, risks, expiry, renewal statistics, and procurement and sales metrics on contract revenue and spend.
7. Contract Expiry
Contract lifecycle management software provides proactive alerts and notifications for significant milestones including contract expiry or renewal. A configurable dashboard provides insights into what the business impact of expiry or renewal will be so contract owners are not caught off guard.