Five Risk Management KPIs for Effective Contract Compliance

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KPIs (Key Performance Indicators) are a powerful set of quantifiable measurements that allows managers to quickly evaluate the success of an organization, business process or employee performance. Although every business will / should develop KPIs specific to its use case, when it comes to monitoring contractual compliance there are a few indicators no one should ignore. According to IndustryWeek, organizations with a well-defined contract compliance process achieve up to 80% savings when compared with other organizations.

Variance in Contract Terms

This KPI is essential to gain transparency into your contracts. Contracts must be tracked to ensure that all terms and conditions are being met by the contractor. If they are not then the workstream must trigger an alarm for immediate action. In the case of insurance coverage requirements, failure to closely watch this data point could result in financial liability that could prove catastrophic to the enterprise.

Monitor Renewal Dates

A contract with an expiration date is a contract that must be watched. What if the project is not yet completed, or there is an auto-renewal feature that could prove costly should the relationship be non-performing? Your system should alert management in advance of expiration so a determination can be made to renew, renegotiate or terminate existing agreements based on performance and value.

Inappropriate Vendor Authorization

Who should sign? This simple question is often overlooked in the rush to reach agreement and get the project underway. But failure to obtain the proper authorization by the contractor’s official can result in security breaches, loss of intellectual property, lawsuits and failing professional relationships.

Approval Delays

How many times have you waited interminably for the contract to be signed? Why does this happen, where is the holdup occurring? By tracking the approval process delays can be minimized, missed opportunities are reduced and the corporate sales process is strengthened.

Compliance Resolution

If the terms of the contract are not being met action must be taken to correct the defect. Knowing the success rate of these correction efforts is central to not only limit unnecessary exposure to risk but to also determine how better to mitigate future incidents. Solutions might involve more stringent monitoring or re-consideration of contract language, terms and conditions.

In summary, KPIs provide powerful tools toward achieving contractual compliance. Begin by articulating your objectives and then build the KPIs around them. By focusing around areas like efficiency, effectiveness and risk you can easily set your strategy into action. Be certain to use time-specific metrics, strict implementation periods, actionable reporting and prompty undertake informed decisions based on your results.

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