Great Contract Management Saves Money and Improves Profitability

by Tanya Seda, Chief Strategy Officer

Customers who utilize a professional, specialized contract management team not only have the best possible Telecom Expense Management (TEM) experience but more importantly, save tens to hundreds of thousands (and sometimes millions) of dollars. TEM industry research shows that such a contract management team can be a major help to companies struggling to maintain stakeholder returns and profitability, given the size of technology spend and the opportunity for savings. Unfortunately, managing the myriad complex technology contracts that most companies have is a typically neglected discipline. The result of this absence of oversight is something we call “leaky revenue”.

This leakage can come directly from out of date pricing or tariffs or they can result indirectly from relationship misunderstandings or a breakdown in relationships lead to missed discounts or poor/late delivery. Direct or indirect, though, the business is needlessly losing money!

Over time we have identified major areas of contract and management weaknesses leading to leakage:

• Disagreement over contract scope of project
• Poor contract change management
• Contract performance failures due to over-commitment
• Contract performance issues due to misunderstanding of what was committed
• Inappropriate SLAs
• Disputes over pricing

Contracts that leak revenue usually suffer from any number of these issues; they are typically inter-related and impact each other, often amplifying the loss. We frequently see completely avoidable, but expensive, errors such as missing renewal dates or failure to renew, add to, or update the contract, all of which are costly missed opportunities.

We also see project delays that can represent a significant source of loss, but which usually get missed in the overall scope. Importantly, these issues are most often non-technical and easily avoided with oversight.

The bottom line for any business is that effective contract management is all about performance. Having a great account team will bring in enhanced results—a great partnership guarantees both parties have “skin in the game” which in turn brings success. A key missing piece, though, is making sure you have great contracts that provide savings and enhanced capabilities. A TEM contract management team is a critical component, therefore, of the relationship.

In particular, a TEM contract management team will ensure a strong contractual position. This relies heavily on both parties showing a readiness to build alignment that supports performance, but the contract team is the catalyst for that alignment to happen. Quality communication is required given the speed of business; there’s more uncertainty and an increased need for flexibility. That means you must also be creative and collect external benchmark data. In particular, performance data is very important to add to the analytics mix in order to support smart decision making.

Also, an important but often overlooked component is on-going contract management. Getting a good contract in place is only the start, not the endpoint! An effective TEM contract management team will have a workflow to plan for future contract processes, so you stay ahead of the game. A part of that forward strategy is the very important ability to provide benchmarking for best-in-industry rates and service levels, and especially obtaining multiple quotes from vendors, both of which ensure the most competitive possible contract.

This is a critical driver of better insights for internal management and measurement systems. In turn, potential sources of leakage are identified and dealt with quickly.

Unfortunately, many companies continue to believe that contract discipline is achieved through internal compliance management. However, in our experience using this method impedes management decision-making, the result of which is often poor decisions around TEM-related processes that accelerate the level of loss within the contract. We have studied thousands of contracts that show a clear correlation between contractual levels of loss being associated with the investment in contract management expertise. With technology rapidly growing and changing, now more than ever there is an imperative to work with a contract management team to prevent revenue leakage.