IACCM Contract Management Forum

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BlueCross BlueShield of South Carolina
2016-06-01 10:31:25

The ROI of Contract Management - Part One

This is a very interesting topic "The ROI of Contract Management." I have thought numerous times as to how to quantify the merits of Contract Management to my peers who exist outside of the contract management world and have always had to revert to operational metrics : cost savings, cost avoidance, and a whole plethora of hypothetical scenarios of potential contractual landmines that were avoided because either my team or myself were able to navigate the transaction on behalf of the business. As I search for new approaches to sell the merits of contract management to the business I wonder has anyone had any success in identifying what I like to term as the "phantom metric" that the business will recognize on a primal level like direct cost savings or improved operational efficiencies. I think in a lot of cases we have to educate the business to help them recognize the gaps that contract management addresses in the first place which takes both time and an embrace of visionary ideals by the business.
 •  Ace Hardware  •   2016-06-01 11:38:49
It is a good topic to talk about. I struggle with what metrics to report on. It only takes one bad contract to cost the organization lots of money but it is hard for people to grasp it. How do you report on that? Currently, I report on the number of contracts the organization has and the amount of money expected to spend under a contract. Cost savings and cost avoidance is reported by my department through our category managers. I believe the category managers take the first offer from a vendor and then subtract the final number after negotiations to calculate cost avoidance. Cost savings is calculated if the organization will contractually pay less under this contract than it historically has for that same commodity. These definitions were agreed to by both our CFO and our Director.
 •  Century 21 Vanguard  •   2016-06-01 12:04:19
Patrick, are you familiar with IACCM's "10 Pitfalls" research? This study looks at the top value erosion areas. Flip the erosion perspective and you'll quickly find key areas where by improving your capabilities you will improve ROI. Please reach out to me if you wish to discuss this in detail.

 •  BlueCross BlueShield of South Carolina  •   2016-06-01 16:08:09

Thank you for the excellent recommendation. I've reviewed the research in the "10 Pitfalls" and it has provided me with concepts that I will research further internally.
 •  IACCM  •   2016-06-01 18:59:34
Patrick, in addition to this first part of the "ROI of Contract Management", I'd also recommend to continue reading Tim's part two of that blog: blog.iaccm.com/commitment-matters-tim-cummins-blog/the-roi-of-contract-management-part-2
You may have already read how the article describes how the Contract Management role has evolved. Now, in this new section, you will have the chance to identify the benefits that can be achieved when creating and demonstrating value from such a role.
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