Loading...
 
 

Poor Contract Management Continues To Costs Companies 9% Of Their Bottom Line

Published: 29 Apr 2020 Average Rating: 5 / 5 Print
 

Author: IACCM

IACCM research has shown that good Contract Development and Management could save a massive 9% on average of a company's annual revenue. Why is it that years later, the value leakage continues?

The purposes of a contract are largely to secure economic value and to operate as an instrument of business management and control. Research data shows that in many cases, the contracts we produce and the way they are managed are not 'fit for purpose'. The result is substantial value erosion representing an average of 9% of annual revenue value leakage.

This leakage value was derived from IACCM research representing over 12,000 organizations, and originally reported in 2012. The 9% is an average number, that crosses industry, company, and contract size. Companies that are highly transactional with tight margins who measure results continuously will have a lower number than those who run large longer term mutli-level projects and contracts, where the leakage is higher. CPG could fall in the former category, Oil & Gas/Utilities could fall into the later.

Since the updated report came out in 2015, many of the larger consulting companies have done independent research with their clients, and have corroborated the fact that there is a large portion of revenue being missed. In 2020, we plan to conduct further benchmarking studies that will look to see if value leakage has changed in any material way.  So the 9% should be looked at as a guidepost, and the actual number for a particular company investigated. Whether the leakage is 6% or 20%, there is room for improvement. The value is there, how can you make sure you keep it?

Value can be lost after the deal is signed, but it is also important to remember value can be lost before the deal is signed. It is important to note this is just value erosion - not value missed (e.g. failure to improve or innovate) that number is not easily quantifiable. If you are not aware of the potential that was missed, you can't track it. Are you one of the companies that just doesn't react to an opportunity, rather aims to respond to it taking into account many different alternatives and options with a strategic playbook? Exploring options not only your side but what the other side may offer as well?

More information on the topic to explore:  Many of these items are visible to IACCM paid members only.

 
 
 

Related Discussions


BAE Systems (Canada) Inc.
2020-03-11 18:13:36

Actions my organization has implemented to lower the costs of a contract

My organization primarily deals with providing our customers with tangible products with the odd service contract we will receive. We have implemented an overall ter...
 
 
Replies: 1
Anonymous
2019-07-28 06:49:22

Jurisdiction

For Agreement between the Parties of differnet origin , the aurgument starts up on Jurisdiction and governing law for the AGreement. while both the Parties are interes...
 
 
 
 
 
Replies: 4

Rogers Communications
2018-12-06 17:48:18

Source Code Escrow Type Protection for non-software

I am brainstorming ideas for a supplier contract where I want to ensure the technology and services to be provided by the supplier for resale to our end-customer over ...
 
 
 
Replies: 2
Anonymous
2018-01-06 22:53:15

Exception on a NDA

Hi everyone, I have, like Vladimir Koval, a question regarding the Non- Disclosure Agreement. Imagine the following situation: you have to issue a standardized Non-...
 
 
 
 
 
 
Replies: 5

APM Group
2014-09-14 13:08:25

Recent UK Legal chnages

I was told recently about a change to UK Law affecting contracts and the length of time and the quantity of evidence that had to be retained as a result. Please can s...
 
 
 
 
Replies: 3

Ontario Power Generation
2018-10-16 16:37:27

Key Performance Indicators for contract/commercial management group

Would appreciate if any one can share how you measure the success of your company's contract management program/process and/or your commercial management group.
 
 
 
Replies: 2
Anonymous
2016-03-22 15:10:08

Project Performance Management Plan - Validation Request

Hello IACCM Community. I'm here to ask for some good souls who have made progress showing demonstrative progress in improving project outcomes supported by suppliers....
 
 
Older entries »
Replies: 1