IT-intensive organizations have a large volume of hardware and software contracts with different vendors. As these organizations grow and expand, contract lifecycle management for IT assets — both hardware and software — becomes increasingly complicated and critical at the same time.
Why do you need contract lifecycle management?
With streamlined contract management for physical and digital assets, organizations can implement a proactive approach that contributes to overall efficiency, audit and compliance readiness, and better vendor relations.
Efficient contract lifecycle management solutions keep overhead costs down and increase net revenues. An IT asset management tool with advanced contract management capabilities provides a consolidated platform to track both assets and their contracts.
Without a dedicated system you risk:
1. Business inefficiency
Every contract is subjected to its own terms and conditions. Manually tracking these minute contract details can be costly, time-consuming, and prone to human error. Without streamlined contract lifecycle management, it is difficult to achieve transparency which can lead to poor procurement planning, disrupted operations, and the risk of non-compliance.
2. No approval workflows
Absence of standardized workflows during the contract creation process can result in inaccurate information on the contract and lack of visibility for all parties involved. According to research, 64% of companies say that their contract approval processes cause deals to stall.
This makes it crucial for organizations to implement new contract generation, tracking, and approval workflows. There should be defined guidelines for users responsible for creating and approving the contracts so they can save time and be more efficient.
Poor contract lifecycle management leads to inefficiency, impedes communication between organizations and their vendors, and raises compliance issues. Without automated contract lifecycle alerts, you can miss out on important renewals, contract upgrades, and requested changes in the existing contracts.
These issues can lead to lost opportunities, higher costs in the shape of penalties, and increased risk of security breach.
4. Lack of version control
Software licenses get updated quite regularly as new features and upgrades keep rolling in. Organizations need to keep track of the versions of software they are using to avoid discrepancies in data.
Contract lifecycle management allows you to reconcile the changes in different versions of the same software or contract so you can save the latest version and archive the previous ones.
5. Negotiation power
According to Goldman Sachs, contract management offers the potential to accelerate negotiation cycles by 50%, reduce erroneous payments by 75–90%, and cut operating and processing costs related to contract management by 10–30%.
By having a complete record of the previous contracts with vendors, you can speed up the procurement processes in the future. Furthermore, keeping up with your previous agreements also puts you in a stronger position for future negotiations.
Types of contracts
The specific terms and conditions of every contract are very different but an the contract lifecycle management features of an ITAM solution are designed to help manage these contracts:
- Purchase contracts: Everything from hardware IT devices to peripherals like keyboards, headsets, and printers are procured from different vendors. You can easily and effectively save these contracts and can also attach purchase orders for even more detailed information on these contracts. Keeping a repository of these purchase contracts helps you in future procurement strategies.
- Lease contracts: These legally binding contracts are quite sensitive in nature as they usually come with rental equipment that is high in value. These contracts define the terms of usage, compliance, risks, and more. Keeping updated lease contracts helps you avoid penalties in the long run.
- Warranties: Warranty contracts often come with the purchase of hardware devices and dictate the terms under which warranty can be claimed in case of hardware damage. If a hardware device falls under warranty when it breaks down, this contract can help you claim the warranty and save money on repair or replacement of the device.
- Maintenance contracts: This type of contract is crucial for organizations that outsource the maintenance of their hardware devices to other departments or companies. You can create contracts dictating the timeline of the maintenance schedule and the steps to be performed. You can even attach a work order to ensure that your devices are being serviced to the set standards.
- Software licenses: Managing a software license is challenging because it requires the most renewals, version controls, seat allocation, reconciliation etc. Using an IT asset management tool to manage software licenses helps you keep track of all licenses being used in your organization. It also lets you avoid penalties by informing you about their expiries and renewals beforehand.
Contract lifecycle management stages
A contract lifecycle encapsulates many components from creation to expiration. Let’s discuss each stage to understand the lifecycle process better!
The contract lifecycle process begins with an initial request to create a contract. The user creating the contract can add all the required information and pertinent documents to support the contract before putting out a request for contract approval.
After drafting the contract, the user can push requests for contract approval. If your organization is using a dedicated ITAM tool with contract lifecycle management capabilities, then the bottlenecks in the contract creation process are replaced by speed and efficiency during contract creation.
The approval can set an alert or a notification email whenever an approval request has been made. The approver can review the contract details and can either approve it to activate the contract or deny it the request in case of information discrepancies and errors.
Once the contract has been activated, you can easily track it through your ITAM software. You can view the information, sort through the contracts, extract information or add new versions etc. In most ITAM tools, you are required to put forward a request whenever you want to update the contract information so the approver is also kept in the loop. Tracking contracts diligently helps you to stay compliant and reduces the risks of failed audits.
As a contract gets closer to its expiry date, you get alerts so you can take proactive actions accordingly. In the case of software licenses, most of them need to be renewed and getting a notification ahead of time allows you to renew the contract. Managing your contract renewals through IT asset management software saves you from non-compliance-based fines, unintended automated renewals, and legal repercussions.
Contract lifecycle management best practices
You can maximize the value of your contracts by efficiently tracking them throughout their lifecycle and proactively meeting deadlines. Here are a few ways an ITAM tool’s contract management capability can improve the bottom line of your business.
Streamline contract lifecycle processes
A contract lifecycle consists of a lot of moving parts — approvals and other processes. An ITAM tool with a contract management feature provides well-defined and documented workflows for every stage so there can be standardized steps that everyone has to follow while creating or taking actions on the contracts.
According to a report by Aberdeen Research, automated contract management reduces administrative costs by 25–30%. Automated workflows also reduce the manual effort required during steps like requesting, drafting, reviewing, approving, and executing a contract.
Dashboard and custom reports
Modern ITAM tools come with strong reporting capabilities which means you can create different reports to measure the KPIs regarding your contracts. For more visibility, you can also pin these reports onto your dashboard so you can take actions quickly when needed.
If the standard reports are not doing the job for you, you can define the measures yourself and create custom reports to measure the ROI on all your contracts. You can also create contract reports based on historical data to prepare for future audits.
Standardized contract templates
To achieve consistency through all your contracts, you can use the default contract templates that are available in your IT asset management system. If your organization has unique requirements for contract documentation, you can even create a custom template in a few clicks. Standardizing the layout of your contracts makes it easy to locate information, update it, and smoothens the contract creation workflow on the whole.
Shorten approval times
Using ITAM software allows you to get alerts and email notifications whenever a contract is pending approval, expediting the review process and increasing efficiency. Having a digitized approval process also allows you to create digital records that come in handy during the audit trials.
Not every employee in your organization should have the access to view, create, or take actions on the contracts. With IT asset management software, you can restrict user permissions and only grant permissions to the relevant personnel. This helps you prevent unauthorized users from seeing or editing crucial contract details.
Cost savings with timely renewals
By setting alerts for contract expirations, you can have a clear picture about which contracts to renew and which ones to terminate. Configuring alerts with contract expiry dates ensures that you never miss the renewal date and reduces the risk of non-compliance.