What is the difference between Contraсt Management and CLM – JD Supra
Contract Management vs Contract Lifecycle management… They sound so similar that people easily mix them up, like Slovakia and Slovenia; conscious and conscience; apples and oranges (on second thought, maybe not that last one). But while contract management and contract lifecycle management seem synonymous at first glance, they’re not interchangeable.
If you’re looking for ways to improve your organization’s legal workflows, it’s important to know the difference. Otherwise, you risk being stuck with old-fashioned practices that won’t be of much help. That’s why we’re here. We’ll take you through some of the ins and outs of each so that you’re as familiar with them as the back of your hand.
Definitions
To choose the best possible approach to managing your document workflow, let’s take a peek at their definitions. This will help you choose the best option to control costs, oversee payments, monitor revenue, improve productivity, and reduce error.
Contract Management
Contract management is the process of managing contracts from their creation, through their execution by the chosen party, and to the eventual termination of the contract. We can say that contract management refers to the large scope of processes that encompass all contract-related operations. It can be manual, automated, or hybrid, where some processes are done manually and some are automated.
Contract Lifecycle Management
CLM is a forward-thinking approach to managing contracts. Contract operations are separated into defined stages, and the scope of actions needed at each stage is streamlined to achieve max efficiency. This approach often requires the use of technology to tailor actions across each stage of the contract lifecycle.
Contract Administration
Although this term is sometimes used to describe the same process, in reality, it’s just a part of contract management. Contract administration relates to everything you do before a contract is signed and executed.
Drawbacks of Old-School Contract Management
There are three approaches to contract management:
· Manual (all processes are done manually)
· Hybrid (some processes are manual and some are automated)
· Automated (the whole process is automated)
Doing something manually is an old-fashioned approach, whether you’re doing it all manually or just some. This could be as simple as having a mountain of documents on your desk, and with two minutes remaining before a critical meeting, you have to rapidly sift through them so you can find it.
Automation speeds up processes and eliminates unnecessary involvement of other people. But when we’re talking about contract management, there are other drawbacks aside from speed.
Contract management helps control funds, reduce risks, and stay on top of performance. However, there are many spots where bottlenecks can form, causing spikes in inefficiency.
First off, managing contracts manually may result in the loss of valuable information. If your internal teams don’t know the terms of contracts by heart (which is rarely the case) and can’t quickly check them, how can you be sure that you’re meeting the obligations they contain? In addition, information can’t be quickly reused for new contracts, forcing you to spend a lot of time entering data you already had.
How can you find the data you need among numerous documents if you put the contract away once it’s executed?
A lack of knowledge causes poor planning, misunderstandings, missed deadlines, unnecessary costs, and uncalled-for contract prolongation.
Here’s a quick math problem: If a lawyer’s average hourly rate is $90, how much money does your company lose annually on mere copying and pasting data across legal documents?
On top of that, if contract templates aren’t unified, they might not satisfy government requirements and company policies.
Here are some drawbacks to tracking contracts only from point A to point B:
· Lack of visibility. There are a lot of things you may need information about: dates, terms, costs, addendums, deliverables, party data, counterparty data, and due diligence. And that’s just the tip of the iceberg. With so many elements, it’s easy to lose track and discover that critical info got lost in the shuffle, making it excruciating to sift through and find.
Even if you do only some of these processes manually, it’s already outdated. Most common non-automated approaches are used for document exchange and storage. Let’s consider the drawbacks to old-school ways.
Where’s the Analytics?
When contracts are managed manually, there’s practically no performance analysis. And if there’s no analytics, there’s no chance to improve performance or find opportunities to increase the bottom line. If anything, you run the risk of burning money without even realizing it.
That’s because if data isn’t being pulled automatically, it’s hard to quickly check how well a contract’s performing. By having easy access to executed contracts, you can avoid wasting time searching for and collecting information that you need to analyze. Instead, all your time and effort can focus on monitoring and boosting performance.
Here’s a simple rule to live and work by: If you don’t control the whole lifecycle, you don’t control the workflow.
Document Exchange: Spreadsheets, spreadsheets everywhere!
In manual contract management, companies use programs such as MS Word to create a contract. Document exchange is often made using spreadsheets and emails. This may seem like the first step to increasing visibility and taking control over your contracts, but it’s not as good as it may sound.
The first problem with sharing contracts via spreadsheets and emails is the lack of security. You might send a letter or give access to the wrong person, or your email could be hacked or compromised by a phishing letter. If cybercriminals break into your organization’s system, they can communicate as if they were an employee, get the information they need, request money transfers to their account, or change data in your documents. Only one phishing message is enough to let them spy on your communication. On average, companies receive almost 1,200 such letters each month.
Inefficiency is another problem of manual exchange. It appears due to the following reasons:
Keeping track of contracts, diligent reviews, updates, and data accuracy are crucial for business efficiency. The problem is spreadsheets are not designed to support the whole lifecycle of a contract, nor do they create a comfortable environment for real-time contract redlining and approval.
Storage
Without centralized storage, documents are stored across numerous folders on different computers or even on paper in file cabinets. Having tons of contracts in different forms (paper and electronic) scattered in different locations makes it hard, if not outright impossible, to track, manage, and analyze files. Decentralized ways of storing contracts create several problems:
In addition to colleagues, your clients could suffer as well. It’s difficult to provide proper customer service when colleagues aren’t able to find information quickly and can’t be sure they’re using correct data.
Contract Management vs CLM
CLM uses AI-based technology to control the entire lifecycle of a company’s contracts. Implementing contract management software is the fastest way to improve contract management and remove roadblocks that delay contract authoring, negotiations, approvals, and renewals. Thus contract execution is faster, and real-time visibility allows for easier contract management while decreasing risks and lowering costs.
CLM processes often address automated document drafting, streamlined contract redlining in real time, transparent approval flows, and analytics. Here are some of the ways a CLM system helps manage contracts:
Not to mention, contract lifecycle management saves a huge amount of time. Fast searches, no manual tracking of important dates, no manual data input, and self-service document creation allow you to forget about routine. And as a bonus, happier employees
Final Words
If you want to gain control over your contracts, a manual approach to contract management is not the best option. Even after the contract is terminated, nothing’s over. It still holds valuable information that can be analyzed.
Contract lifecycle management facilitates workflows and streamlines document turnaround by providing centralized storage and easy access to information. Implementing a CLM system is a strategic step that can help you manage your contracts better and gain the best possible value.
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