How To Prevent Value Leakage in Your Contract Portfolio

Many companies that sell services are losing money and opportunities due to value leakage in their contract portfolio. Value leakage occurs when revenue or cost savings that were supposed to be generated by a contract are not fully realized, due to various reasons such as poor contract management, lack of visibility, inadequate metrics, and human error. This can erode the bottom line, damage the reputation, and reduce the chances of future business.

To avoid value leakage, companies need to adopt a solid contract management approach that encompasses the entire contract lifecycle, from pre-award to post-award. Here are some key elements of such an approach:

1. Strategy: Develop a clear and comprehensive contract management strategy that aligns with the company’s goals, values, and risks. Identify the critical success factors for each type of contract, such as pricing, scope, quality, compliance, and innovation.

2. Governance: Establish a contract governance framework that defines roles, responsibilities, and policies for all stakeholders involved in the contract, including legal, procurement, finance, sales, operations, and customer service. Use technology and automation to streamline workflows and improve transparency.

3. Performance: Monitor and measure the performance of each contract against the agreed-upon metrics, such as service level agreements, key performance indicators, and customer satisfaction scores. Conduct regular reviews and audits to identify gaps, opportunities, and risks, and take proactive actions to address them.

4. Relationship: Build and maintain strong and collaborative relationships with the customers, suppliers, and partners involved in the contract. Communicate openly and frequently, seek feedback and input, and resolve issues and conflicts promptly and fairly. This could also be supported by technology.

By adopting a solid contract management approach, companies can not only reduce value leakage but also increase revenue, improve customer loyalty, and enhance their brand image. Don’t miss out on the potential benefits of effective contract management!

Arjen van Berkum

Arjen van Berkum is a columnist, keynote speaker and motivator, with an eye for business ecosystems, innovation and disruption. In addition to his work as technology and contract management evangelist, he is a visiting lecturer at Delft University of Technology (TU Delft).