The big data revolution has changed business forever. But, today the most successful businesses aren’t necessarily the ones who collect the most data, but the ones that know what data to focus on.
If you want to lower costs and improve profits, you are better off narrowing your focus to three KPIs instead of trying to track twenty of thirty different KPIs.
Why You Should Limit Your Focus
Management guru famously said, “You can’t manage what you can’t measure.” But, today we can measure everything. You don’t have the bandwidth to manage everything that you have metrics for.
If you want to be an elite contract manager or contract administrator, you will narrow your focus to the three most important contract KPIs.
You can delegate the tracking of other metrics [insert link to Use These 8 KPIs to Manage Contract Performance] to others, or even stop tracking them completely, if you narrow your focus to these three KPIs:
- Contracting Lifecycle
- Contract Obligations Performance
- Annualized Contract Value
How long does it take your organization to move from proposal to signed contract? The longer this process takes, the bigger problems you have. Monitoring the KPI will help you become more efficient.
Over time you will be able to eliminate bottlenecks such as inefficient document management, overly complex approval processes, communication issues between different departments.
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Every day it takes a contract to be approved and signed is a day that the company is missing out on revenue or materials. Your company can only grow as fast as it can get contracts signed with customers, vendors, suppliers, and business partners.
One of the best signs of a healthy, growing business is that they have a short contracting lifecycle.
Contract Obligations Performance
Contracts are only valuable when both sides are fulfilling their obligations. This KPI will tell you if milestones are being missed.
The core of your job as a contract manager is to make sure that the company is meeting its obligations. This KPI will tell you at a glance how you are doing.
You already know that your company will have to pay penalties for missed milestones. But, when you regularly monitor the contract obligations performance KPI, you can also spot trends that go beyond simple mistakes or operational issues.
You may realize that your company is entering into contracts that the firm lacks the capacity to meet.
Studying contract obligations performance history can help improve current operations and future contract negotiations.
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Annualized Contract Value
The third critical contract performance KPI is the annualized contract value (ACV). This KPI allows you to get a sense for the revenues and cash flow of the firm. It also allows you to see if your business is making good use of contract renewals or if you have an issue with excessive churn.
When you regularly monitor this KPI, you can also find seasonal or cyclical variations that drag down your revenues.
With this information, you may be able to find ways to increase revenues during slow months or to spread out contract renewals more efficiently throughout the year.