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Contract controlling

Accurately assessing contractual risks

Contracts create legally binding obligations. Contract controlling identifies potential risks early on and assesses them. Businesses can use the resulting measures for action to manage contractual matters in a risk-based manner. In the long term, this can help businesses make strategic decisions and develop contract processes that are efficient in terms of cost and performance. 

In this article, we discuss the role that contract controlling plays in businesses, and how you can manage risks across the board with contract controlling software. 

What is contract controlling? 

By definition, contract controlling includes all the measures for action that a business takes to manage its contractual risks. To do so, contract controlling measures and assesses processes and content based on the information collected. Contract controlling continuously monitors identified risks and related measures, thus ensuring reliable processes from beginning to end for contracts. 

Tasks in contract controlling 

The job of contract controlling is to minimize the risks that result from contracts – or in positive terms: to achieve the objectives of the contract. In the process, contract controlling creates contract-related reports. These reports provide a clear overview of risks and contain analyses of contractual performance, cost centers, processes, or compliance standards. 

In addition, contract controlling uses the reports to identify solutions and potential improvements related to existing risks. With the help of reports, managers can make data-based decisions that are financially sound and forward-looking for the entire business. 

Examples of contract controlling tasks include: 

  • Risk assessments: Conduct analyses based on data such as accounts payable, order size, or outstanding items. 
  • Optimization potential: Identify risk points in the contract, and make solution-oriented suggestions for more reliable processes. 
  • Monitoring: Monitor controlled measures with the aim of verifying compliance with legal requirements and measures taken. 

Contract controlling vs contract management 

Contract controlling is a component of contract management. According to the definition, contract management includes all the steps that contracts go through – from creation to legally compliant contract archiving. On the other hand, contract controlling focuses on the risk associated with contract processes. 

Contract management thus provides the foundation for controlling. Structured and systematic contract processes are necessary so that risks are identifiable in the first step and can be minimized in the second step. 

Controlling, in turn, is responsible for how reliably the contract management processes run. Because every risk decision made by controlling influences operational contract management with the aim of making it more reliable and more profitable. 

Benefits of contract controlling 

Hi Doxi, what are the benefits of contract controlling?

Contract controlling highlights how businesses can successfully meet contractual obligations toward their contract partners and how ongoing contracts can affect the overall success of a business. There are five benefits to reviewing contracts: 

  1. Transparent contract portfolio: Clearly structured contract content makes it easier to provide information about contracts at any time. 

  1. Minimized risks: Measured and assessed contractual risks provide potential for optimization in the contract processes. 

  1. Data-based reports: Regular reports document risks and help with business decisions such as adjustments to performance or costs. 

  1. Controlled processes: Derived measures increase the efficiency of processes and their reliability. 

  1. Scalable contract management: Measures for action can optimize contract processes and contribute to achieving contract objectives. 

KPIs in contract controlling 

To review contracts, contract controlling looks at relevant key performance indicators (KPIs). These are needed to measure risks and their development over time. KPIs show how successful the measures taken are over time. On the other hand, KPIs can also provide insights into previously unidentified risks and necessary measures for action. 

The most important KPIs for contract risk assessment at a glance: 

Revenue and cost effectiveness 

Revenue and cost effectiveness measures how a contract affects a business’s financial success. Financial KPIs include the following: 

  • Sales margin per contract: compares the profit resulting from a contract to the revenue. 

  • Cost per contract: compares the total cost of a contract to the revenue. 

  • Return on investment (ROI) per contract: provides the ratio of profit to costs for a contract. 

Contract processing times 

Contract processing times show the efficiency of contract processes. They measure how actions taken affect workflows. Performance-oriented KPIs include the following: 

  • Average contract completion time: measures the time from contract negotiation to signing. 

  • Contract renewal rate: shows the percentage of contracts that are extended beyond their original term. 

Compliance and risk assessment 

Risk-based KPIs, on the other hand, measure the extent to which companies draw up their contracts in a legally binding and compliant manner. KPIs for risk assessment include the following: 

  • Compliance rate: defines the percentage of contracts that meet all contractual requirements. 

  • Nonconforming contract changes: measures how many breaches of contract have occurred and how serious they are. 

Risk management in contract controlling 

In addition to operational risks, contracts also contain strategic risks for an entire enterprise. Detailed analytics based on KPIs and audits uncover potential risks early on. This enables businesses to take preventive action to protect against emerging threats and minimize these through direct measures: 

  • Before the start of the contract: Exclusions of liability, warranties, or compensation clauses limit liability risks and help to shape the outcome of negotiations. 

  • During the contract period: Contract controlling adapts risks found in contracts by renegotiating or updating the terms. 

Contract controlling with Doxis  

Doxis supports contract controlling and digitally reproduces risk management processes for contracts in our contract management software. 

Dashboards provide transparency in contract management 

Doxis enables you to manage contracts transparently and clearly. Use self-configured dashboards to easily organize contracts, contractual liabilities, expiring contracts, and many other contract components. 

In addition to providing an overview, dashboards serve another purpose: Dashboards enable you to control contracts directly – by reviewing and editing contracts or assessing risks. 

Set deadline calendar reminders and notifications 

One risk with contracts is missing deadlines. Doxis solves this problem fully: the deadline calendar shows early on when contracts are set to expire, liabilities are coming due, or when income will be lost. When responsibilities are defined properly, Doxis notifies the relevant employees about upcoming deadlines. 

Categorizing risks of contracts 

Not every risk is given the same weight. In Doxis you can categorize risks according to severity. The legal department assesses initial risks once the contract is drawn up. It checks whether the contract is correct, consistent, and complete. This initial assessment by Doxis makes work easier for the legal team. 

When businesses reproduce the entire workflow in Doxis, Doxis forwards the assessed risks directly to the legal team. The team then assesses the risks based on predefined KPIs. After the legal team has assessed the risks, the contract partner is sent the digital contract for signature. All contractual risks are highlighted at this point. 

Doxis Contract Management

Read all about how to steer, transparently manage and demonstrably protect all contracts across your entire company — with Doxis.

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Success factors for effective contract controlling 

In summary, contract controlling is effective if it does the following: 

  • Clearly defines responsibilities, 

  • Ensures that contract metrics are reviewed and updated regularly, and 

  • Incorporates these metrics in wider business strategies. 

To achieve this, workflows in contract controlling and beyond must be transparent. Contract controlling software ensures this and makes processes more secure. When responsibilities are defined clearly, the software launches workflows automatically. 

For example, at the start of a contractual period, the software notifies the responsible employee. Risk assessment is particularly effective when contracts and their processes play a role in a wider business strategy. Contract controlling can result in end-to-end measures for action. 

Summary: Trust is good, control is better 

Every business relationship is based on a contract. In this regard, contract controlling checks whether this transaction is risky and investigates the risks entailed by a contract and its associated processes. Based on the risks assessed, contract controlling aims to develop action measures that contribute to the business’s success. 

KPIs and audits support a systematic approach. However, contract controlling is only really effective in a controlled environment, and this requires a digital solution. Automated functions accelerate contract controlling tasks and ensure accurate risk assessments. Doxis provides you with a comprehensive view of all the contract management processes. Integrate Doxis in existing processes and manage entire business processes using a risk-based approach. 

FAQs about contract controlling 

What are the tasks of contract controlling?
Contract controlling identifies, measures, and assesses contract-based risks. Regular audits and reports to management are among its main tasks.
What is the goal of contract controlling?
Contract controlling seeks to make contracts and related processes more reliable and to align them so that they have a positive effect on wider business strategy.
What are contractual risks in contract controlling?
Examples of contractual risks include breaches of deadlines, supplier dependencies, price and liability risks, or legal inaccuracies in the contract.

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