Contract Risk Management Definition
Risks are inherent in any project. As long as a company is working within acceptable levels of risk, it can develop strategies to prevent and mitigate losses. Contract risk management allows managing contractual risk exposures from an enterprise view. Utilizing software for contract risk management helps an organization derive value from contracts and contracting processes.
Contractual risks are primarily of two types:
To gain insights into contractual risks, organizations can implement 3 steps in their contract risk management practice which are:
Assessment of the situation to better understand potential contract risks
Undertaking necessary actions to prevent risks like early termination of revenue contracts and compliance failure
Developing measures for tapping into business risk intelligence
Management consultant, John E. Miller provides a checklist of the steps usually involved in the process of contractual risk management:
Identifying commercial contractual risk management issues using an appropriate multi-domain team
Evaluating and estimating commercial contractual risk management issues
Implementing risk avoidance
Engaging in risk reduction
Considering risk sharing by subcontracting/outsourcing
Using insurance to control risks
Applying risk mitigation by avoidance, elimination, transfer, or bearing the risk (if appropriate)
Executing risk neutralization
Monitoring and controlling risk
Consistently using well-prepared agreements/contractual provisions
Risk management needs to be systematic and ongoing, without focusing only on single transactions. Clauses should be reviewed on a regular basis to evaluate whether the terms are still suitable, especially with long-term partners. The liability and business risks of a contract upon being identified and managed provides the benefits of standardized processes, spend visibility, improved compliance, solid foundation for spend and performance analysis, rebate management, reduced maverick spending, and evergreen contract elimination.
This proves that a contract risk management system is necessary for the proper coordination, development, and implementation of an enterprise’s working.
JCAD CORE, Synergi Life, Optimal Smartstart, ProcessGene GRC Software Suite, MasterControl Risk Analysis, and more are contract risk management software solutions.
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