The challenges with contracts

Contracts are in most organisations still managed in paper form, or when handled electronically, often treated as “unstructured data”. If one is lucky, it is possible to find a contract in a filling system by using the metadata that a person assigned to them. In some more mature IT systems, it is possible to search through the content of contracts using keyword-based search. That’s where it stops mostly.

The notion that a contract is “unstructured data”is rather far from the truth. Contracts are a valuable source of information.

In this series of articles I will explore how one can unlock that value, by introducing cognitive capabilities in contract management processes.
You will be able to take faster, more confident decisions that impact efficiency across teams, give you new insights, improving the performance of your business.

Answering questions about contracts is difficult.

Simple questions like the questions below, are often difficult to answer:

  • How many contracts do I have?
  • Where are all these contracts?
  • What’s contained in the contracts?
  • Which business processes rely on contract terms?
  • Who’s managing my contract obligations?

Why is this?

Why is it so difficult to answer these questions? There are typically two kinds of challenges that companies face in their contract management processes: technical and organisational. A few examples are:

Technical

  • Contracts are often kept in paper archives
  • When stored electronically, often scanned copies of the contracts are stored (technically pictures of the contracts are stored)
  • Documents are saved in different IT systems (shared drives, document management systems, etc). Depending on the organization,
  • Often contracts are not indexed and findable. Quality of metadata is often low.
  • They are treated as just text – no analysis of them is made
  • Not linked or very loosely linked with the business data
  • Contracts + Amendments not seen as single unit

Organisational and Regulatory

  • Processes for handling contracts are old fashioned (paper based)
  • There are teams dedicated to contract related tasks

When do organisations must know what’s in their contracts?

There are many situations when companies need to analyse their contract portfolio through extensive (and expensive) contract reviews. The situations can be:

  • Negative events such as data breach or lawsuit
  • Regulatory changes and compliance with new mandates
  • Commercial initiatives to leverage incentives and control terms such as auto-renewals, etc.
  • M&A to improve due diligence for contractual risks and accurate valuations
  • Audits
  • Governance, Risk and Compliance initiatives
  • Efficient response to auditors and regulators
  • Request from Senior Management

The Challenges of Contract Reviews

In most of these cases, companies have to assign people (or entire) teams to go through hundreds or thousands of documents.

  • Often a manual process of reading every contract – when possible
  • Can take many months at high cost
  • It involves many people – may be shipped overseas to reduce costs
  • Subjective review/inaccuracy
  • With an new unexpected regulation or event – must start over

Handling contracts in most of today’s organisations stills means dealing with piles of paper. In the next article in this series, I will discuss how to use cognitive computing to improve contract management processes, eliminate some of them and more importantly to unearth the real value of the contract data.

 

Paulo is a Cognitive Computing Consultant, CEO and co-founder of Two Impulse.
His main strength lies in turning ideas around analytics, text mining, cognitive computing and machine learning into robust solutions that drive business value.
Earlier in his career, Paulo headed the Cognitive Solutions team at Swiss Re in Zurich. Before that he worked as a scientific software engineer at the European Southern Observatory in Munich.