Successful businesses implement Specific, Measurable, Achievable, Results-oriented, Time-constrained (SMART) goals to assess performance. Recognizing the vast differences in contract types and objectives, managers may find it difficult to determine which contract management KPIs make the most sense to monitor. The following measurement categories can help a team objectively review their contract efficiency, effectiveness, and risk.

How to Measure Contracts Using Objective Data

Does the contract meet compliance standards, or is it an outlier? Are review and negotiation practices optimal, or do they require improvement? Tracking progress on key issues by leveraging objective data can help legal departments know for sure.

• Negotiation Timeline, Measured by Days to Approval: Pre-signature efficiency saves companies money and enables legal service providers to take on more contracts. To measure these KPIs, one must consider all the steps in the process—from procurement spec documentation preparation to legal review and negotiation proceedings and board-level approval. Each phase should have a timeline and a method for recording.
  
  Tracking approval delays and revisions can ensure no internal impediments prevent the project from staying on-scope and within budget.

• Playbook Adherence, Measured by Number of Compliance Issues: Legal playbooks are designed to uphold standard positions and significantly reduce risk. Even though these standards are in place, they are not necessarily followed. Playbooks in a Microsoft Word document or a digital PDF can be painstaking to cross-reference and enforce. Increasingly, companies are turning to systems that integrate digital playbooks directly into the review process to conduct a side-by-side comparison in minutes before lawyers even take a look.
  
  When assessing playbook adherence, key metrics might include the number of positions that deviate from the standard identified during a routine audit. 

• Deviations from Common Contract Clause Standards, Measured by Red Flags: Contract managers spend considerable time crafting model clauses to minimize risk. These clauses are only effective when used, though. Consistency in applying common contract clause standards can be calculated by examining the volume of contracts containing non-standard clauses compared to the number of contracts signed.
  
  Modern legal software allows departments to measure deviation from clause standards by providing analytics on the amount of contract language that has been red-flagged.

• Missed Milestones, Measured by Milestone Achievement Rate: Contract milestones govern the health of contractual relationships and may include payment deadlines, deliverable deadlines, or mid-term progress reviews. Ideally, milestone achievement by the due date will remain at 100%. All crucial milestones will need to be logged and monitored to allow management to drill down for commonalities across missed milestones and further refine processes. 

• Value Leakage, Measured by Percentage of Non-renewals: KPIs to track might include the percentage of contract renewals, the percentage of renewed contracts that remained closely aligned with company policies, and the amount of business lost in non-renewed contracts.
  
  Managers should proactively establish a tracking method for upcoming renewal dates so the team can prepare for a contract extension.

Looking Beyond Contract Management KPIs To Automation

Efficiency is crucial to growing profit margins over time. However, many contracting processes have become dated, prompting legal departments to take steps to bring their lifecycle management into the 21st Century. Leading-edge legal technology enables legal departments to automate their contract review and risk analysis processes to save time and money while improving results and capturing key metrics. 

Fortunately, legal software designed to track contract management KPIs and automate process improvements can be as easy and intuitive to use as email. Teams simply upload the company playbook, along with a dozen or more contracts, to the platform to “train” the AI to review a new contract in accordance with company standards. When a user uploads a new contract for review, the AI will redline the agreement and return it with context-based suggestions in a matter of minutes.