The ability to effectively track, monitor and mitigate any risks associated with both contracts and vendors is the key to business continuity.
We’ve previously written about a number of elements that help to reduce contract issues and risk. There are plenty of moving parts such as:
- Recording all agreements and metadata in a contract repository software to improve visibility
- Sharing understanding of contract obligations across the organisation
- Monitoring vendor performance against a defined set of KPIs
- Ensuring contract compliance across the entire portfolio
Gatekeeper’s comprehensive reporting suite enables customers to track all aspects of their contracts and vendors.
In addition to these configurable reports, Gatekeeper also allows customers to make use of what we term “RAG Status” or Red / Amber / Green across their accounts.
This flexible methodology can be applied in a variety of ways to contract and vendor records to give your users a greater level of understanding and to provide focus for where action should be taken.
In this article, we explore what RAG Status is and how it can be applied within Vendor and Contract Lifecycle Management (VCLM).
What is RAG Status ?
RAG is an acronym that stands for Red, Amber and Green and is based on a traffic light system. These colours, like those in (UK) traffic lights, are used to denote the status of a contract or vendor in a way that relates specifically to your business objectives and priorities.
RAG Project Status in Vendor and contract management
Below is an example of how a RAG Project Status can be applied in contract management:
- A Red Status could represent a lack of compliance as a result of expired documents
- An Amber Status could indicate that documents are reaching their expiry date and there is potential for non-compliance
- A Green Status could indicate that all documentation is up-to-date.
Below is an example of how a RAG Project Status can be applied in vendor management:
- A Red Status might signify major issues with a vendor, such as significant delays in delivery or breaches in service level agreements.
- An Amber Status could indicate cautionary signs, like a vendor's recent performance dip or minor issues in meeting contractual obligations, suggesting the need for closer monitoring.
- A Green Status would represent smooth sailing, where the vendor consistently meets or exceeds expectations, maintaining excellent service and delivery standards.
How does RAG Project Status work?
RAG Status provides your business with a summary of information. At a basic level Green means good, while Amber and Red colours alert you to the fact that action is required in some way.
It is not enough to simply apply colours to different scenarios across the contract and vendor portfolio. A RAG Analysis and Action Plan should also be defined to turn Reds and Ambers and Ambers into Greens. This will create accountability across the business to take corrective action as soon as possible. RAG Status reporting will allow business to keep track of issues and remedial action.
RAG Status applied in Gatekeeper
How to define RAG Status within your business
The subjective nature of RAG Status is what makes it so widely adopted across Gatekeeper’s customers. How you define each warning colour will depend entirely on what your business’s priorities are and whether you’re working at a vendor or contract level.
RAG Status can be applied to entire contracts or vendors, but it can also be applied to more specific areas such as:
For RAG Status methodology to have true meaning throughout your business, there needs to be agreement about what defines each alert level and the actions that should be taken off the back of it.
Adding a RAG Narrative to each Status can help to justify responses, build trust around the methodology, establish understanding around risk mitigation efforts and standardise internal processes when actions need to be taken.
RAG Project Status examples
At Gatekeeper, we work with customers who use the subjective nature of RAG Status and apply it in completely different ways. The colour-coded system can also be used differently at the vendor and contract level too. We’ve outlined some RAG Status examples that are applied most commonly by the business we work with.
RAG Status for contracts
|The business is happy with the contract and likely to renew.
|The business plans to terminate this contract.
|Notice has been served on the contract and is waiting to expire.
|Data capture during onboarding
|Data is fully captured and fine.
|Data may be incomplete and needs reviewing.
|Data is missing or out of date and requires immediate attention.
|Good cost-to-value ratio, no action required.
|Expected cost-to-value ratio, the business could benefit from completing a market review.
|Poor cost-to-value ratio, escalation needs to take place and alternative options considered.
|Delivery of contract obligations
|All obligations are being fulfilled, no action required.
|A small percentage of obligations aren’t being fulfilled, corrective action required.
|A consistent failure of obligation fulfillment. Escalation required immediately.
|Data Collection type
|None required or N/A.
|Third Party Data.
|Third Party and Customer Data.
Rag Status for Vendors
|All certificates are up-to-date and the vendor is compliant with current regulations. No action required.
|Key certificates or documentation are coming up to their expiry date. The Vendor Owner should reach for updated documentation.
|Key certificates or documentation have expired and the vendor is failing to comply with current regulations. Immediate action is required to update documents.
|Business continuity easily achievable if vendor is no longer used/ceases to exist.
|Some disruption expected if the vendor is no longer used/ceases to exist. Nurturing required.
|Business operations could fail/be suspended if the vendor is longer used/ceases to exist. Priority should be given to this vendor.
investigations. No action required.
|Pre-defined acceptable number of cases is being reached. Prepare to look for a new vendor.
|Pre-defined acceptable number of cases is being exceeded. Escalation and corrective action required immediately.
|Vendor supply chain ratings
|Supply chain health is good and vendor should be expected to meet contractual obligations.
|Some supply chain issues. Be prepared for potential disruption.
|Poor supply chain health and contract obligations likely to be unmet. Escalation required.
|Contract raised with no issues. No action required.
|Payment received late more than once. Extra monitoring and comms required.
|Service not being provided and terms under dispute. Satisfactory resolution required.
How to use RAG Status within Gatekeeper
Many businesses that are familiar with applying RAG Status to vendors and contracts captured in spreadsheets will make use of manual conditional formatting and spend time communicating the changes to relevant teams before any issues can even be escalated, let alone resolved.
RAG Status applied within Gatekeeper creates a far more seamless experience thanks to automation.
A RAG Status that is Amber or Red can be used as a Workflow Trigger within Gatekeeper’s Kanban Workflow Engine. Any of the use cases outlined above can be used to automate entire internal processes where appropriate action needs to be taken.
A notification can be immediately sent to relevant team members and stakeholders when an issue occurs and a RAG status is applied or changed, preventing any delays in escalation and protecting the business from increasing contract or vendor risk.
Any actions that are taken will be captured in a defensible audit trail, making it easy to see how and when an Amber or Red RAG Status was addressed, while creating accountability across the business.
If you want to know more about applying RAG Status to your contracts and vendors, how Gatekeeper can support your risk mitigation efforts or how to automate escalations, contact us or book your Gatekeeper demo today.