It’s impossible to completely eliminate risk from your business, and particularly in relation to contracts where you’re entering into agreements with third parties.
It’s very difficult to have more than a passing influence over the activities of third party suppliers, unless you make up a very significant part of their overall business.
However, risk can be mitigated and ideally minimised to give your business a greater chance of success.
Key to minimising contract and supplier risk is first being able to identify it. And this is why having robust contract and vendor management processes in place is vital.
Risks are born out of uncertainty so if your contract management process isn’t transparent and adopted across your business, there will be areas of hidden information that could later become a problem.
The kinds of risks that are associated with contracts and vendors include, but are not limited to:
- Supply chain
Ideally, your contract management process should be detailed and robust enough to surface these risks and then allow for them to be managed and reduced.
We recently published an article detailing 44 questions that your contract management system should be able to help you answer. Some of the ones most relevant to risk mitigation are:
- What percentage of your spend is with your top three suppliers?
- What are the renewal dates for each of my key contracts?
- When do I need to start planning for each of these renewals?
- Who needs to be involved?
- What happens if your main supplier goes out of business?
- Have all your suppliers signed your latest Terms?
- Are they compliant with your policies and any new legislation (eg GDPR)?
- When was this last checked?
Can you answer these questions today with a good degree of confidence?
If you can’t, then that is likely to mean there’s a significant level of risk present in your business.
So what should you do?
Our recommended approach would be to spend some time examining your contracts in detail (particularly those with the highest value) and, if you’ve not done so already, set up a contract register to capture all the key details such as obligations, contact names, costs, notice periods and renewal dates.
For more information on the exact data to capture, you can read these related articles
- The 10 pieces of information you must capture for every contract
- Contract Management templates and resources
The process of gathering together your business’s contracts will quickly highlight to you where the weaknesses are in your current system.
If people are storing contracts in their email accounts or in hard copy only in their desk draw, then it becomes obvious that you don’t have a process that’s fit for purpose.
This is also a good opportunity to assess whether you need a dedicated contract management solution. If your business has any more than 40-50 contracts then there’s a good chance you can benefit from a centralised, collaborative solution.
Once you have the requisite details for your main contracts, you should start to be able to understand where potential business risks may come from. You can then assess what the likelihood of them occurring is and what steps you could take to mitigate them.
These details can form the basis of a risk register. You can download our free Excel Contract Management Templates (including a risk register) via the link below.
As we said at the start, risk will always be present in your business as a result of the agreements you sign. By entering into a contract with another business you are creating a dependency between you and them. While the intended outcome is designed to move your business forward, the opposite is also possible if you fail to identify and manage the associated risks.
By implementing a robust contract management process and a central record of agreements and their key details, you can take the first steps to minimising those risks.
For more information on how Gatekeeper can help you manage your contracts, suppliers and associated risks, get in contact today.
For further advice on managing supplier risk in your business, you can read these related articles: