Halloween is here and that means pumpkins and costumes, candy and bonfires. While trick or treating may look very different in a world with COVID-19, this is still the time of year when we delight in hearing ghoulish myths and horror stories. Fictional horror stories, that is. The real-life horror stories of things that go wrong in business are a little bit harder to swallow, but let’s take a look at some truly scary tales from the world of contract management.
- You store all your contracts in spreadsheets or on hard drives. Or worse, your contracts aren’t digitized and you have them saved in a file cabinet somewhere. This is all perfectly fine until someone asks for the most recent version of an agreement, and you have to move Heaven and Hell to try and find this. When the clock is ticking, it’s better to have all your contract data in a centralized repository.
- You miss some key contract dates. Or worse, you don’t even know that you missed those contract dates. Failure to review your contracts in a timely manner can put your organization in a perilous position if you fail to meet compliance requirements or could cost you money if you miss a renewal deadline for a contract you intended to cancel. Alerts are key to staying on track.
- You get hacked. You avoided the cloud because you are under the mistaken impression that cloud storage isn’t secure. Pick a system that uses all the most up-to-date security technologies, along with modern security capabilities like electronic signatures and role- and feature-based permissions to make sure contracts are protected.
- You killed the IT guy, literally (hopefully not) or figuratively. IT is under a tremendous amount of pressure to be everything to everyone in our new normal. Keep the IT team alive with easy-to-use technology that can be used by anyone in the organization.
These nightmare scenarios can quickly lead an organization into Apologies-to-Dante Four Circles of Risk Hell.
- Circle One: Financial. Financial risks like credit, liquidity, asset-backed, and equity risk are contract risks associated with the loss of money. Missing deadlines leads here, along with missed delivery dates, milestones, claims, or warranty problems.
- Circle Two: Legal. These risks can be regulatory, compliance or dispute risks and come up when an organization has a breach of contract with the potential for legal accountability or litigation. Compliance requirements like HIPAA, HITECH, OSHA, or Sarbanes-Oxley can lead you here, as well as IP infringement charges, improper or lack of using the right legal clauses, confidentiality disclosures, and other contract disputes.
- Circle Three: Security. These generally have the highest profile and most severe consequences for organizations because they often lead to additional financial, legal, and brand issues. When organizations store contracts in insecure locations or allow access to everyone, they end up here.
- Circle Three: Brand. Brand risk is essentially the risk associated with negative public and customer opinion, poor employee morale, and is part of the aftermath of financial, legal, and security issues. Bad news travels fast and organizations can quickly end up in a negative cycle.
Contract management can be scary, no matter the season. But risk is inherent in any contract and when organizations completely avoid risk and scary situations, they are also avoiding opportunity. Understanding the different risks in contract management processes, and taking the steps to identify, assess, and mitigate them can help businesses breathe a little bit easier.