A recent report shows that some companies are getting 150 percent to 200 percent payback within a year
from investments in contract management software.
By Jon Sumacz
The devil is in the details. That is especially true in business, where service and supply contracts are
valued in millions of dollars. Errors in the details can be costly, and that's one of the main reasons
companies invest in contract management software. So far, those investments appear to be much less costly
than the errors they were meant to catch.
According to a recent report by Boston-based AMR Research, early adopters of contract management software
have realized a return on investment of 150 percent to 200 percent. Contract management software helps
companies identify unauthorized spending (purchases from suppliers that are not under contract), suppliers
that overcharge and unwanted services that have automatically renewing terms. Contract management software
can also take some of the labor out of creating new contracts.
In its survey of 20 companies (including pharmaceutical, consumer packaged goods, retail and manufacturing
sectors), AMR found the average investment in contract management totaled roughly $275,000. On average,
license costs make up 65 percent of the entire cost of the project. The remaining 35% breaks down this way:
integration (39%), consulting services (32 percent), project management (15 percent), and contract content services
AMR analyst Pierre Mitchel says many of these investments are small, or are in a pilot phase as companies
experiment to find the benefits. "People are starting small," Mitchell says. "They're hitting spending
categories where they have a sense where this would be useful, such as capital leases, utilities, information
technology. Anything where there's a complex contract."
Most companies invest in contract management as a way to get important data into digital form. Mitchell says
most companies use spreadsheets to do this now. "The ASP model is attractive right now in contract management
and e-sourcing," Mitchell says. "You can keep it relatively uncoupled, but over time you will want a
For a CIO, says Mitchell, contract management can be particularly helpful as hardware and software ages to the
point of obsolescence. "Companies should definitely look at all of the software maintenance contracts in their
portfolio," Mitchell says. "Is it worth paying $100,000 a year to continue to support an AS400 that generates
five reports a year?"
SOURCE: CXO Medial
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