This article takes you on a journey through major challenges and solutions when you create a contract risk model and align it to your legal support strategy. In a broader sense, it demonstrates ways you can create clear and workable solutions for simplifying legal practices which are decidedly under more pressure today than ever to perform efficiently under tighter deadlines, deeper issues, and higher demands.
A contract risk model is a five-step approach to managing contract risk. One definition of contract risk is “The chance of facing losses as a result of the buyer not fulfilling the terms of a contract, not including if the buyer is incapable of paying.”1
A legal support strategy “an action plan that identifies those legal steps that need to be taken alongside your business plan to get you from point a to z.”2
One well-known challenge that motivates legal organizations to transform their approaches from past entrenchments to better practices happens when they are expected to deal with high volumes of contracts and define the right level of hyper care to apply to them – and do it all with limited resources.
And too often time is a problem as well. The pressure to perform faster and smarter is a rising trend. So are unrealistic priorities! Highly skilled attorneys and contract professionals often experience an ineffective allocation of their time when they are expected to draft, negotiate, and manage contracts that are not a top priority for the firm and may not justify the effort and cost of a hyper care contracting support strategy.
A contract risk framework can help solve obstacles to efficiency
Although multiple contract life cycle management helps you better manage a high volume of contracts by simplifying the intake by using skills like redlining, approval, and post-award tracking processes -- building your organization’s contract risk framework becomes a more critical component of your journey that should not be overlooked.
Therefore, first and most importantly, you need to finely align your contracting support model with your business priorities and synchronize the results to ensure the healthy growth of your organization. Several discussion forums and publications in the industry point out the importance of legal professionals forsaking the old spectrum of being paper-driven and risk-averse to creating a digital, data-driven organization that adds value to the business.
So, as you read these words and -- hopefully agree that they make good sense -- you might be asking yourself:
- Where do I start?
- Where will this exercise take me?
With that in mind, let’s review some steps and guidelines to help you on this journey.
Taking FIVE KEY STEPS to build your Contract Risk Management Model
Step 1 Identify and analyze your organization’s Risk Inventory
Every organization faces multiple levels of risk associated with its business, industry, market, etc. To prioritize and take care of your contracting process appropriately, it is critical to understand all the top relevant and highly impactful risk issues affecting your firm.
Step 2 Determine the Risk Appetite of your organization
Once you identify the top risks ask yourself: What is the aggregated level and types of risk our organization is willing to assume? This is probably the most difficult and essential step of the process. Inevitably, this would require inputs from multiple stakeholders within multiple areas of your organization and getting to a consensus might not be easy. But it’s worth it. Making the effort would be valuable to your contracting practice. It would help you articulate and translate your organization’s overall approach into categories, level of impact, and measurable metrics which would ultimately drive your team to efficiency and added value.
Step 3 Define the appropriate Risk Controls (mitigation)
Now that you have identified your risk inventory (list of top risks) and how to prioritize them by criticality (level of importance), you need to establish the proper contracting mitigation actions. This means creating internal controls to flag those risks, applying the appropriate action, and tracking the effectiveness of these actions and any potential need for adjustments as the risk profile changes.
Step 4 Determine the final design of the overall Risk Framework
At this point, you should have the inputs you need to design the Contract Risk Management Framework. The key is to integrate your risk inventory and controls so that you can categorize your contracts by risk level and their association with the level of support you need. The resulting framework should be your main reference for planning the many aspects of your support model, including the expertise required, the ideal type of resources (e.g., internal hires, outside counseling, onshore and offshore, etc.) and associated costs.
© 2022 Accenture. All Rights Reserved.
Step 5 Monitoring and Reporting Risk
As you close the key principles around your model and align it with stakeholders, the desired outcomes, and the processes associated with it, think about how you will report and monitor the overall risk level of your contracts; the decisions in contracting support; and the effective success of those decisions.
Remember that if you expect the model to be effective and become a real value to your organization, make sure it reflects two key characteristics:
- Be action driven. After applying the model and determining the contract risk level, the next step -- or series of actions -- should be ready for the appropriate experts to evaluate and approve. The high value added to the business will directly align with the risk mitigation actions, which include aligning the right resources to manage the contract risks -- starting from the beginning of the contract cycle.
- Be flexible. The business environment changes fast. New risks will arise, and old risks will lose priority or relevance. When building your model, make sure it is flexible enough to allow you to make overall adjustments. More importantly, allow your decision-making to roll out fast enough without compromising a proactive approach (instead of reactive). And make sure your decision-making continues to align with the most recent trends reflecting your business interests.
Applying the Contract Risk Model to optimally design your legal support strategy
With your Contract Risk Management model in place to categorize your contracts by risk level and complexity -- you can direct the tasks for reviewing, managing, and approving to the right individuals; then distribute the efforts according to skills, knowledge, availability, and even cost level.
The best use of the time and cost of a highly skilled contracting professional should be to focus on the contracts with a higher level of risk and relevance to the business and align these contracts to his or her area of expertise. Your ability to use the strengths of your team members more efficiently would bring priceless benefits -- such as giving team members a sense of being valued for their expertise, motivation, and engagement.
By contrast, low or medium-risk and business-as-usual types of contracts do not need the same amount of expertise. But, because of that, such contracts offer an opportunity to implement support models that can reduce overall effort. Such efforts include leveraging automation to enable business leads to deal with costs. This would be a great practice for those starting their career and expanding their responsibilities.
Each organization will determine its own needs and priorities and this often offers many possibilities when it comes to the support model. Building an offshore contracting capability can be an interesting solution to consider if you face challenges such as demands exceeding capacity, or limitations in hiring or keeping up with onshore costs (including outside counsel).
In addition to lower costs, a solid offshore support model can offer many abilities such as providing support across multiple time zones or providing a resource pool trained in global capabilities such as building expertise in specific locations, industry segments, contract types, etc. with the ability to better manage scalability.
Another important part of your support model is to use outside counsel to fulfill all or part of your contracting needs. Outside counsel can add much value to your model and you can tailor it to plug into any level of risk within your model. However, make sure you are partnering with the right vendors by considering your business segment and expertise requirements.
In addition, remember that outside counsel can be quite costly. Outside counsel can demand the use of significant internal work tracking and billing management. Consider using the appropriate technology tools to support the end-to-end process, from service intakes to final billing and payments.
We must drive change, for the sake of our people, businesses, and clients. Today’s demand for fast-paced and accelerated transformation means we can no longer afford to rely on old fashion contracting models. Setting up priorities and the right support structure will be key to taking you to success; however, don’t underestimate the importance of your leadership and commitment to drive your organization to a more effective and sustainable model.
ABOUT THE AUTHORS
Dayse Silva is a Management Consulting SMA based in Sacramento, currently focused on supporting Accenture clients transforming their Legal departments leveraging the best of their people, processes and technology. With over 14 years of experience in Contract Management, Dayse led several Contract Management and Legal support design initiatives for complex Accenture internal engagements including setting up the whole scope of CM services allocating professionals of multiple levels, expertise, and global locations. Dayse can be reached at: email@example.com
Lisa Bloomberg is a Director – Accenture Digital Risk & Compliance practice and is based in Philadelphia. She is a trained lawyer, who over the course of her two-decade career, has provided legal, regulatory and compliance advice to asset managers, wealth managers and investment banks involving registered U.S. and non-U.S. advisory products, including mutual funds, closed-end funds, alternative funds, and offshore funds. Lisa can be reached at: firstname.lastname@example.org.
Accenture is a leading global professional services company, providing a broad range of services in strategy and consulting, interactive, technology and operations, with digital capabilities across all these services. We combine unmatched experience and specialized capabilities across more than 40 industries – powered by the world’s largest network of Advanced Technology and Intelligent Operations centers. With +700,000 people serving clients in more than 120 countries, Accenture brings continuous innovation to help clients improve their performance and create lasting value across their enterprises. Visit us at: https://www.accenture.com/us-en
For more information on how Accenture empowered Legal and Sales teams to work more effectively on deals, read our Spotlight on How Digital Contracts Are Helping Us See The Big Picture.
- UpCounsel article titled Contract Risk Definition: Everything You Need to Know
Creative Genius Law article titled An inside look at how to create a legal strategy to take your business to the next level