Business Technology: Strategy, Trends & Experience

IT IN PRACTICE 2013

ENSURE PROFITABILITY AND HANDLE PROJECT RISKS BY ESTABLISHING A & COMMERCIAL FUNCTION

Most large today are aware that their organisations need a contract and com- mercial management function to realise benefits and avoid non-performing projects. A can implement such a function in the existing organisation or establish a new, independent organisational unit. Having a solid contract and commercial management process creates a support platform for a company’s ordinary financial, deliverables-related and legal reporting and processes, while also ensuring that new IT purchases and projects can be based on experience generally lost during the term of the contract.

IT in practice last year documented a clear-cut connection between on the one hand a high level of maturity in benefit realisation and the ability to carry out organisational changes when new technology is introduced, and on the other the business-related bene- fits of IT investments. Contract and commercial management can help organisations to realise contract benefits, and, if none materialise, ensure that management is informed accordingly. A contract and commercial management function and process can provide a documented decision-making basis for management as well as a level of factual informa- tion otherwise impossible. The ad hoc involvement of assorted organisational units in the various phases of a contract cycle and performance can blur the objectivity of the reports submitted to management.

Many enterprises have already realised the strategic importance of having the right gov- ernance and processes in place for the contractual and commercial matters related to their business areas. However, only a handful of companies have cracked the code for correctly implementing the contract and commercial management processes required throughout a contract life cycle, from the preparation of a tendering strategy and imple- mentation of the contract deliverables to the expiry of the contract.

KONTAKT HANNE BAY [email protected]

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Contractual and commercial relations and processes are on the executive agenda of most large businesses today. Companies thus addressing contract and commercial manage- ment typically adopt a portfolio-based approach, incorporating contractual relations in their corporate marketing and growth strategy. Still, only a few companies recognise the importance of implementing a contract and commercial management function. When a broad range of units are involved in handling and managing , management eventually loses sight of the contract’s contribution to project profitability and benefit re- alisation. In companies not taking a portfolio-based approach, management’s focus will be transaction-based; in other words, management evaluates each contract individually, along with its benefit realisation and risk profile.

International surveys conducted by IACCM (The International Association for Contract & Commercial Management) in 2013 further support Ramboll’s findings regarding the ad- vantages of implementing contract and commercial management processes. The surveys show that 50 of the world’s largest companies are increasingly focusing on streamlining contractual and commercial processes. This streamlining is done in close collaboration with the companies’ existing compliance and processes and functions.

A contract and commercial management function can either be established as an inde- pendent organisational entity that works closely with the other organisational units as an integrated team, or be functionally incorporated with existing units that handle contrac- tual matters. To ensure that the contract and commercial management function works in a multi-disciplinary manner throughout the various stages of a contract cycle, Ramboll recommends not placing the function with the legal organisation.

Contract cycle

Preparation/ Development/ Expiry/ Delivery phase negotiation transition exit obligations

Risk Contract management administration

Contract & Communi- Training Commercial cation Management

Follow-up on Commitment business management case/goals

Business units

Typically programme manager Typically project manager and Typically and legal and benefit realisation account manager manager

PHASES IN A TYPICAL CONTRACT CYCLE

Many enterprises have established approval processes based on the ‘rule by exception’ principle for contractual and commercial matters. In other words, the head negotiator has a predefined mandate based on a clearly articulated , and will only require the ap- proval of top management in cases of deviation from the policy or mandate.

By introducing contract and commercial management processes, managers will be able to support such decisions with cost analyses of the critical contractual and deliverables-

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related conditions. This will make companies capable of tying specific contractual condi- tions to the financial models, including a cost analysis of contractual and commercial con- ditions.

Companies that implement contract and commercial management processes will be able to achieve huge cost savings and still be perceived as flexible business partners. Such processes can be a valuable lever for companies when they formulate approval . This is why companies must incorporate contract and commercial management with their other risk management activities.

Implementing contract and commercial management processes enables companies to submit bids or prepare tender materials with a speed and quality greater than their com- petitors. The swiftness with which they can submit offers or prepare tender materials of- ten depends on internal approval processes as well as on intelligent, systematic re-use. Companies that generally simply re-use material from earlier bids or tender materials without considering whether they actually won the contract lose their competitive power over time and risk repeating the same mistakes in project after project. A contract and commercial management function could be tasked with continually optimising standards libraries, which contain information about such parameters as customer and vendor per- ceptions and delivery and project experience.

ENSURE PROFITABILITY AND HANDLE PROJECT RISKS BY ESTABLISHING A CONTRACT & COMMERCIAL MANAGEMENT FUNCTION

Decide which part of the organisation should be responsible for contract and commercial management and consider whether the function should be centralised or decentralised

Describe the interfaces with other organisational units, including finance, legal, quality assurance and

Describe the KPIs to be realised and thus avoid creating another overhead function whose work and results are invisible

Determine which competency profiles will be used to drive these processes, including deciding whether to train existing staff or hire new

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