Contract Management – Making the Business Case for Investment

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Peter Smith, Managing Editor, Spend Matters

Peter has 25 years experience in procurement and supply chain as a manager, procurement director, consultant, analyst and writer. He edits Spend Matters UK / Europe, and with Jason Busch, the founder of Spend Matters in the US, has developed it into a leading web-based resource for procurement and industry professionals. Peter is recognised as one of the UK’s leading experts in public and private sector procurement performance improvement. Peter was 2003 President of the Chartered Institute of Purchasing and Supply.








Overview

In this second paper we focus in more detail on the opportunities that can be generated from effective contract management.

We look at the different sort of opportunities that can be identified, ranging through compliance, direct value delivery, and other benefits from effective contract management.

We also discuss how such opportunities can be presented as potential benefits in the most direct and tangible manner possible to form a compelling element of the business case.








Introduction

There will almost inevitably also be opportunities to achieve more value from the contract than the original and exact words suggest.

So those two factors are central to contract management, and therefore need to form the basis of the Business Case in terms for investment in the process. In the rest of this paper, we’re going to focus on the opportunity side of the equation. Then in a further paper to be published later this year, we’ll look in more detail at the risk side of the equation.








Identifying the Opportunities?

We should make one distinction immediately - The business case may be at either a general level or for a particular contract.

Clearly, the opportunities identified can be much more specific in the latter case.

If it is a wider programme and investment that is being sought, the opportunities may be expressed more generally, although it may still be possible and useful to highlight some direct examples of contracts where benefits are predicted.








We have Categorised Opportunities here under five headings

i. Internal Compliance

ii. Supplier compliance

iii. Direct cost improvement

iv. Additional supplier value

v. Relationships and strategic activities








How do we Quantify the Opportunities?

For a formal business case, all opportunities need to have estimates of benefits set against them. This is usually a case of looking for a credible estimate rather than an absolutely firm number.









We can use a number of approaches to establish that credibility:

• Manage achievable volume over-riders, rebates or discounts to ensure they actually happen, then they can be laid our clearly for the business case• Link robust contract management with spend analysis opportunities• Use Benchmarking or External evidence or set a measurable target that can feed into the business case









• Put probabilistic estimates against opportunities.

• Use past examples where effective contract management has paid off in the past and relate that to the current investment situation.








Final thoughts

With a combination of predicted hard benefits, supported by credible targets and measurement, plus the use of narrative stories to illustrate other opportunities, the business case can take shape.













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