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CIO - Payback's a Cinch - Metrics

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
AMR Research

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 (14 percent).

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 systematic integration."

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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