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Balanced scorecards Trakti Photo by Daria Nepriakhina on Unsplash

Implementing Contract’s Balanced Scorecards: How to Measure Contract Performance

on June 14, 2021

Photo by Daria Nepriakhina on Unsplash

Implementing a contract’s balanced scorecards helps organizations address weaknesses and optimize contract management.

To survive in today’s environment, companies must be flexible, service-oriented, and cost-effective. Some organizations may believe they embody these factors but have not truly measured their performance even when they’re implementing contracts. Balanced scorecards are thus necessary to offer a systemic approach to enrich the performance of an organization.

Implementing contract’s balanced scorecards offer a way to incorporate the strategy of gaining knowledge about your organization to enhance performance and improve effectiveness and efficiency. They can help you towards developing a strategy in the long term. They facilitate adjustments to changing terms, trends and market conditions.

In a recent survey conducted by the International Association for Contract & Commercial Management (IACCM), participants were asked to evaluate the extent to which a contract should fulfil a selection of eleven possible purposes.

They were then asked to assess how successful their contracts actually are in achieving each purpose. Each category showed underperformance – with ‘a framework for a mutually successful business outcome’ recording the biggest shortfall. As over 50% of respondents acknowledged that their contracts are not a source of competitive advantage, this survey highlighted that it is simply not implementing contracts. Balanced scorecards are necessary to optimize performance and resource use throughout organizations.

Applying balanced scorecards to contracts follows a few general performance measures

The Balanced Scorecard is used to guide current as well as target future performance by looking at measures in four categories:

  1. Financial performance,
  2. Customer knowledge,
  3. Internal business processes,
  4. learning and growth.

More specifically, the organization considers:

  • How do we look to resource providers?
  • How do customers see us?
  • Are we productive and effective?
  • Can we sustain excellence over time?

The data then gives senior managers information from four different perspectives, the balanced scorecard minimizes information overload by limiting the number of measures used.

Companies rarely suffer from having too few measures. More commonly, they keep adding new measures whenever an employee or a consultant suggests one.

In the context of contract management, this could empower organizations to address weaknesses in management. Lack of clarity in scope and goals is a common problem cited across industries and companies. This frequently results in disagreements, which in turn lead to processes of arbitration, escalation to senior management or concessions in an effort to reach a resolution that all involved parties are happy with.

Implementing contract’s balanced scorecard are a way to reduce the overall business complexity and uncertainty. The four perspectives of the Balanced Scorecard, quantitative performance indicators, and qualitative criteria for determining the levels of performance of an organization offer a way to adequately define or reach an agreement during the pre-award phase; they can also help with the post-award phase to maintain and update scope and goals so that they reflect changing requirements or capabilities.

Implementing contract’s balanced scorecards in contract management is about maximizing the contract lifecycle and improving management’s involvement in that lifecycle

This understanding can help managers transcend traditional notions about functional barriers and ultimately lead to improved decision making and problem-solving. The balanced scorecard keeps companies looking—and moving—forwards instead of backwards.

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Dennis BuonfiglioImplementing Contract’s Balanced Scorecards: How to Measure Contract Performance