Contract Management Software ROI — Process Improvement Calculations
Posted by Melanie Aizer on Thu, Jun 02, 2011 @ 11:59 AM
A complete contract management software system eliminates waste by automating the entire workflow. The significant technical break-through is that it enables users to control not just contract images, but also the data elements within the contracts. The ability to manage at the data level opens up new automation possibilities.
Again, for the purpose of ROI analysis, the following case study highlights an insurance broker but the example can be applied to any type of company.
- Company type: insurance broker
- Agreement project: individual insurance; new applications
- Volume: 300 applications per month; 3,600 per year.
PROCESS IMPROVEMENT CALCULATIONS
3-Data error-checking cost
After the insurance application forms have been completed, a percentage will have missing or incomplete information (either data errors in the application, or missing supporting documentation, such as void checks or bank statements). Assuming that 25% need to be error-checked and each contract takes thirty minutes to check, chase down signatories, and secure corrections and supporting documentation, the cost of this task is $9,000 annually.
Contract workflow management provides data error-control in two important ways:
1. The data fields (dates, amounts, text, signatures, and so on) are very much like fields in a database. You can assign data-entry rules to them ensuring contracts are filled-in correctly.
2. You can set up the contract management software system to enforce rules for supporting documentation.
The combination of these two features effectively cuts data error-checking costs to zero.
4-Filing and retrieval cost
Once the insurance contracts have been completed and error-checked, they need to be filed. Furthermore, once they are filed, a portion will invariably need to be retrieved at some point. We estimate filing and retrieval costs to be $8,400 per year.
There are a number of filing options with contract management software:
1. By default, contracts are automatically filed on the platform.
2. Contracts can be automatically filed in internal back-office systems and deleted from the platform.
3. Contracts can be maintained in both the platform and internal back-office systems (the platform thereby effectively acting as back-up).
Digital contracts are always available and secure. They can be retrieved instantly by:
- Internal data element(s) in the contract(s) such as: signatory names, dates, amounts, percentages, etc.
- Meta-data associated with the contract(s) such as: publisher names, published status (opened, unopened, signed), publication date, etc.
5-Abandoned documents
Contract management software helps improve close rates in three important ways:
1. Immediacy. There is no waiting for documents to arrive. Once the data is filled-in, signatories receive them instantly. For competitive markets like insurance, securities, and merchant card services, this enables sales people to close new accounts quickly.
2. Visibility. Unlike paper documents that go into a black hole once they have been distributed, digital documents are always visible. As a result, sales people know when to make calls to ensure the documents get signed.
3. Improved customer experience. By integrating with websites, signatories can be guided through the form-filling process, making it effortless to quickly complete a document.
Let’s assume a 3% abandonment rate, and a value of $840 for each completed contract. Let’s also assume that more visibility and immediacy into the status of contracts coupled with a superior customer experience can improve this number by 30%. The opportunity cost will therefore be $27,540 annually.
The bottom line
In our example, the combined cost to complete each application form is $16.54 for a total of $59,565 per year. Add to this $27,540 annual revenue loss of abandoned applications, brings the total paper-based cost to $87,105 annually.
If we assume the annual cost of contract management software for this project is approximately $20,000, the total annual savings for the insurance broker is $67,105 — a 335% return on investment. For organizations that pay per contract for their contract management software system — the broker pays $5.55 per contract as opposed to the current $16.54 — an immediate 66% reduction.
“Cost And Flexibility Needs Are Shaping The Market. Broadly speaking, realizing cost savings by eliminating the need to use, handle, and process paper and using the Web to speed up the process of acquiring customers and closing business are the two main reasons that e-signature adoption has significantly accelerated in recent years.”
Forrester Research, Inc.
January, 2010
Market Overview: E-Signatures in 2010