Contract Management- Meaning, Needs, Importance & Problems/openbook247

What is Contract Management ?

The process of managing the contract which is made with various parties is called contract management or contract administration. It is considered as a strategy in optimising contract performance.

In other words contract management is the process of systematically and efficiently managing contract creation, contract execution and analysis for the purpose of maximising risk. Normally it contributes to developed financial health of the business.

Needs Of Contract Management

i.Applicable all organisation

The contract management is applicable to all kinds of organisation in all situations irrespective of size or line of business.It ensures smooth and efficient running of an organisation in a profitable manner.

ii.Minimising Risk:

The contract management is also essential to minimize the risk element expected to arise in future.It also affects the performance in a negative manner and results in loss of sales and profit volume.

iii.Bring Sustainability:

The contract management is also very much essential to bring Sustainability to the business.It enables an organisation to carry on all it’s activities in a particular manner for a long period.

iv.Organisation Structure:

The organisational structure makes it compulsory for each organisation to have contract management.So it makes clear that contractually agreement is a very important part of an organisation structure.It enables one to carry on business transaction in lawful manner.

v.Increase effectiveness and control:

The other most important need of contract management is to increase control and effectiveness.It also provides strategy and competitive advantages to the organisation by reducing cost.

vi.Better performance:

The contract management is very much essential in order to ensure execution of contracts with maximum operational and financial performance. It also helps an organisation to perform all its activities effectively and maximise its profit in prevailing situations.

Importance Of Contract Management

i.Ensure fulfillment of oblication:

The first and most important of contract management is to ensure fulfilment of oblication.It enables an organisation to point out contractual obligations of the parties of contract and force them to fulfill their part of duties.

ii.Eleminate potential bridge:

The contract management is also very much essential to eliminate potential bridge of contract situation.It also ensures to avoid any bridge of contract expected to arise in future.

iii.Contract outcome:

The contract importance of contract management is to ensure more favorable contract outcomes.It also enables an organisation to graph the opportunities of situation and maximise profit volume.

iv.Well Documented Audit:

The contract management is very much helpful in providing a well documented audit programme.It also ensures to carry on various business activities systematically with well documented proof.

v.Improve quality and customer focuse:

The improvement of service of focus on the organisation is considered as another important of contract management.It helps to provide better qualified products and attract the attention of customers towards the organisation.

vi.Decrease the level of risk:

The effective contact management helps to reduce the level of risk concerned with an organisation.It ensures smooth running of organisation by minimising the risk element.

vii.lentification of poor performance:

The contract management also aims at early identification and resolution of poor performance.It also helps to identify find out in various activities and take corrective timely action.

viii.Achieves control over Money:

The last but not the least important aspect of contract management is to achieve control over money and other activities. It helps an organisation to exercise financial control and ensure optimum utilisation of available resources.

Problems Of Contract Management

A contract problem may cause due to number of resources some of the most important resources of situation of contract problems are highlighted below:-

i.Lack of legal advice:

The contract problem may arise due to lack of legal advice of start-up a business unit.It proper legal advice is not taken developed a new business will create question marks in its continuity.

ii.Poor undertaking:

The contract problem may arise due to poor knowledge and understanding about contract formulation of a new enterprise.An organisation helps to make effective contracts due to lack of knowledge.

iii.Unclear dealing:

Another contract problem of a new enterprise is not making clear deals with co-founder of promoters.It also creates confusion in their minds which activities to be undertaken and which should be avoided.

iv.Poor communication skill:

The poor communication is considered as another important contract problem faced during development of new business enterprise unit.It creates confusion in the mind of parties concerned whenever to implement a particular policy or not.

v.lgnorance of tax rules:

The ignorance of tax resources is considered as a big source of contract problem.It also provides scope to tax authorities to take legal action against an organisation.


Contract problems may arise due to the mis-representation of terms & conditions of a contract; it means the presentation out of a contract is an exaggerated manner that doesn’t clear everything to the concerned parties.

vii.Not Complying with Laws:

The smooth functioning of securing transactions depends upon effective securities law therefore if the contract terms and conditions are not complying with securities laws then it will create problems in start-up new enterprises.

viii.Lack of Support System:

The lack of support system of the management of contract is considered as another important  contract.Is also considered as source complicit in start-up or new enterprise.

ix.Lack of experience:

The other contract problem of standing up for a new enterprise is lack of experience in forming contract.It creates a huge obstacle to gain the public’s confidence for making any contract.

x.No standard for contract:

The absence of a standard form of contract is considered as another contract problem in start-up or new enterprise.It also fails to evaluate the performance of each contract due to the inability to compare standard with actual.

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