Contract Risk & Compliance
Converting Knowledge into Business Value
Benefits of an Effective CRC Program:
- Most organisations implement CRC programs to improve the efficiency and effectiveness of their contract monitoring processes, and to improve processes that involve business relationships. In our experience, the ROI impacts of CRC efforts kick in quickly, often in a matter of weeks. It is natural that some unrealized revenues or cost savings occur after a relationship is up and running, and a CRC program addresses such situations. It is also natural for trust to either increase or decrease over time. When clear expectations are set and facts and figures evidence a record of dependability, trust increases. In the absence of clear expectations and facts and figures, trust can erode.
- A CRC program also sets a context and becomes a vehicle for each party to communicate about risks, rewards, results, and concerns regarding the relationship, enabling each to realize the benefits of trust in a commercial relationship:
- Faster execution, improved reporting, warning of potential problems, increased peace of mind, and enhanced profitability.
- Although these practices are always important, in these challenging times it’s vital to validate that your vendors, service providers, and outsourcing partners do not succumb to pressures to control their costs at your expense. It’s equally important to verify they are delivering on service levels with the quality of deliverables and qualified personnel that they committed to deliver.
- Similarly, an uncertain economic climate make it more important than ever to verify that revenue due under royalty, licensing, and other agreements is properly accounted for and remitted.
A CRC program helps an organization move forward, even under adverse conditions. It provides a framework for diligent application of the basics—defining and implementing the goals, roles, management practices, performance metrics, risk controls, periodic inspections, and occasional course corrections—that keep an extended enterprise on track.
Think of it as a game plan for team play in tough times.
Motivators for Considering CRC:
Reasons to seriously consider initiating, formalising, or reinforcing a CRC program include the following:
- CRC will help you identify missing revenue your company has earned through a licensee, channel, or other business relationship, and help limit revenue leakage. A leading consumer goods company routinely identifies underreported royalties that are ten times the compliance inspection costs.
- A CRC program can help contain costs by preventing unnecessary or inaccurate payments and monitoring relationships more efficiently. One major technology company has identified several hundred million dollars of misreported transactions.
- A CRC program can help you rationalise relationships that aim to control costs. For instance, a number of companies have outsourced their IT centers (or brought them back in house) after thoroughly reviewing service levels, quality, and comparative costs and benefits.
- CRC increases the transparency of controls and enables you to mitigate risks in relationships, including reputational risk, legal liability, and risks to intellectual property. A global software company discovered 15,000 pirated software licenses in Europe, with a street value of about US$1.5 million.
- A CRC program will identify and prioritise the risks of business relationships. Boards of directors are now showing interest in relationship risks, given several publicized incidents of money lost, in part due to trusting without verifying. In that same vein, you cannot outsource risk. Also, a counterparty’s risk may become your risk. For instance, when a company outsources customer support, customers consider the agency an extension of the company - and regulatory bodies may do the same.
Challenging economic conditions strengthen the business case for CRC programs. The ROI will remain healthy and may become more attractive relative to that of alternative investments and other uses of finance, risk management, and auditing resources. A CRC program can demonstrate that external parties exercise proper diligence and promote trust in the extended enterprise. When contracts state their objectives along with monitoring procedures that aim to achieve them, the relationship has a sound foundation. This does not guarantee perfect performance. Yet it does indicate that each party accepts high levels of accountability for their performance, and that will certainly increase trust.
CRC Solution Pallet:
CRC: The end-to-end Engagement:
Key Contacts
Denise Lee
Associate Director
Mobile: +27 (0)82 969 2220
deniselee@deloitte.co.za
Paulo Nunes
Senior Manager
+27 (0)83 950 9846
panunes@deloitte.co.za
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