This content was published on January 3, 2019 on the Determine blog
If an executive asked you what a given contract was worth, most of us would likely give an answer based on the estimated spend with that supplier as a result of projected volume, negotiated costs and term. While this would be an accurate answer, it limits the “value” of the contract to its transactional footprint.
Any procurement organization that has ever tried to make the case that their contributions to operational performance exceed savings dollars in number and form will quickly see the problem with cost-based contract value. In other words, we have to find a way to express the true value of contract assets in terms of what they allow the business to achieve or what they prevent.
It is one thing for procurement to know where a contract is stored and an entirely different thing to actively understand and leverage the value of what was committed by both parties. That mutual commitment is important to both parties and cannot be reduced to a straight dollar value without loss of opportunity.