The Limits of Excel for Contract Management

Excel spreadsheets have played an important role in the evolution of contract management. They consolidate data and allow even “mathematically challenged” people to create contract budgets and illustrate them with graphs and charts. And they can be used to generate valuable analysis of the data.

Editor’s Note:  For a more thorough examination of this topic, download our complete whitepaper on Managing Contracts in Excel.

But the once-revolutionary Excel spreadsheet has significant contract management limitations, which are becoming more apparent as other contract management solutions are developed.

1. Spreadsheets don’t prompt crucial actions.

Spreadsheets don’t consistently recognize and draw attention to vital information that should necessitate a response, such as approaching milestones in the contract life cycle, discrepancies in contract terms, and troublesome legal language.

2. When it comes to maximizing profit for each contract and customer, spreadsheets are “dumb.”

Excel doesn’t provide guidance to take advantage of opportunities for up-selling or cross-selling. And it doesn’t alert users to chances to increase revenue from existing contracts, such as collecting penalties for under-performance.

3.    It takes a lot of time and labor to keep spreadsheets up to date.

Simple data entry for spreadsheets can absorb many labor hours and often is not done in a timely manner. And adjusting the rules of spreadsheets to accommodate changes in contracts (e.g., promotional pricing, “rogue” discounts, negotiated exceptions) can be a complex task that involves IT intervention and lags behind the actual change.

The consequences of these delays in getting the most up-to-date information into the system can be disastrous. If sales, legal, operations, or executive management are making decisions based on the wrong contract data, it’s easy to see how an enterprise can suffer major financial losses.

4.    Errors can too easily skew the data.

Even if data is entered immediately, the fact remains that spreadsheets rely on accurate data entry and properly designed formulas and rules. Considering how frequently human error can occur, the possibility of inaccurate data entry and/or improper spreadsheet structure is a scary thought because a small mistake can be compounded until it causes a disaster.

“Spreadsheet errors can happen to the best of us. As a result, many public companies and government organizations are trying to wean themselves off their reliance on spreadsheets for complex and critical financial transactions,” a recent report on CIO.com states. “Because of their preponderance and the amount of digital fingertips that can touch these documents, spreadsheets have come under a lot of fire. In particular, companies lack the appropriate controls and repeatable processes to mitigate the risks.”

An enterprise that uses only spreadsheets to guide and track contract management is highly vulnerable to data errors that can lead to costly contract missteps.

5.    Spreadsheets don’t work well on the cloud.

Enterprises taking advantage of the numerous benefits of cloud computing won’t fare much better with regards to vulnerability to error. The collaboration, ease of access, and quick turnarounds that the cloud enables can actually work against a company if it’s using only spreadsheets for its contract data. Errors are even more likely to be introduced into the data, and the varied, uncoordinated spreadsheet rules can cause confusion.

Contract Management Software to the Rescue

Fortunately, contract management software is now affordable available, and it can address all of the problems associated with spreadsheets. Contract management software provides critical alerts, flags revenue opportunities, minimizes labor, keeps data always up-to-date, and offers fail-safes to prevent human error. And contract management software is ideally suited to the cloud.

When it comes to managing contracts most efficiently, it’s time to thank Excel spreadsheets for their years or hard work and relegate them to less complex tasks than contract management -turning instead to software designed specifically for that purpose.