How do you track value erosion?
Like many other organizations, your focus will (should?) also be on enhancing business value.
So on revenue improvement, cost reduction, and risk management over the lifespan of your contracts.
One crucial way to achieve this is to prevent contract value leakage or value erosion.
This is one of the most critical issues in high-value high-tech industries. And it is also an area where you can gain a lot in the area of profit maximization. Since value erosion can go up to 10% or even higher of annual revenue in industries like yours.
If you could measure, track and monitor such contract value erosion from initiation of a contract (receiving an RFP) up to close-out of the contract – when you have delivered and your customer has paid all – this would give you valuable and actionable information to manage your company.
And it would give you the levers to continuously improve people, processes and technology, and the performance of your company.
However, the contract goes through several phases. And you often hand it over from one team to another team (offer team to negotiation team to the delivery team, and so on).
Often more than once. Many factors can cause value erosion as I explained in my other posts.
I have never encountered one company that had full lifecycle value monitoring in place. Many companies track revenues and specific costs (like acquisition costs in the sales phase) and do some degree of risk management.
And in the end, most of them, often to their surprise, find out too late that they have earned less than expected.
This is comparable to people wondering what happened to their salary at the end of the month. Where did all the money go?
How Do You Track Contract Value Erosion?
So do you track contract ( or business) value over the lifespan of a contract and if so, how do you do this, and which processes or tools do you use? Or do you just not really know, do the best you can to prevent leakage and accept that value is lost over time?
Please add your comments here below or go over to my ContractExec group on LinkedIn and join my group in which I have started the same discussion.