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How to improve compliance postures through cognitive contract analysis

December 11, 2019 - Team EdgeVerve


“If we keep doing what we’re doing, we’re going to keep getting what we’re getting.” – Stephen Covey

This is particularly true to contract management scenario of yesterday, today and tomorrow. Even the biggest players haven’t escaped the tangles of contractual non-compliance. The search engine giant, Google has been fined over $9 billion in multiple antitrust penalties levied by the European Union since 2017. Facebook lost its market share of over $119B as a result of user growth falling in the wake of the Cambridge Analytica data breach.

Businesses have suffered extensively over the years due to inefficient management of contracts. And they continue to do so. According to the International Association of Contract and Commercial Management, nearly 40 percent of contracts do not deliver their full expected financial benefits, which cost the enterprises an average of 10 percent of their annual revenues. Among the many reasons, non-compliance seems to be one of the significant ones. While, contractual compliance remains a critical function at any enterprise, leaving the legal and procurement teams with sleepless nights, non-compliant contracts can cost companies a fortune (literally) in penalties and reputation.

Importance of contract management in the 21st century

Today’s contracts aren’t documents to be archived, but strategic tools that drive operational value to the enterprise. With 60-80% of business transactions governed by written agreements, tracking and managing them effectively is an urgent requirement to extract maximum value from them. With globalization of contracts and ever-changing laws creating disparities in pricing and compliance, contracts need to be updated regularly to remain compliant. Organizations in the EU and outside of the EU who process the data of EU residents have to comply with GDPR. Totally, 89,271 data breach notifications have been sent from all data protection authorities in Europe, since May 2018* (Source: The European Data Protection Board). Though the Percentage of compliant contracts was voted “Very Important”, which is two times the Contract Authoring Cycle Time (Source: Ultria CLM Survey 2019), yet 75% of contracts lack KPIs and TCO reporting (Source: McKinsey). As per recent study, non-compliance costs twice more than the cost of meeting contract compliance requirements (Source: Ponemon Institute).

Adding to these woes are manual drafting and ad hoc monitoring, which expose enterprises to many potential risks. This is where AI-powered Contract Management solutions play a significant role.

Leveraging AI to improve contractual compliance

In the form of Machine Learning, Robotic Process Automation, intelligent risk analysis and Natural Language Processing, Artificial Intelligence takes Contract Management to a whole new level, simplifying creating, tracking and managing contracts while ensuring maximum compliance, thus reducing risk. By leveraging AI, enterprises can save significant time and productivity by automating compliance verification—the fundamental process in ensuring both internal and external compliance.

Cognitive contract analysis can help improve compliance posture by:

By automating the review aspects, contract analysis presents you with all the information you need to stay compliant—file reports, renew certifications etc. It also proactively alerts you of compliance risks, reminds you of upcoming deadlines and prepares you to stay compliant even as laws evolve.

As contracts involve multiple stakeholders for review and modifications, each of whom have different needs, AI determines where contract clauses deviate from standard language and automatically routes documents to the right stakeholder for review & modifications. The approval process moves much faster when negotiators can quickly be informed how close the current version of the contract is to the predefined standards. It identifies clause deviation from defined standards, ensures addition of important clauses and update reviewer about any missing/redundant or even buried clauses and also suggests clause additions based on context. It also monitors compliance across the entire contract database, including the content of each contract, saving time and reducing manual effort.

In conclusion

Until very recently, enterprises were bearing financial losses due to non-compliant non-performing contracts. That need not be the case anymore. With the advent of AI technologies such as ML, NLP and cognitive automation, today’s enterprises can analyze their contracts and have real-time visibility of their risks at a fraction of the price and effort.

Apart from analyzing the risks and predicting future outcome based on the past trends, AI can also identify the root causes of the missed KPIs and SLAs by the third party and contribute to resolving such operational challenges. This enables insights on cycle times, deviations, risks, statistics (expiry, renewal, pending, etc.), procurement and sales business metrics. By leveraging AI and improving compliance postures through cognitive contract analysis, enterprises can experience unexpected financial recovery with increased visibility and forge healthier and truthful business relationships.

The XtractEdge Contract Analysis Advantage

XtractEdge Contract Analysis utilizes advanced Machine Learning (ML) techniques to automate contracts extraction, risk analysis and review of unstructured contracts. It acts as a single source of truth to answer any kind of contracts-related information. XtractEdge Contract Analysis leverages ML techniques such as vision-based, semantics-based, and language-sequence-based to transform the process of analyzing and reviewing contracts. It provides an intuitive workbench with different personas to configure and train ML models, thereby helping you ensure contractual compliance, mitigate risks and prevent revenue leakage.

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