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Contract Risk Recognition and Response: Processes and Tools

Contracts may seem complex at first, and some contracts truly are. Contracts are about business, and today's business is seldom simple. Adding risks and legal aspects to the picture does not make things easier. Yet sometimes attitudes and perceptions make things sound more complicated than they are or need to be.

Some businesses have dedicated contract professionals. in others, the "contract manager” might actually be a project manager, sales manager, procurement manager, an engineer, or a lawyer. During the contract's lifecycle, all of these functions may be involved in contract-related tasks. As noted in Chapter 1, ultimately the responsibility for business contracts and for the management of contract risks will fall on the shoulders of business leaders and executives.

Contract risk management can be implemented or improved in small steps that do not necessarily require major investments of time or resources. It can be embedded into the tasks that individuals carry out as part of their job. Tools and guidance can be provided that help them integrate contract risk management into their day-to-day work and enhance their skills.

This chapter begins with a discussion of the contract risk management process, including process vocabulary, frameworks, and a focus that incorporates the basic principles of risk management. The chapter then introduces a practical tool for implementing contract risk management: the four- step Contract Risk and opportunity Management Plan, including specific examples, tools, and techniques. Ownership and accountability, key elements necessary for this—or any other—plan to succeed, are then covered.

toward the end of this chapter, we illustrate why today's businesses need to manage risks jointly, moving from risk allocation to true risk management. one way of doing this is to build an early warning system and joint risk management into the contract. Engaging people and communicating contracts are especially important—and challenging—when managing contract risk. the chapter concludes by showing how visualization can be used to meet this challenge, including a lean and visual (IKEA) approach to contracts and contract risk management.

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